Cheese and butter prices
US cheese and butter prices continue to surprise to the upside due mainly to low stocks, largely ignoring their premium to global prices. Domestic demand has been strong with good foodservice demand helping cheese in particular. There are no signs that domestic sales growth will slow down. However, given the continued gap between US and global prices, US exports of cheese and butter are not expected to post any large increases. If cheese and butter production growth overwhelm domestic demand, prices will come under pressure. Until that happens, prices for both are forecasted to remain near current levels, but with more risk to the upside than downside. For cheese, prices are expected to range in the $1.60's-1.80's for the rest of the year with some possibility of $1.50's with low potential for a move above $2.00. While butter stocks are building, the market is forecasted to trade in the $1.80-2.00 range. Butter has a tendency to surprise, so prices north of $2.00 would not be unexpected, although not forecasted currently.
Whey products and milk powder
While the cheese and butter stocks numbers have been bullish, the milk powder and whey complex stocks continue to be quite bearish. NFDM stocks have been running above year ago levels since mid-2014. Increased production capacity in the US and Europe has resulted in record high WPC stocks. Lactose stocks are also burdensome. None of these are expected to change for a while, thereby keeping pressure on prices at or near current levels for the rest of the year. Stocks are high, production continues to post decent growth, and export demand is not strong enough to pull stocks lower. While US cheese and butter are partly insulated from the global market, whey products and milk powders are largely dependent on trade with 50% or more of production exported. Furthermore, the strong US dollar does not help US export competiveness as it makes US product relatively more expensive than other origins (e.g. Europe, New Zealand).
About the author
Mike McCully owns The McCully Group, LLC, a strategic consulting firm that provides supply chain solutions to dairy and food companies. The McCully Group has worked with many of the top dairy companies in North America as well as major multi-national food companies. Client projects include business analysis, procurement strategy, economic forecasting, and commodity risk management. Prior to forming The McCully Group, Mike worked at Kraft Foods for over 15 years where he held management roles in dairy, meat, and grain purchasing.