‘We’re going to eat our way through it:’ Rabobank analyst on US cheese surplus

By Mary Ellen Shoup

- Last updated on GMT

The US currently has 1.2bn lb of cheese inventory. Photo-iStock
The US currently has 1.2bn lb of cheese inventory. Photo-iStock

Related tags Cheese Milk

At the end of March, the USDA reported that the US has a cheese inventory that weighed in at 1.2bn lb, the highest it has been since 1984. 

According to Tom Bailey, executive director and senior analyst at Rabobank, the US cheese excess is the result of rising consumer demand for cheese along with a combination of economic factors.

Supply investment

“It all goes back to the milk price,”​ Bailey told DairyReporter.

“It started about two years ago when we had record-high milk prices with the removal of the EU quotas, and it spurred a lot of investment in the US and Europe, New Zealand, Australia, and parts of Latin America.  We saw a lot of investment in the supply growth.”

The increased investments on the supply side of the dairy market resulted in an additional 5.7bn lb of milk between March 2015 and March 2016, a huge increase in volume growth for the world to absorb, Bailey said.

The global oversupply in the dairy market, in combination with international prices reaching a near-record low, made exporting to the US an attractive option for the EU, according to Bailey.

According to Bailey, in terms of year-over-year growth of cheese, US imports increased by 86.5m lbs - a 17% increase from the same period last year, exports declined by 124.4m lb, and US cheese production increased by 307.6m lb, creating a total inventory of 1.2bn lb of cheese in the US.

‘We’re going to eat through it’

Americans, on average, consumed two additional pounds of cheese in 2015, rising to 34.5 lb of cheese per person annually. This is projected to reach 37.8 lb by 2024, according to data from the USDA.

“We can actually work through this inventory, it’s still a lot,”​ Bailey said.  “We’re going to eat through it, but eventually as US prices fall, and we forecast that happening, we will export more and more.”

Americans eat more cheese

The demand for cheese has grown considerably as Americans becoming more health-conscious, and processed cheese is being replaced with full-fat dairy cheese.

“As Americans, we used to shy away from cheese and butter, but there’s been a renaissance of dairy fat and we’re not so scared of it anymore,”​ Bailey said. “Companies are reformulating to incorporate more dairy fat.”

‘Mountain of cheese’

However, there is such a thing as too much cheese, Bailey warns, pointing to an “over-reaction on the supply side” as a partial reason for the excess of cheese in the US.

“Ultimately, milk production is going to have to slow down,”​ Bailey said. “Otherwise we definitely will be in a mountain of cheese that we won’t be able to eat our way out of.”

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