Cheese is the new king of the dairy. Or at least the undisputed growth driver. Because with volatile milk prices putting processors under more pressure than ever, there is a clear shift towards higher-value products like cheese.
This has only been boosted by growing demand and strategic investments in capacity, especially from the big seven global dairies. As a result, global cheese trade is up around 40% since 2017.
But while one might expect this to flood the market and sink prices, the reality is a little more nuanced.
Cheddar is indeed following this pattern with prices down 6.5% over the last 12 months, according to Global Dairy Trade, primarily due to where it is produced.
Cheddar is very much a global product, made across the US, the EU and Oceania. And in the US and New Zealand milk production is still strong. US figures show supply is up around 2% compared to last year while New Zealand is up around 4% with a strong next season now forecast.
A global market influx of cheese
“On top of that, US manufacturers have invested heavily in adding production capacity, so no shortage of cheddar is expected for the foreseeable future,” explains Tom Booijink, a senior dairy specialist at Rabobank.
By contrast, cheeses dominated by the EU – mozzarella, for example – is seeing prices spikes after recent heatwaves drove rapidly declining milk supplies in countries like France and Germany.
The same is also true in the UK where analysis by the Energy and Climate Intelligence Unit found milk supply suffered an “unprecedented decline” during the June heatwave with a single-day drop of 4.3% and a cumulative shortfall of around 16.5 million pints during the nine-day weather event.
With milk supply weak and mozzarella demand strong, prices are consequently up 1.3% over the last year. As a result, mozzarella is now €3,448 per tonne making it unusually more expensive than cheddar at €3,138 per tonne.
“Cheddar normally commands a premium over mozzarella, which is now totally opposite,” says Booijink. “The last time this happened - in the EU at least - was in 2019, so the situation is quite extraordinary.”
What’ll happen to cheese prices?
What happens next with cheese prices will largely be determined by how milk production evolves across the different regions.
While the likes of the US, Australia and New Zealand all expecting milk volumes to rise, it seems likely the EU is heading in the opposite direction.
This is down to two reasons, explains Booijink. The first is that milk deliveries in Q4 last year increased by around 6% in the EU, a mark it will be difficult to surpass, especially since there are now fewer dairy cows.
The other is that milk prices are now about 30% lower than a year ago. So with costs for diesel and fertiliser now significantly higher, farm margins have deteriorated to the point there is little incentive for farmers to increase milk production.
The cheese market could therefore become ever more polarised as EU cheeses like mozzarella continue to get more expensive while global cheddars get cheaper and cheaper.
