Barrel cheese has lifted nearly 8 cents since Christmas, and the 40-lb blocks follow. Butter has jumped more than 8 cents this week. But Ever.Ag broker and agent Kathleen Wolfley says it’s likely short-lived as dairy demand skates on very thin ice.
“We’re walking a pretty delicate line between supply and demand… demand dynamics are also fairly weak,” she says. “We have seen a little bit of an upswing in the past few days in both cheese and butter. I think that could be driving in part by post-Christmas backfilling. My suspicion is that while a little bit higher, the support may not be game changing in the market.”
Wolfley is unsure how long the price support can last. She says there are a lot of questions around domestic demand for dairy as consumers recover from an expensive holiday.
“I’m still fairly concerned that U.S. consumers can’t continue to spend as much as they have been,” she says. “We get through post holiday credit card bills, people realize ‘hey, I need to tighten my belt’ after fairly speedy and large spending in 2023.”
Keep in mind, Wolfley says, it’s not just U.S. dairy demand that is down. She says key importers, such as China, are not seeing economic growth.
“Dairy demand growth specifically has been relatively lack luster over the course of the last 12 months or so,” she says. “When we think about 2024, we’re going to be keeping a really close eye on places like China, Southeast Asia… do those folks start to come out of the woodwork and buy a little bit more? Does their economy start to support a little bit more dairy growth?”
Today, Wolfley says U.S. cheese is competitive on the spot market. She uses mozzarella cheese as an example. She says U.S. mozzarella is roughly 35 cents cheaper on the world market than EU mozzarella. However, she warns it’s not a long-term trend.
“The big question is: can we be competitive on a longer-term basis with futures — second quarter and beyond — above that $1.75 mark?”
Wolfley says there’s a tremendous amount of risk on the table as we go into early 2024. She encourages folks to take a hard look at risk management opportunities, such as the Dairy Margin Coverage program or dairy revenue protection insurance.
