Farmers smile as US says cheese
Americans are eating more cheese than ever — good news for the dairy industry
Americans love their cheese, but US dairy farmers have reasons to love it even more. Even after American consumers cut back on milk use for decades — a result of more drink options including juices, soft drinks and sports drinks — US cows are producing the most ever.
Though the glut has eroded dairy income, the industry is getting a jolt from demand for high-fat byproducts that have given the world creations like the Grilled Cheese Stuffed Crust Pizza and led McDonald's to start using butter on its Egg McMuffins rather than margarine.
The jump in total domestic cheese consumption over the past two years was the biggest since 2000, with Americans eating the most on average since the Government began tracking the data in 1975. Butter demand also advanced, and more gains are expected this year.
The sales surge is helping to boost slumping US milk prices at a time when surpluses forced production cutbacks in most of the world's major exporters.
“We're just seeing a greater trend toward cheese consumption in people's everyday diets,” says Matt Mattke, director of the Market360 Dairy advisory team at Stewart-Peterson Group in West Bend, Wisconsin. “With the beverage market, there's a lot more choices. But you can't replace cheese on a pizza.”
Total domestic consumption of fluid milk has tumbled for six straight years and is forecast to drop again this year, the US Department of Agriculture reported last month. Americans on average are drinking about 70kg each annually, down by one-third from 1980. At the same time, production touched a record for a seventh straight year and probably will surge this year, the Government said.
Some of that gap is being made up by domestic cheese consumption, which reached a record 5.35 million tonnes last year, up 7.6 per cent from two years earlier, the USDA said. Americans on average are eating 15.9kg each annually, or twice the amount in 1980. Butter use was an alltime high of 870,000 tonnes last year and is forecast to jump 8 per cent this year, the Government said.
Sales at pizza chains have bucked a slump across the restaurant industry, as consumers embrace cheap, easy-to-get food. Pizza Hut, a unit of Yum! Brands, launched a Grilled Cheese Stuffed Crust Pizza in September, with cheddar and mozzarella baked into a butter-topped edge. A new pan pizza from Papa John's International — already laden with cheese baked on top — features more sprinkled to the edge of the crust.
Even among carbohydrate-avoiding consumers who eschew bread, unprocessed fats like butter are gaining renewed appeal because they are now viewed as more healthy, Credit Suisse Research Institute said in a 2015 report. Global demand for fats will rise 43 per cent by 2030, fuelled by increased shifts toward dairy, eggs and red meat.
The US National Restaurant Association f orecasts “artisan cheeses” to be among the top trends in 2017.
“There's been a shift in sentiment around milk fat, and it's not just one category — high-fat yogurts to sour cream to whole milk,” says Tom Bailey, New York-based senior dairy analyst for Rabobank. “When you start to tally all this up, we're left with less fat to go around in general, relative to how demand is growing. It's kind of left us a little tight considering how much milk supply we have.”
That has helped to revive prices. After touching a six-year low in May, class III milk futures, the variety used for making cheese, ended last month at US$17.39 per 100 pounds on the Chicago Mercantile Exchange, a 26 per cent gain for the year.
The USDA forecasts farmers will see a 7.1 per cent increase in what they are paid for milk this year, and cheese prices will reach a three-year high.
The price is “not in a raging bull market,” says Eric Meyer, president of High-Ground Dairy in Chicago. “But it's much higher than we would have expected given the domestic fundamentals.”
The rally is helping to improve prospects for the US industry, especially for dairy operations that saw average cash income drop to a sixyear low last year, Government data shows. Shares of Dallas-based Dean Foods, the largest US dairy processor, are near a three-year high.
Even with the improved demand, supplies remain ample. The US had 544,300 tonnes of cheese in chilled inventory at the end of November, the most for the time of year in three decades, Government data show. Cash receipts from dairy products last year probably fell to US$33.9b, and the USDA bought US$20m of cheese in August to help stem farmer losses.
American dairy exporters may lose some sales with the dollar near a 13-year high against the euro, and a rebound in international prices may mean more competition for market share, according to the USDA.
“The tide is changing,” says Nate Donnay, INTL FCStone's director of dairy market insight. “We're working through this contraction driven by low prices in early 2016. The story for 2017 is going to be how quickly the milk supply in other countries turns around to growth.”
For now, US supplies will be “inevitably” be needed to fill global shortfalls of cheese and butter this year because others don't have surpluses, Rabobank said in a December report. Stronger economic growth may also boost domestic sales, as consumers are more willing to splurge on specialty products, the bank said.
“We've had two solid years in a row of increases in domestic consumption,” says Mattke at Stewart-Peterson. “The focus has been so much on the supply side that the whole other part of the equation has been totally overlooked.”
With the beverage market, there's a lot more choices. But you can't replace cheese on a pizza. Matt Mattke, Stewart-Peterson Group