The authors are with Ever.Ag Insights.

The slowdown in consumption created a problem to start this year. Growth in U.S. cheese production outpaced consumption. From our network of cheese manufacturers and marketers, we heard near-constant disappointment in sales.

In our assessment, “peak complaint” occurred in March when CME block cheese prices dropped below $1.50 per pound. At that time, the U.S. had more than enough cheese for its sluggish consumers and the surplus needed to be exported — at low prices — to balance the market. USDA’s Class III price shrunk to $16.34 in March and then further to $15.50 in April.

But, that was then. The tides are turning, and after years of pain in their pocketbooks, consumers are finally starting to feel relief.

In April, the Consumer Price Index — an official gauge of prices paid by consumers for a market basket of goods — climbed just 0.3% month-over-month, the smallest gain since January. Overall food inflation was flat compared to March.

Some data already show the benefits of slowing inflation. The economics tell us lower prices typically translate into more consumption. After declining earlier this year, grocery sales climbed 0.6% between March and April, while restaurant purchases rose 0.2%. Although government data doesn’t break down dairy sales, a look at scanner data shows shoppers are picking up plenty of slices, shreds, and quarter sticks. While the timing of Easter makes comparisons difficult, Ever.Ag analysis shows sales of cheese rose more than 2% year-over-year by volume in April, and butter purchases rose roughly 1.5%.

Deals for customers

In enduring good news for dairy demand, many companies are deploying new promotional and value-conscious strategies to get shoppers through the door. Year-to-date through April, an average of 7,745 stores ran butter promotions, 60% more versus 2023, while ads for shredded cheese rose 3%.

Target announced in May plans to reduce costs for roughly 5,000 items, with thousands more rollbacks expected this summer. Among the cuts are Good and Gather unsalted butter, which is now $3.79 per pound (down from $3.99), and Jack’s Frozen pepperoni pizza now, priced at $3.99 (down from $4.19).

Aldi and Amazon Fresh are following suit in the new-found price war. Aldi, already known as a discount grocer, said it will pass along $100 million in savings by reducing prices on more than 250 products. Amazon also unveiled plans to discount 4,000 items by up to 30%. The selection of items will rotate weekly and include meat, seafood, dairy, beverages, snacks, and pastas.

Retailers are also leaning heavier on private label brands to pass along savings. During the 12-month period ending with the first quarter, Walmart’s private label offerings — including Great Value, Marketside and Parents Choice — made up more than 26% of the company’s total retail sales. During Walmart’s Q1 earnings call, Walmart’s Chief Financial Officer John David Rainey said, “More than half of all customer grocery baskets over the last year had a private brand in them.”

Most importantly, after years of consecutive price hikes, restaurants are finally leaning on specials and lower priced items to boost traffic. In the U.S., food service drives the lion’s share of cheese consumption. Next month, McDonald’s plans to release a new $5 value menu, featuring dairy-friendly options like cheeseburgers, as well as chicken sandwiches, chicken nuggets, fries, and drinks. Similarly, Wendy’s unveiled a $3 deal with an English muffin and potatoes. This welcomed relief will be a boon for cheese consumption.

Less cheese on the market

Why do these retail and food service price reductions matter to dairy farmers? First, a more voracious American consumer — benefiting from lower prices — leaves the entire U.S. tighter on cheese, which sets the scene for dairy market run-ups. We started to see this type of impact in May that produced spiking cheese prices.

Expect the market to readjust to stronger domestic demand by shrinking exports. These lost orders will, in the months ahead, produce bumpy, downward market movements. However, compared to the first half of 2024, we believe the second half of 2024 will have a higher price floor.

Ever.Ag Insights said $1.50 cheese was too cheap in the first half of this year. In the second half of this year, alongside better consumption, we now think $1.70 cheese is too cheap. If we are right, that difference translates into good news: a meaningful couple bucks per hundredweight extra in your bank account.

The information contained herein has been obtained from sources to be reliable, however, no independent verification has been made. The information contained herein is strictly the opinion of its author and not necessarily of Ever.Ag.