America has a cheese glut

Posted: May 25, 2016 in food
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By Kelsey Gee in Chicago and Julie Wernau in New York

America has built up a glut of cheese so big that every person in the country would need to eat an extra 3 pounds this year to work it off.

And it isn’t just cheese. The growing stacks of cheddar, which can be kept frozen for years, and other cheeses such as feta, which can be stored for only a couple of months, are just the tip of a surplus of U.S. agricultural products that is swamping markets for grains, meat and milk.

Supplies of cheese, meat and poultry started building as farmers decided to expand their herds and flocks two years ago when prices were high and export markets were hot. Abundant stockpiles of grain made it less risky by pushing down feed costs. But the steady climb in the dollar has deterred major foreign buyers, causing supplies to back up in the U.S. just as production is surging to records. That is sending prices for many goods to their lowest levels in years.

“Farmers have had every reason to expand because of strong global demand,” said Shayle Shagam, livestock analyst with the U.S. Department of Agriculture. “But now we have a lot of products looking for a home in a smaller number of places.”

The USDA said last week that stockpiles of soybeans could fall by almost a quarter this year as export demand picks up. Its outlook for other commodity markets wasn’t as bright. Stockpiles of wheat and corn are expected to grow further. Output of red meat and poultry are forecast to climb 3.1% from last year to 97.6 billion pounds, as farmers continue to expand their operations and grow animals to heavier weights, thanks to the cheap grain prices.

The glut of cheese starts with farmers such as Carla Wardin, a 38-year-old who owns the Evergreen Dairy in St. John, Mich., with her husband, Kris. They expanded from 250 to 400 cows and bought a new barn in 2014 when milk prices were soaring. Nobody is making any money now, she said, but producers respond the same way whether prices are low or high.

“You do the exact same thing,” she said. “You milk more cows.”

America’s dairy farmers are expected to produce 212.4 billion pounds of milk this year, the most in history. Much of it is being sold to cheesemakers who are socking away their output, waiting for demand and prices to rise.

The drop in dairy prices this year poses a new test for the industry, which since the 2012 Farm Bill hasn’t had the cushion of U.S. government stockpiling products to support prices.

Commercial cold-storage freezers held a record-breaking 1.19 billion pounds of cheese at the end of March, the latest month for which data is available, up 11% from the same time last year.

Americans eat an average of 36 pounds of cheese a year apiece, but it isn’t enough to keep up. Prices for block cheddar cheese fell to a six-year low of $1.27 a pound Thursday at the Chicago Mercantile Exchange; they have since risen one cent in the spot market.

Scott Meister, a third-generation cheesemaker who owns Meister Cheese Company LLC in Muscoda, Wis., said his company invested millions of dollars to expand its cheese plant in 2014, when prices were above $2 a pound and the company couldn’t keep up with demand. He had planned to dedicate the extra capacity for the production of specialty cheeses such as habanero jack, but is now using that space to boost output of standard cheddar in a bid to soften the blow of lower prices by selling more.

The glut of cheese and other products marks a dramatic turnaround for the animal agricultural sector, which just a few years ago was battling drought and disease that pinched supplies and sent prices at grocery stores to record highs.

Commodities markets frequently swing from boom to bust because of the long lead time for ramping up new supply. Decisions to expand herds of beef and dairy cattle have to be made far in advance, reflecting a cow’s nine-month pregnancy and the year or more it takes for a calf to mature.

“In all commodities, the pendulum swings hard in both directions,” said Justin Reiter, who operates a farm with his dad and brother in Bernard, Iowa, where they grow corn and feed cattle. His family invested $800,000 in a new barn for cattle in 2013, when supplies were tight and the market was starting to pick up steam.

“Now that the chickens have come home to roost, prices have gotten pretty bad,” he said.

C.J. Morton, who handles business development for Iowa-based Des Moines Cold Storage, said the company is preparing by investing $16 million in a new warehouse in the region to store commodities such as pig feet, beef and other proteins.

“If we were more full, it would be impossible to move around” the existing storage space, he said.

The excess supply should mean relief for shoppers. Retail prices for cheese were down 4.3% in April from a year earlier, according to market-research firm IRI. USDA projects consumer beef prices will fall as much as 2% this year, while pork prices could decline by 0.5%.

The industry needs consumers to take advantage of that.

“Someone is going to eat all of this meat and dairy,” said Mr. Shagam, with the USDA. “How much room do you have in your stomach?”

http://www.wsj.com/articles/a-cheese-glut-is-overtaking-america-1463477403

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