European Cheese Prices Stabilises Well Into the Second Half of 2023

The prices of European cheddar cheese and mild cheddar cheese began 2023 at €4670 and €4775, respectively, before declining to €3820 and €3888, correspondingly, in the second week of March. Young gouda and mozzarella have also had similar price movement all owing to increasing EU milk collection in Q1-23. In March, cow milk collection rose by 1.69 million metric tons (mmt) to 12.85 mmt, making it easier for the market to discern the direction of dairy commodity products.

Since then, cheddar curd and mild cheddar prices have stabilized, trading within a small range for the most part of the second quarter of the year. Cheddar curd is now trading on the European Energy Exchange at €3934, down €17 WoW and €39 MoM, while mild cheddar is down €41 WoW and €12 MoM. For now, a downtrend seems to have been fully developed and it looks like these two cheese products would stay on that trajectory if not, move up, at least in the short-term looking at the fundamental picture.

However, the picture is in the balance following the end of the spring flush. European milk production is currently declining, in line with the seasonal trend. The current summer and hotter weather are not ideal for grass, cattle grazing, and consequently, milk production. Thus, the milk available for churning cheese is falling, making it difficult for more cheese to be produced. Although European cheese makers are working at full capacity, the feedstocks aren't all sufficient to churn out more cheese.

On the other hand, the hot weather is pushing many people out in the sun, with families having picnics and barbecues. Retail demand for cheese is thus up, with reports of shops needing to fill their cheese shelves more than they would in spring months. Promotions in shops at this time of the year are also adding to the increased buying activity.

The food services industry is also driving the demand for cheese, with reports of increased purchases from restaurants and wine bars that are currently filling their venues. The current cheese availability is therefore not enough to meet the demand. A report from the European Commission also indicates increased cow slaughtering numbers this half of the year in reaction to low farm-gate milk prices. With a reduced low milk-producing cow stock, milk production could be affected in that stead. Moreover, the upside risk for cheese prices is more conceivable now than before.

If cheese were to buck the market expectation and fall, Tridge analysts see the support level at €4000 for mild cheddar and €3900 for cheddar curd. On the upside, €4050 could be the barrier where they would both find resistance and bounce back down. Looking ahead, trading activity will remain robust throughout July, while buyers will be looking to take long positions to limit their exposure to the upside risk.