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Cheese inventories are heavy in the USJune 28, 2022
Cheese retail Inflation in the UKJune 29, 2022
Milk production forecast in UKJune 30, 2022
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Cheese Industry Benchmarks
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The industry average payment terms in Cheese category for the current quarter is 23.3 days
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Cheese market frequently asked questions
The key factors that determine the pricing for cheese include: > Capacity utilization > Overall annual yield > Cost components (operating cost, fixed cost, and overhead cost) > Profit margins
The global cheese market is witnessing a surplus of 0.8 million metric tons (MMT), with production and consumption growing at nearly identical CAGR. The European Union (EU) and the US, making up for around 4/5 of the overall yield, are the prominent cheese producers.
The profit margin of producing milk derivatives is 30%, which is greater than that of milk powders – around 15%. Moreover, whey production does not include raw material costs as it is a by-product of casein and cheese. As such, market players are increasing their focus on butter and cheese.
The GDT auction in Oceania, the CME trade in the US, and the European milk future systems have increased the volatility in the cheese prices. As such, the end product-based pricing results in fluctuations, hitting the revenue pools of the processors.
Prominent cheese suppliers are integrating into the dairy farm level, and companies, including Amul and Fonterra, are secured via the collaborative models. However, the suppliers are still subject to potential risks if their collaborative models fail to make competitive milk pay-outs to stakeholder suppliers.
The probable impacts of Brexit on dairy derivatives, including cheese, are as follows: > Decreased demand for dairy products from the key oil-producing countries > Significant reduction in the Foreign Direct Investment (FDI) > Ireland shifting from the UK market to emerging regions, such as India > Escalating trade costs for prominent suppliers > Dip of international dairy derivative prices
Cheese market report transcript
Cheese Global Market Outlook:
- The global supply–demand dynamics scenario is stabilizing in both milk and dairy derivatives, as the oversupplied condition in the market is lightening. The regional differences and skewed trade dynamics are expected to govern the global price volatility in the near term
- Oceania is a key market, as it produces only 5 percent of the global milk, but contributes to more than 40 percent of the milk derivatives export market
- The global cheese landscape is dominated by the top EU and U.S. regions, accounting for nearly 80 percent of the production share
- The market is oversupplied by 0.8MMT with production growing at a CAGR of 2.18 percent against consumption at 2
Cost and Price Analysis
- Raw material is the key cost factor (47-52 percent), in cheese and butter production. Since whey is a by-product of cheese and casein, no raw material cost is calculated to it. The profit margin of producing derivatives is 30 percent, which is higher than that of milk powders (~15 percent). Thus major producing regions, concentrate more on butter and cheese.
- Even though the prices dipped in April 2020 owing to COVID-19 pandemic concerns, the market recovered quickly. Considering the steady demand, the prices are likely to trade higher and the trend is likely to continue throughout 2021.
Key factors tracked for pricing estimations:
- Total annual production, capacity utilization, cost components (fixed cost, operating cost. overhead cost), and profit margins.
- The potential impact of Brexit on dairy derivatives includes major reduction in Foreign Direct Investment (FDI), reduced demand for dairy products from the major oil producing countries, Ireland shifting from the UK market and opening up opportunities for countries, like India, increasing business & trade costs for major suppliers, like Arla, and fall of international dairy derivative prices.
Volatility and Profitability in the Cheese Industry
- The CME trade in the U.S., GDT auction in Oceania, and European milk future systems have increased commoditization and volatility in cheese prices. The end product-based pricing leads to volatilility and decreased profit margins for processors
- A suitable hedging option could help the category managers overcome volatility and margin issues in supplier engagements
Porter’s Five Forces Analysis
- The market volatility opens opportunities for dairy farmers in India, Russia, Ukraine, China, and Brazil to increase efficiency of production
- Major suppliers are integrated to dairy farm level and companies like Fonterra and Amul, are secured through the co-operative models
- Significant threat exists if major suppliers co-operatives cannot make competitive milk pay-outs to shareholder suppliers