Sometimes too much of a good thing can be a bad thing. And I think that most of us would agree that cheese is a very good thing indeed. And extra cheese is even better. But changing consumer tastes combined with an excess of production is bad thing and a condition that affects the entire industry. Sure, consumers benefit from lower prices, but ultimately too much cheese is resulting in dairy farmers exiting the market and lots of waste. So what's happening with all the extra cheese?
Some 1.4 billion pounds of the stuff is currently "aging" in cold storage, the largest stockpile ever, but cheese can age for only a few weeks before quality suffers. China is ordering about 63% less cheese since the tariff kerfuffle began several months ago, American consumers are changing their preferences, and producers have been slow to respond and have made far too much cheese as a result. But what about the demand side of the equation?
The good news is that Americans have not cut their consumption of cheese and on average ate a record 37 pounds of natural cheese per person last year. And so demand is healthy, at least for the natural stuff. Processed cheese product is another story, however, down by half since 2005. Natural mozzarella dominates the natural "cheesescape", a nod to America's love affair with pizza, but Americans have shown an increasing desire to consume a variety of different cheeses from a variety of different places. Tastes have changed, and so producers are now stuck with far too much cheddar cheese in particular.
Luckily, many cheese producers have global ambitions, and as the U.S. market is considered to be particularly challenging, there is a great deal of opportunity seen in what is expected to be a growing global market for dairy products. These markets are challenging as well in their own right. Indeed all of this bodes well for increasing production capacity in anticipation for future consumer demand, and many producers have done just that. But prices for American dairy producers peaked in 2014 which led to an increase in the average size of herds as supply-side marketers chased profits. Now there is too much dairy product on the market, and consequently prices for milk have dropped by 40%. So far, global demand hasn't been robust enough to compensate.
Eventually, herds will be culled and producers will hold the cheese to make production fall more in line with demand as the dairy industry adjusts to delivering what consumers want. Eventually, all should be well in Dairyland. But for now, producers find themselves with far too much cheese to move.
Discussion: Do you have any ideas as to how to move all that cheddar? Pick another industry, beef for example, and explain how economic factors affect the products that marketers deliver.
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