Some pretty "gouda" reasons for the cheese glut

Here's some really good news for anyone considering getting on the cheese diet: Prices for cheese have plummeted nearly 45 percent since 2014. Production is rising and exports falling, creating the biggest glut in the cheese market in years.

Monthly average cash prices for block cheddar cheese peaked on the Chicago Mercantile Exchange at near $2.35 per pound in 2014. Today it's going for about $1.315 per pound as global milk and dairy prices plunged to a six-year low. And they'e unlikely to rebound to their earlier highs anytime soon.

"Milk and cheese production is currently near its seasonal peak," said Mary Ledman, a dairy economist and publisher of the Daily Dairy Report. "Nevertheless, it's unlikely that U.S. cheese prices will reach above $1.50 before September due to ample cheese in storage."

As of the end of April, 1.2 billion pounds of cheese was in storage, up 11 percent from last year. U.S. cheese production was a record 11.8 billion pounds in 2015, and through March of this year it's up 2.9 percent above last year's levels. Production has hit new annual records every year since 1992.

"Everyone in the cheese industry is worried about it," said Doug DiMento, a spokesman for Agri-Mark, a cooperative whose brands include Cabot cheeses. "It's definitely going to affect market prices, which in the long term will hurt margins."

Because it specializes in aged cheeses, Agri-Mark is somewhat immune to fluctuations in market prices, and the company is currently trying to produce as much cheese as it can to meet consumer demand, he said.

That may be a tall order. As The Wall Street Journal recently noted, every person in the U.S. would have to eat an extra three pounds of cheese this year to balance the forces of supply and demand.

Consumers are benefiting from the glut as are food companies such as Kraft Heinz (KHC), whose products include Kraft Macaroni and Cheese, and restaurant chains such as McDonald's (MCD), home of the Quarter Pounder with Cheese. Officials from either company couldn't be reached for comment. Cheese maker Sargento Foods declined to discuss the market glut.

Of course, this is good news for the pizza industry.

"Cheese prices rise and fall. As a 55-year old company, we're used to managing through cheese price fluctuations," said Jenny Fouracre-Petko, a spokeswoman for Domino's (DPZ). "Prices are lower now, which pretty much makes every pizza company happy."

Depressed prices for milk and cheese are reflected in the Consumer Price Index. Milk and cheese CPIs have dropped by 12 percent and 4 percent, respectively, since the fourth quarter of 2014. Dairy farmers, though, are feeling the pinch.

The U.S. average "all-milk" price peaked at an average $23.97 per hundredweight (100 pounds) in 2014, falling to $15.30 as of March. As a result, farmers such as Wisconsin's John Pagel say they're losing money on every gallon they produce. He was surprised by how far prices for milk and cheese have fallen.

"Ninety percent of the milk in Wisconsin goes for cheese," said Pagel, who operates a farm near Green Bay with 5,000 cows. "We knew there was going to be a correction in the market from 2014 when it was high. You just don't know when it's going to come, or how long it's going to last."