AgDairy Market Update
Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wis. He provides dairy market insight.
Declining Fluid Milk Sales Plague the Dairy Industry
Mar 30, 2012
The bright spot is that the decline in consumption of fluid milk is being offset by increased cheese sales.
Fluid milk sales have been struggling for some time and are expected to continue to struggle with lower consumption nearly every month and nearly every year. Fluid milk sales for the two most recent months of December and January showed declines of 3.3% and 2.7%, respectively.
There have been efforts to improve consumption, but so far they have failed to improve overall trend. Much of it has to do with preference and stereotype. By and large, milk is viewed as a commodity that fits in certain times of the day and with certain diets. For instance, breakfast is generally considered a meal that includes milk, while most lunch and dinners do not.
Schools lunches are different in that milk is offered and consumed on a regular basis. Some school systems have discontinued offering chocolate milk with lunches, which has reduced consumption. This was done in the name of obesity. Take away the extra sugar and kids will lose weight. However, some have instead turned to other drinks that have higher sugar content than chocolate milk. Students have indicated less desire to consume regular milk.
Meals other than breakfast generally consist of other types of drinks. Most people do not view milk as a thirst quencher after a strenuous workout, sporting event or a period of hard work. I believe advertising has ingrained this in us. One of my local fast-food establishments offered milk as an alternative drink for some time but ended up dumping much of it due to lack of demand. Many consumers that eat at fast food restaurants purchase soft drinks. Next time you visit a fast-food place or even a regular restaurant, look around and see what people are drinking. There are very few, if any, glasses of milk.
Dairy Management Incorporated (DMI) has recently outlined several strategies to boost milk consumption. It is working with McDonalds to emphasis milk in children’s “Happy Meals.” They are investing $7 million each year for the next three years in lactose-free milk promotions, a $2 million investment in value-added milk and a $5 million investment to promote retail gallon containers of milk, according to Tom Gallagher, CEO of DMI.
There are no easy answers to declining milk sales. The bright spot is that the decline in consumption of fluid milk is being offset by increased cheese sales. Per capita consumption of cheese continues to increase nearly every year. Per capita consumption totaled 33.3 lb. in 2010. This was up from 29.8 lb. in 2000 and up from 27.6 lb. in 1985.
Despite increased cheese consumption, there is plenty to go around. Inventory has grown since the Whole Herd Buyout program in the mid-1980s. The latest USDA “Cold Storage” report showed total cheese stocks in February of 987.4 million pounds. Although 5% lower than a year ago, stocks are beginning to increase seasonally, increasing 1% over January.
Strong milk production continues due to mild weather and increasing cow numbers. February milk production was 4.3% higher in the nation after adjusted for leap day. Cow numbers increased 9,000 head from January and 87,000 more than last year. It seems as if hot weather may be the next event that could have a negative impact on production.
Feed prices may tighten profitability, resulting in decreased milk output, but that will take a little while to kick in. USDA released its “Prospective Plantings” report March 30, indicating farmers will plant 95.9 million acres of corn this year, 4.0 million more than last year and the larges acreage since 1937. Soybeans plantings are expected to total 73.9 million acres, down 1.1 million from lat year.
Trend-line corn yields would increase carryover significantly, resulting in a lower corn price but likely not for soybeans or soybean meal. The recent decline in the corn price factored into this report, providing some price stability. Purchase call options to protect your feed price while leaving the bottom open to take advantage of a lower price if it materializes.
- California Class 4a/4b prices on April 2
- Fonterra auction on April 3
- Dairy Products report on April 4
- World Agricultural Supply and Demand report on April 10
- Export statistics on April 12
- Fluid milk sales on April 13
Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wisconsin. He can be reached at 877-256-3253 or through their website at www.agdairy.com.
The thoughts expressed and the data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed are subject to change without notice. There is risk of loss in trading and my not be suitable for everyone. Those acting on this information are responsible for their own actions.