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.
Why Can’t Milk Compete?
May 23, 2014
While dairy farmers pay 15 cents per cwt. to increase demand for dairy products, milk sales decline and competition from other beverages surges.
U.S. consumption of fluid milk has been steadily declining for quite some time. In fact, consumption of total fluid milk products has been on a nearly steady decline since 1945.
At its peak, per capita consumption of fluid milk products reached 384.2 lb. It has been all downhill since then with consumption less than 195 lb. at present. This has been a concern and remains a concern not only for the dairy industry but, more importantly, the health of the nation.
Now, this is not all gloom and doom, and I do not intend it to be. The decline in fluid milk consumption has been more than offset by an increase in per-capita consumption of cheese and, recently, the surge in yogurt consumption. Per-capita total cheese consumption had tripled since 1970, reaching nearly 34 lb. Add to that steadily increasing export demand, and the decline in fluid milk consumption is not quite so depressing.
So, why the decline in fluid milk consumption? Dairy farmers are paying 15 cents per cwt. for the purpose of increasing sales and demand for dairy products. But why the lower trend of fluid milk consumption? I guess the best explanation is "competition." There are so many beverages available to consumers with more being developed. Back in 1945, soda was considered a luxury by many with milk being more of a staple. There were many small family farms with milk readily available for consumption right at the farm. Now, there are literally isles of soft drinks, sports drinks, juices, and teas available in many flavors.
There are beverages for those who like it spicy. There are beverages for those who want more energy. There are beverages for those who need quick rehydration, and there are beverages for those who want fiber, probiotics, and/or anti-oxidants. There are fluid drinks that are virtually a meal in themselves. On top of this, packaging is very appealing. Innovation in packaging for milk has improved, but consumers still look at milk as a beverage for certain applications and certain times of the day.
Today’s beverages are being produced that carry many of the nutritional qualities of milk and more with a longer shelf life. Milk is best consumed when it is cold. Once it warms to room temperature or above, it losses much of its appeal and if left too long will begin to sour. However, many other beverages are consumed at outside temperature over a longer period of time such as during bike rides, hiking trails or long rides in the car without the same effects. I am not against other beverages and consume them myself, but I love a cold glass of milk and the nutritional benefits of milk are second to none.
Demand for dairy products continues to increase both domestically and internationally providing good demand for the milk we produce. Exports continue to run substantially higher than last year with the latest export report for the month of March showing cheese exports up 36.9% over last year. Cheese exports for the first quarter of this year were 46.5% above the same period last year. Butter exports have been incredible with first quarter exports up 109.0% over the same time last year.
So, despite reduced fluid milk consumption, there are many good things happening in the dairy industry. Increasing world demand provides a positive outlook for milk prices in the future.
- Agricultural Price report on May 30
- California 4a & 4b prices on June 2
- Dairy Product Production report on June 4
- May Federal Order class prices on June 4
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.
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