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September 2012 Archive for Dairy Talk

RSS By: Jim Dickrell, Dairy Today

Jim Dickrell is the editor of Dairy Today and is based in Monticello, Minn.

Fluid Milk Consumption Slowly Drains Away

Sep 21, 2012

MilkPEP is betting big that it can stem this erosion by tying milk consumption to “usage occasions” such as breakfast.

In 1975, each American drank 30 gallons of milk. Twenty years ago, that number had shrunk to 25. Last year, the number was 20.6.

Ironically, 2009—in the crush of the Great Recession—saw milk sales tick up. But in the last two years, the erosion has resumed—down 95 million gallons in 2010 and another 106 million gallons in 2011.

Recall that milk prices were dismal in 2009. But consumers saw this as a bargain—good value for good nutrition. But as prices rebounded in 2010 and 2011, sales again headed south. This should serve as a warning to those petitioning USDA for higher Class I prices. More on this later.

Doug Adams, Prime Consulting Group president, led dairy editors through an hour-long webinar last week on the performance of the various fluid milk channels. The webinar was hosted by MilkPEP—the fluid milk processor education program.

Traditional grocery stores, big box retailers and drug store chains still sell the bulk of fluid milk. But this channel also saw the largest decline in sales. Even Wal-Mart reported slightly lower fluid milk sales.

Perhaps the most disturbing trend is the level of food insecurity now faced by many Americans. Adams says 28 million gallons of milk is now distributed through food banks, WIC-only and food assistance channels. “That’s a meaningful amount of volume going through these outlets, and it could be replacing some of the volume lost by grocery stores,” he says.

To state the obvious, turning around this decline in milk sales won’t be easy. MilkPEP is betting big that it can stem this erosion by tying milk consumption to “usage occasions” such as breakfast. “Breakfast is where 58% of all milk consumption occurs,” says Julia Kadison, MilkPEP’s VP of Marketing. And yet one in five Americans—some 60 million folks—don’t eat or drink anything in the morning.

Last February, MilkPEP launched “The Breakfast Project,” a $60 million annual campaign that includes TV and print ads, internet and social media. It’s gambling that by reminding consumers of the benefits of breakfast, those who do eat breakfast will continue and those who don’t might start. It won’t be until the first quarter of 2013 whether we know the strategy is working.

There are some who are skeptical. The vast majority of milk is still sold in multi-serve packages—gallon and half-gallon plastic jugs, cardboard half-gallons and quarts. These were designed for in-home consumption. “But a large percentage of consumers have stopped eating at home,” says Tom Gallagher, CEO of Dairy Management, Inc.

He suggests the industry knows what consumers want: take anywhere, shelf-stable milk; high-protein drinks, more flavor choices. And they want it all in convenient, user-friendly packaging. Re-tooling packages to meet these consumer wants will be a massive effort.

In the meantime, pushing fluid milk prices higher as some are urging USDA to do will only hurt sales. There are some anecdotal reports that fluid milk consumption is rebounding, at least in some parts of the country. Driving fluid prices to $4 or $5 gallon will stop this rebound in its tracks.

Read more about MilkPEP’s “Breakfast Project” here.

And you can view my report on fluid sales on AgDay TV here.

Idaho’s Dairy Dilemma

Sep 07, 2012

Idaho’s dairy industry is between the proverbial rock and a hard place. The rock is soaring feed costs; the hard place—some of the lowest milk prices in the nation.

A recent analysis done for the Idaho Dairymen’s Association (IDA) by Scott Brown, a dairy and ag economist with the University of Missouri lays out the conundrum:

• Idaho milk prices are among the lowest in the nation, often trailing the U.S. all-milk price by $1/cwt., and in January 2009, by $2.50/cwt. “The growing gap since 2009 between the U.S. and Idaho all-milk prices provides an early indication of one of the issues that has kept financial balance sheets in a tough position in Idaho,” says Brown.

• Idaho feed costs are driven by national corn and soybean markets, both of which have soared this year. The good news, competitively speaking, is that Idaho’s costs for these commodities mirrors those of other regions—with freight to Idaho the only difference. The bad news is that alfalfa is in somewhat limited supply—a million Idaho acres or so. While there is land available to grow more alfalfa, it will have to compete for those acres with soaring corn and wheat prices.
 
• Dairy processing capacity is also limiting, and a major factor in Idaho’s lower milk prices. “The number of Idaho dairy manufacturing plants has remained fairly constant at between 18 and 20 over the past two decades despite the large growth in Idaho milk production,” says Brown. In the central region of the U.S., in contrast, the number of dairy processing plants has increased 17% between 2006 and 2011, he says.
 
There is a bright spot on the horizon—in fact, it’s nearly completed in the form of a Chobani’s new yogurt plant in Twin Falls, with a rumored start-up next month and 1 million to 2 million pounds of milk intake early next year. Eventually, the plant will take in 6 million to 7 million pounds of milk per day, according to various media reports.
 
Already, the Chobani’s plant is having an impact on milk price. Both Jerome Cheese and Glanbia have adjusted their pay prices, says Bob Naerebout, IDA executive director.
 
The key will be to keep all of the plants a little hungry for milk. Idaho dairy producers have been their own worst collective enemy—filling up additional processing capacity nearly as quickly as the plants come on-line.
 
This time, things might be different. “Lenders are reluctant to allow rapid expansion,” says Naerebout.
 
For one thing, filling up plants leads to lower prices. For another, there simply isn’t enough equity left in existing dairy operations to leverage a lot of additional growth.
 
Another option is for Idaho dairy producers to actually work together in collectively pricing their milk through marketing agencies in common (MAIC). Historically, however, Idaho dairymen have been individualists to the core—often to their own detriment.
 
Naerebout points to the Midwest where MAICs have played a significant role in obtaining better prices for farmers. Both Idaho and Wisconsin, for example, are huge producers of commodity cheese. Whereas Idaho has been at and often below Class III prices, Wisconsin producers command Class III plus $1.50/cwt. or more.The difference is that Wisconsin dairy co-ops actually cooperate.
 
The other difference is that Wisconsin processing plants have 10% to 15% more capacity than milk supply.So it still comes back to demand and supply. All the cooperation in the world won’t mean much if processing plants don’t have to bid for milk.Read the complete report on Idaho’s competitive position by clicking here.
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