Rays of Hope in Dairy Gloom
Jul 06, 2009
By Jim Dickrell
While it’s way too soon to say the horizon is clearing on dairy’s gloom, there are a few shafts of sunlight poking through.
• Last week’s USDA acreage report showed planted U.S. corn acreage to be the second largest crop since 1946 and the soybean crop to be the largest in history. That should mean some price relief for feed costs come harvest and this winter. By harvest, feed costs could drop to 7¢/lb. of feed. That’s a 30% drop from a year ago, and a 12% drop from even today. While 7¢ is still historically high, it’s far better than 10¢.
• Demand is also starting to pick up. Through April, commercial disappearance of dairy products is still down 0.9%. But that’s considerably better than a month ago, when commercial disappearance through March was down 2.5%. Fluid sales are 1.2% above a year ago through April, and up 1.5% year-to-date. Total cheese sales were up 5.1% in April, and 4% year-to-date.
• Dairy Management, Inc., the dairy checkoff guys, have shifted $25 million in their budget (20%) to immediate and near-term sales efforts. They’ve poured $12 million of that into Domino’s American Legends six new pizza’s with 40% more cheese. The first phase of that, which started last October, has already grabbed 13% of Domino’s total sales mix. Domino’s just launched the second phases of its promotion last week. Click here to read more.
• Last December, DMI also signed a three-year agreement with McDonald’s to develop its McCafe line of dairy beverages. DMI has committed $5 million per year to the effort. McDonald’s is pouring $1.2 billion to upgrade, update and equip 12,000 stores. In 2009, McDonald’s will spend $100 million on promoting the McCafe’s, which are primarily dairy-based drinks.
• This spring, Pizza Hut announced it will offer Nestle-brand chocolate milk in single-serve milk chugs, the first time the chain is offering milk in this form. The 4,000 Pizza Hut restaurants included bring the total number of fast food outlets that will now offer single-serve chugs to 65,000 stores. These stores will sell an additional 250 million lb. of milk this year.
• The U.S. Dairy Export Council (USDEC) has also shifted gears, putting more effort in immediate export sales. In Mexico, for example, USDEC has increased retail and food service cheese promotions, resulting in a 19% increase in cheese export volume south of the border. In Asia, USDEC is conducting seminars with feed suppliers to bring dairy ingredients back into animal feed formulations, now that prices have plummeted from their 2007 highs. Total whey exports are also slightly above (3%) last year’s levels.
Despite this good news, there are lots of gray skies in front of us. The biggest problem continues to be exports, down 51% through April. With exports accounting for some 10% of U.S. production last year, that means that much of that milk that would have been exported is now backing up in U.S. warehouses.
Cheese in cold storage is the prime example, with inventories up some 9% to 10% from last year. “May was a record high,” says Bob Cropp, a University of Wisconsin dairy economist. “Cheese buyers see that there is plenty of cheese around and that milk production is not coming down…. Production has got to start dropping below a year ago before we see price recovery.”
Hopefully, milk production will start backing off with the June milk production report, due out in 10 days. The Cooperatives Working Together 7th round buyout should start having an impact, with 101,040 cows and 818 heifers sent to slaughter. Follow this link to read more.
Still, as I’ve reported here before, it likely will be harvest or later before we see significant milk price recovery and even marginal improvement in income over feed cost.
I wish I had more good news, but some is better none.
—Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at firstname.lastname@example.org.
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