Sunday, June 19, 2022

The Fall of Drinking Milk

Per Capita consumption of fluid milk (drinking milk) has been decreasing for decades.  For a while, the U.S. population increases offset the decline in per capita consumption, so the total volume of drinking milk remained the same.  In the last decade, overall consumption of milk began falling.  The decline was steady at about two percent per year.  When COVID struck and "stay-at-home" policies were implemented, consumption of milk briefly increased (Chart I).  

The data in this post uses 12-month moving averages which smooth out seasonal fluctuations.  However, they also lengthen the period of the early 2020 surges.  The data includes organic and flavored milk.

The increases due to the stay-at-home policies quickly fell back to normal in 2021 and the decrease is now continuing at about 129 million pounds per month compared to the prior year (Chart II).  As the declining amount remains the same, the percent decline increases.  The decline that was once two percent is now declining at three to four percent (Chart III).  

Chart I - Total Milk Sales

Chart II - Change in Milk Sales from Prior Year

Chart III - Total Milk Percent Change from Prior Year

Where are the changes coming from?  

Whole milk has been the most volatile.  Whole milk was increasing by about two percent a year prior to COVID.  During the COVID "stay-at-home" period, sales increased.  The gains made in 2018 through 2020 have now changed to decreases (Chart V). Whole milk is currently on a decline of 3.1 percent annually, which amounts to a 44 million pounds per month decline versus the prior year.  The decline is now leveling out.

Chart IV- Whole Milk Sales

Chart V - Whole Milk Percent Change from Prior Year

Two percent fat milk was decreasing annually at three percent in early 2019.  During COVID, there were small increases in 2020.  However, just like the trends for total milk, two percent milk has fallen back to the declines seen prior to COVID policies.  In terms of total volume, two percent milk has reached the level of decline that matches the pre COVID decreases of about 57 million pounds per month compared to the prior year (Chart VI).  The current rate of decline is 3.8 percent annually compared to the early 2019 rate of decline of 3.1 percent (Chart VII).

Chart VI - Two Percent Change from the Prior Year

Chart VII - Percent Change from Prior Year

One percent fat milk is sustaining a rapid drop of about 34 million pounds per month compared to the prior year (Chart VIII).  This represents a significant decline currently at 7.2 percent annually (Chart IX).  The impact of COVID policies had only a very slight impact on one percent milk in 2020.  As the volume decline remains steady, the percent rate of decline will show an increase.

Chart VIII - One Percent Fat Milk Sales

Chart IX - Percent decline in One Percent Milk Sales

Fat free milk is declining by about 26 million pounds per year.  As displayed in Charts X and XI, the decline has recently slowed, and the fat free category is now declining by about 10 percent annually. It's typical for a decline to slow as it approaches zero.  If fat free milk did continue losing 26 million pounds per year, it would cease to exist in eight years.  That will not happen, as the decline will likely continue to slow down.  With slow retail movement, less retail space will be allocated to fat free milk and some brands may drop fat free milk.

Chart X - Fat Free Milk Sales

Chart XI - Percent Change in Fat Free Milk Sales

Table I lists the current volume changes compared to the prior year.  The overall decline is currently at 3.4 percent annually.  In terms of volume, two percent fat milk is declining fastest.  In terms of percent, fat free milk is declining fastest.

The only increase is for "other" fluid milk sales that do not fit the standard categories.  This would include new products like Fairlife milk.

Table I - Current Changes in Milk Sales

Chart X compares milk sales by fat percent for 2018 and the current 12 months ending in March 2022.  Whole milk remained steady but gained in percent of total milk as the other categories shrank.  Two percent milk lost 148 million pounds of milk per month.  One percent fat milk has lost 92 million pounds per month and fat free milk has lost 111 million pounds per month. One percent fat milk is currently at six percent of the total and fat free milk is currently at 12 percent.  Each has dropped by two percent.  Overall, fluid milk sales dropped by 349 million pounds per month over the three and a quarter years' time span.  The decline is about 10 percent.

Chart X - 2018 Breakdown of Milk Sales
Compared to the Current 12-Months 

What does it all mean?  Fluid milk (Class I milk) sales are "programmed" to be the highest paid producer milk.  With less Class I milk and more cheese (Class III milk) and more butter (Class IV milk), the average or "Uniform" price of producer milk will decrease.  In turn, the Producer Price Differential will decrease, lowering producer milk payments.

The overall drop in fluid milk combined with the rapidly shrinking low fat categories (Chart X) leaves less butterfat available to be used for butter.  The reduced fat milk categories which are declining the fastest are a major source of butterfat for butter churning.  Combined, the overall drop in fluid milk, and the rapid drop of reduced fat milk and the increasing exports of butter (see the prior post to this blog) and the growth of domestic consumption of butter, butterfat and butter will remain scarce.  This will keep the price of butterfat and butter high.  











Sunday, June 12, 2022

Are Exports Contributing to Higher Milk Prices?

This post will cover the impact of exports and imports of the four commodities used to price producer milk.  They will be covered in the order of their influence on the pricing of producer milk.  The first will be cheese.  See the May 22 post to this blog which explains why cheese pricing is the most important.  

Both cheese and butter exports have seen significant increases in 2021.  The increases are in both total volume and percent of production.  The export volumes of both cheese and butter are now above six percent of production.  Larger exports increase the market and demand for U.S. producer milk, but unfortunately it comes at a time of milk production shortages and domestic cheese and butter shortages.

Cheese exports increased nicely in 2021 but have fallen back a little in 2022 (Chart I).  At the beginning of 2016, the 12-month average of cheese exports was 25 million kilograms per month.  It hit a high of 35 million kilograms in November 2021 and is at 34 million kilograms at the end of the first quarter of 2022.  

Mexico has been the largest importer of U.S. cheese for a very long time.  Their purchases have been steady, but with minimal growth.  South Korea is the second biggest customer of cheese exports with steady purchases.  Japan, Australia, and Canada are also large importers of U.S. cheese.  The total increase in cheese exports comes from a broad mix of the importers mentioned above and other smaller importing countries.

Chart I - Cheese Exports by Importing Countries

Are we exporting a greater percentage of U.S. produced cheese?  After five years of no growth, beginning in mid 2021 the percent of cheese production being exported increased significantly (Chart II).  The export increases reached almost one percent and have increased U.S. overall demand for cheese.  By comparison, the annual growth in domestic consumption is about two percent annually.  An export increase of one percent of total cheese production is very impactful.

Chart II - Cheese Exports as a Percent of Cheese Production

What's happening with cheese imports?  Not much!  Cheese imports have remained steady between 15 and 18 million kilograms per month for six plus years.  The largest supplying countries include Italy, Canada, and France. Currently, cheese imports amount to about half the volume of exports.

Chart III - Cheese Imports

As a result, net exports of cheese did not change much until the later part of 2021 when export volumes increased.  Net exports represent the international impact on demand for U.S. cheese.  With higher demand, inventories of cheese diminish, and cheese prices increase.

Chart IV - Net Exports of Cheese

Butter exports have been very minimal until 2021 when they nearly doubled (Chart V).  This is unusual as domestic butter supplies are tight.  

Chart V - Butter Exports

Butter exports have reached 6.7 percent of butter production in 2022 compared to 2.4 percent in 2020 (Chart VI).  At a time of already tight butter supplies, the increase in exports contributes to lower inventories and higher prices.

Chart VI - Butter Exports as a Percent of Butter Production

Butter imports have remained steady for the last three years with a significant amount of butter imported from Ireland.  The cultured butter from Ireland is a niche product and represents a new category which cannibalizes the domestic demand for conventional butter.

Chart VII - Butter Imports

Butter net exports were negative (imports were larger than exports) in 2019 and 2020 (Chart VIII), but the growth in butter exports have helped turn butter net exports positive.

Chart VIII - Butter Net Exports

Nonfat dry milk (NDM) and skimmed milk powder (SMP) have seen significant growth since the beginning 2016 with exports increasing by 54 percent (Chart IX).  There are almost no imports of NDM or SMP.  NDM and SMP are really by-products of butter production and do not in themselves create increased demand of producer milk.  However, exports of NDM and SMP with high prices can and are increasing Class I, Class II, and Class IV milk prices.

Chart IX - NDM/SMP Exports

Dry whey exports (Chart X) show no growth over time with China as the largest purchaser. Dry whey has found new uses as an ingredient domestically which is helping keep prices high.  There are essentially no imports of dry whey. 

Chart X - Exports of Dry Whey

Overall, exports are showing very nice growth contributing to the demand for U.S. dairy.  Because the current increases in exports stretch the demand on the already tight supplies, they are contributing to the current high prices.  That is good for producer revenue, but it can dampen consumption.

The next post will cover the recent movements in fluid milk sales.  It is not a pretty picture.