Sunday, March 26, 2023

The 2023 First Quarter Milk Prices are Down, but Stable.

The Agricultural Marketing Service (AMS) weekly prices are showing stability.  Changes in the first quarter of 2023 have lower, but stable prices.  This post will update the February 12 post on the most recent prices from the AMS weekly surveys.  These wholesale commodity prices are used to price most of the U.S. producer milk.  There are four commodities used to price milk in the Class and Component Federal Orders; butter, cheese, nonfat dry milk (NDM), and dry whey.

Butter prices were very volatile beginning in 2020 through 2022.  In 2023, prices have settled in at levels slightly above those in 2018 and 2019.  Since the beginning of 2023, butter prices have ranged from $2.41 to $2.49 per pound, far below the 2022 high of $3.24 per pound and in a very tight range.  Inventories appear to be at a reasonable level as covered in the prior post.  The year 2023 has brought stability to wholesale butter prices.

Chart I - Butter Weekly Wholesale Prices
AMS cheese prices are based on block and barrel Cheddar cheese prices that are averaged at the end of each month.  Over the five years covered in these charts, blocks averaged a higher price than barrels by $.12 per pound.  In 2022, for 32 weeks barrels were priced higher than blocks, which is unusual.  In 2023, there is a change to "normalcy" and cheese blocks have been consistently priced higher than barrels at an average spread of $.31 per pound.  

For the last five weeks, cheese blocks (Chart II) have ranged from between $1.94 and $1.95 per pound, a very tight range.  This is a price very close to the long-term trend line for block Cheddar cheese prices.
Chart II - Block Cheddar Cheese Weekly Wholesale Prices
Barrel cheese prices have seen a wider price movement in 2023 (Chart III), but for the last five weeks they have also traded in a tight price range of $1.62 to $1.69 per pound. Barrel cheese is used as an ingredient in other products like American cheese.  Over-time, barrel prices have shown more volatility than the block prices, but are now stabilizing.
Chart III - Barrel Cheddar Cheese Weekly Wholesale Prices
NDM prices have also fallen and are starting to see some short-term stability (Chart IV).   As covered in the prior post, NDM is primarily an export product, and the price is very much based on international factors for NDM and skimmed milk powder (SMP).  Because NDM is a major factor in pricing domestic skimmed milk, the lower price has a strong negative impact on producer pricing.  The movement is very difficult to analyze or forecast.
Chart IV - NDM Weekly Wholesale Prices

Dry whey is used to price the components other than butterfat and protein in milk (Chart V).  As described in the prior post, about half of dry whey is used domestically and the rest is exported.  The prices in 2023 have been very consistent, ranging from $.40 to $.45 per pound.  Inventory levels are reasonable.  The lower prices are showing stability.

Chart V - Dry Whey Weekly Wholesale Prices

SUMMARY

What do all four commodities have in common?  They have all fallen from their 2022 highs and most are reaching stable pricing.  The first quarter of 2023 is nearly closed, and it is a time where pricing has returned to the past with stability in pricing.

NDM prices are very low compared to historical trend lines and may have some upward movement in the remaining three quarters of the year.  To date there are no upward trends.

Can producers live with these lower prices?  If not, the recent increase in milk production may be short lived.

Sunday, March 19, 2023

Producer Prices Change with Wholesale Inventories.

Do domestic inventories control producer prices?  This post will review where producer prices are going and how they correlate to domestic wholesale inventories.  What is being compared here is the wholesale inventory of a commodity to the wholesale price of that commodity.  When a product is scarce, prices are high.  When inventories bulge, prices fall.  Inventories do not change quickly and therefore prices do not change quickly. 

There are four commodities that are used to price producer milk, butter, cheese, nonfat dry milk (NDM), and dry whey.  The data used below is based on 12-month moving averages to minimize the impact of month-to-month seasonal changes and temporary fluctuations.  The most recent weekly prices will be updated in the next post.

BUTTER Chart I

Butter prices are tightly correlated with butter wholesale inventories.  Chart I shows the butter inventory compared to producer prices.  Butter exports and imports are minimal compared to domestic consumption.

The correlation between inventory levels and the Agricultural Marketing Service (AMS) price of butter has an inverse correlation of 85 percent over the last five years.  That means that if you know one side (eg. inventory) of the correlation, 85 percent of the time you will be able to closely estimate the price of the other side (AMS price).  Butter has a seasonal cycle with more butter produced than needed in January through April and then has the opposite in the fourth quarter of the year. During this time, cold storage of butter will increase and then decrease.  The 12-month moving averages eliminate these fluctuations.

Chart I - Butter Inventories and AMS Prices
During COVID "stay at home" polices, inventories grew and prices fell.  In late 2021, production of butter was reduced and inventories dropped.  That drove prices to record highs.  In 2022, butter inventories have returned to more normal levels and prices are declining.

For more on butter prices, see these recent posts to this blog.

DRY WHEY - Chart II

Dry whey is also correlated tightly to its domestic wholesale inventories. In this case, imports are nearly zero, but exports are high exceeding 50 percent of production.  While one might expect that with over half of the dry whey being exported there would be no correlation.  However, dry whey is not a highly competitive export market and therefore U.S. prices can prevail.

The inventory fluctuations are driven by high domestic withdrawals in 2021 that have now declined to more normal levels.  Production and exports of dry whey has seen no growth or decline in the last decade.

Dry whey inventories and AMS pricing have a 56 percent inverse correlation over five years.  A correlation over 50 percent is a moderate correlation.

Chart II - Dry Whey Inventories and AMS Prices
NDM - Chart III

NDM is a very volatile international market.  U.S. NDM must compete with huge exports of skimmed milk powder (SMP) in the international markets.  Nearly three quarters of U.S. produced NDM and SMP are exported and must compete with exports from other countries.

Chart III - NDM Inventories and AMS Prices
NDM domestic wholesale inventories and AMS prices have a 30 percent correlation.  If it was possible to have a correlation with the global wholesale inventories, it might have a tight correlation, but comparing domestic NDM inventories to international prices, just doesn't correlate.

Unfortunately, much of the producer milk pricing uses NDM prices to value skim milk.  It is used for Classes I, II, and IV skim pricing.  When the current pricing system was developed in 1999, 75 percent of NDM was used domestically. Today domestic use is about 30 percent.  When the formula for pricing of fluid milk (Class I) was changed in 2019, did it consider the international volatility?  Probably not.

CHEESE - Chart IV

The final and most important commodity for milk pricing is cheese.  Imports of cheese compared to U.S. produced cheese are small.  Exports have been growing and now are around five percent of domestic cheese production.  That should result in a close correlation between domestic inventories and prices.  The problem here is that the AMS pricing of cheese is based only on Cheddar cheese.  Inventories of Cheddar cheese are not publicly available.  Cheddar cheese, as measured by production, makes up about 70 percent of American cheese, but that can vary from month-to-month and over-time.  As a result, the correlation between American cheese inventories and Cheddar cheese wholesale prices is very low.   Cheese prices and wholesale inventories should have a high correlation, but the correlation is only 30 percent.  Without exact statistics on the inventory of Cheddar cheese there is no correlation.

The good news is that the most important commodity for pricing producer milk is at a high.  In May of 2022 the cheese price hit a high of $2.42 per pound.  Cheese prices have dropped some since then, and in February the price was $1.82 per pound,
Chart IV - Cheese Inventories and AMS Prices
The next post will look at the most recent weekly data on these commodity prices.  Unfortunately for producers, most of the prices for the commodities covered above are falling.







Sunday, March 12, 2023

FDA's Draft "Labeling of Plant-Based MiIk" Tries to Change the Definition of Milk!

A new draft guidance for labeling of plant-based "milk" was recently released by the FDA.  It is a well written document of 29 pages which can be reached at this link.  It covers surveys, focus groups, dietary guidelines, and other information.  There has been a long-time controversy over labeling something which is plant-based as "milk".  Plant-based "milk" products have for some time been labeled as "milk," packaged to appear like "milk", and placed in refrigerated space next to dairy milk products as an attempt to appear as "milk".  The plant-based products do not have consistent standards and the various products do not have consistent nutritional characteristics.  Dairy milk has detailed standards and government inspections to make sure that milk products are consistently produced, properly labeled, and nutritious.  It is the FDA's responsibility that labeling is clear for consumers and does not mislead the consumer for marketing purposes. 

The draft guidance initially provides clear information on this issue, but toward the end of its draft document it sides with labeling plant-based products as "milk".  There is only one reason to label plant-based products as "milk."  When labeled as "milk" and marketed beside dairy products in refrigerated space, plant-based products have increased marketing potential.  See this prior post.  If the plant-based products were labeled as "milk alternatives" they might not sell as well, but that is what they are.  

The plant-based products do provide an alternative for consumers who have difficulty eating and drinking dairy products.  They are not bad products and they do serve a purpose.  However, the nutritional characteristics are very different from milk and labeling them as milk does imply that they do have nutritional characteristics similar to real milk.  Proper nutrition is very important for youth that are in their growing years. 

Quotations from the FDA draft document are in red to clearly separate them from this author's comments in this post.  Some references of statements from the FDA document are quoted in the body of post and many additional supporting statements from the FDA document are quoted in the Appendix.

WHAT IS THE DEFINITION OF MILK?

Merriam Webster - a fluid secreted by the mammary glands 

Britannica - liquid secreted by the mammary glands; 

Oxford - the white liquid produced by cows, goats, and some other animals.

"FDA established a definition and standard of identity for milk.  Milk has since been defined as “the lacteal secretion, practically free from colostrum, obtained by the complete milking of one or more healthy cows.”"

The FDA's definition includes only cows.  What the FDA is recommending would actually change the definition of milk.  That may change it on paper, but in people's minds, milk comes from a cow.

 WHAT IS THE ISSUE?

The draft document has done an excellent job of defining the problem.  Multiple statements are made defining the issues that currently exist.

"Our analysis of the data suggest a potential public health concern related to the substitution of milk with plant-based milk alternatives that contain lower amounts of certain nutrients found in milk."

See the Appendix below for six other statements in the draft defining the issue.

The draft document statement above and other statements in the Appendix show that clearly there is a problem.

HOW BIG IS THE PROBLEM?

Plant based milk alternative products have found significant sales success.  Initially, when they were not in the refrigerated section next to milk, they had limited success.  Today, their sales are growing, and new products are being constantly developed and marketed.  Sales have reached a point that the FDA is reviewing their marketing to consider if they are misleading people and causing a nutritional shortage. 

"In 2010, one-fifth of U.S. households purchased or consumed plant-based milk alternatives."

See the Appendix below for four other statements in the draft concerning the size of the problem. 

SHOLD PLANT BASED PRODUCTS BE LABELED AS "MILK",  INSTEAD OF "MILK ALTERNATIVES?"

Throughout the document, the term "milk alternative" is used many times.  Why?  Because it properly defines the plant-based products.

"The purpose of this guidance is to provide FDA’s current view on the naming of plant-based foods that are marketed and sold as alternatives for milk (plant-based milk alternatives)."

See the Appendix below for four other statements in the draft defining labeling.

However, in the conclusion of the draft document, they recommend using only the word "milk" in the labeling, not "milk alternative" or "plant-based milk alternatives" or some other name.

NUTRITIONAL DIFFERENCES

The nutritional value of plant-based milk alternatives varies broadly.  There are no standards, and each product may add some nutritional element(s), but in general they lack the nutritional elements that milk has.

"The Dietary Guidelines identify the Dairy Group as a key contributor of calcium, protein, vitamin A, vitamin D, magnesium, phosphorus, potassium, riboflavin, vitamin B-12, as well as zinc, choline, and selenium."

"Consistently consuming plant-based milk alternatives that do not have a similar nutritional composition to milk in place of milk, without the addition of other foods to supply the missing nutrients, could lead to further inadequate intakes of nutrients of public health concern and other nutrients that pose a special public health challenge. This, in turn, could lead to adverse health effects such as impaired peak bone mass accrual, low bone mass, and osteoporosis."

See the Appendix below for six other statements in the draft on nutritional differences.

MARKETING OF PLANT-BASED "MILK"

If a product that is not milk is labeled as milk, packaged like milk, refrigerated like milk, and placed in the milk section of grocery stores, then it must be milk.  When plant-based products are labeled as milk, it probably does have a marketing advantage.  However, it is not truthful and it is misleading.  It is the FDA's responsibility to protect consumers from false and misleading food labels.

"Survey participants also said that the term “beverage” and “drink” may suggest lower quality than a product called “milk.”"

"Such description or name must not be false or misleading and is referred to as the statement of identity."

WHAT IS THE FINAL FDA RECOMMENDATION?

In the final pages of the document, the FDA is suggesting naming plant-based products as milk, as covered in the FDA quotation below.  The cartons or bottles would carry the name milk in bold print, with a smaller, brief, and confusing message about the short comings of milk alternatives.

The fact is that plant-based alternative drinks are not the same as what has been known as milk for hundreds of years.  Many U.S. consumers do not know that a product labeled as milk is not from a cow.  The milk alternatives are not bad products, but they are not milk and should not be named as milk.

FDA recommends that plant-based milk alternatives that use the term “milk” in their name (e.g., “soy milk,” “almond milk,” “oat milk,” “almond-macadamia milk blend,” etc.) and have a nutrient composition that is different than milk (e.g., calcium, protein, vitamin A, vitamin D, magnesium, phosphorous, potassium, riboflavin, or vitamin B12) bear an additional nutrient statement on the product label describing how it is nutritionally different.

THERE IS A CLEAR PRECEDENT

In a recent post margarine was covered.  Margarine sits next to butter on the grocery shelves, but it is never called butter.  Margarine product are made by large companies like Land-O-Lakes, the best-selling butter brand in the U.S., and there is one company with a strong brand name of "Better Than Butter."  But margarine is never branded as butter.

__________________________

Appendix

Material from the FDA Draft 

"Labeling of Plant-Based Milk"


Other statements concerning "What's the Issue?"

"While some plant-based milk alternative products have “beverage” or “drink” in their labeling, the majority of products have the word “milk” in their names."

"Several consumer studies submitted in response to the notice indicate that consumers, including consumers who purchase plant-based milk alternatives, do not understand the nutritional differences between milk and plant-based milk alternatives."

"A survey reported that 53 percent of its respondents believe that plant-based milk alternatives labeled with the term “milk” in their name have a nutritional content similar to milk.

"Inadequate consumption of calcium and vitamin D can result in impaired peak bone mass accrual, low bone mass, and osteoporosis. Although calcium and vitamin D are important across the lifespan, calcium and vitamin D are critically needed during the time period when peak bone mass is still actively accruing (adolescence through 30 years of age)"

"Plant-based milk alternatives are non-standardized foods as no definition or standard of identity has been prescribed for them by regulation."

"Therefore, consistently consuming plant-based milk alternatives that do not have a similar nutritional composition to milk in place of milk, without the addition of other foods to supply the missing nutrients, could lead to further inadequate intakes of nutrients of public health concern."


Other statements concerning "How big is the Problem?"

"From 2017 to 2019, sales of plant=-based milk alternatives increased nearly 15 percent reaching $2 billion, with refrigerated products accounting for approximately 90 percent and shelf-stable products accounting for around 10 percent."

 "The variety of plant-based milk alternatives available in the marketplace has also greatly expanded from soy, rice, and almond to include cashew, coconut, flaxseed, hazelnut, hemp seed, macadamia nut, oat, pea, peanut, pecan, quinoa, and walnut-based."

"More than a third of respondents to a Consumer Reports survey said that in the past year they have purposely used plant-based milk alternatives as a substitute for milk ."

"More than a third of respondents to a Consumer Reports survey said that in the past year they have purposely used plant-based milk alternatives as a substitute for milk."


Other Statement concerning "milk" vs. "milk alternatives"

"These studies indicate that consumers understand that plant-based milk alternatives do not contain milk"

"In 2010, one-fifth of U.S. households purchased or consumed plant-based milk alternatives."

"Consequently, a plant-based milk alternative may be labeled with the term “beverage,” “drink,” or “milk.”

 "While “plant-based” or “plant” may be used to describe a plant-based milk alternative, we do not recommend using only these terms in the name of the food. “Plant-based milk” is not the common or usual name of plant-based milk alternatives."


Other Statements concerning "Nutritional Differences"

"Depending on calorie needs and age, the Dietary Guidelines, 2020-2025 recommends 1⅔-2 cup equivalents (whole-fat) from the Dairy Group per day for toddlers ages 12-23 months and between 2-3 cup equivalents (low-fat or fat-free) from the Dairy Group per day for children (≥2 years of age) and adults to achieve a healthy eating pattern."

"The question of bioavailability of calcium in non-dairy products was not addressed in the modeling analysis. Calcium- and vitamin D-fortified plant-based milk alternatives are alternatives to milk to consider, but they may vary in other potentially important nutrients (e.g., protein, magnesium, phosphorus, and potassium)."

"Plant-based milk alternatives are not milk; they are made from plant materials rather than the lacteal secretion of cows. Consequently, under the FD&C Act, they may not be offered for sale as “milk.” Although many plant-based milk alternatives are labeled with names that bear the term “milk” (e.g., “soy milk”), they do not purport to be nor are they represented as milk.  The comments and information we reviewed indicate that consumers understand plant-based milk alternatives to be different products than milk. While many circumstances attending retail sale of the products are similar to those attending retail sale of milk (e.g., packaging, labeling, location in grocery store), the comments and information we reviewed indicate that consumers, generally, do not mistake plant-based milk alternatives for milk."

"Depending on calorie needs and age, the Dietary Guidelines, 2020-2025 recommends 1⅔-2 cup equivalents (whole-fat) from the Dairy Group per day for toddlers ages 12-23 months and between 2-3 cup equivalents (low-fat or fat-free) from the Dairy Group per day for children (≥2 years of age) and adults to achieve a healthy eating pattern."

"Specifically, the School Lunch Act requires that the nutritional standards for fluid milk substitute must, at a minimum, be fortified with calcium, protein, vitamin A, and vitamin D to levels found in milk.26 Citing that milk is the primary food source for riboflavin, vitamin B12, magnesium, phosphorus, and potassium for children, USDA’s Food and Nutrition Service (FNS) extended the nutrition standards for fluid milk substitute to include these additional vitamins and minerals."

"In focus groups conducted by FDA with consumers of plant-based milk alternatives, frequent mentions were made that plant-based milk alternatives may be healthier than milk because they are lower in fat and cholesterol, and do not contain animal ingredients."


Sunday, March 5, 2023

Fluid Milk Loses More Sales in 2022!

Fluid milk sales through 2022 are now available.  By comparison, the changes posted for 2021 are available here.  The decline in fluid milk sales in 2022 was 2.4 percent by volume.  The five-year average is about two percent annually.  

The 2022 decline for whole milk and two percent fat milk was only one percent.  The decreases in one percent fat milk and free fat free milk were eight percent in 2022.  Clearly, the two smallest categories of milk are taking a major hit.  

Chart I below shows a breakdown by type of milk.  Whole milk and two percent fat milk now make up 82 percent of the total fluid milk sales.  In 2017, one percent milk made up 14 percent of the total fluid milk sales, and in 2022 it is only 12 percent.  Fat free milk has dropped from nine percent to just six percent.  There is a reason for this huge difference, and it will be covered later in this post.

Chart I -The amount of milk by category

Chart II shows the change in pounds of milk purchased and Chart III shows the percent change in fluid milk purchases.  When "stay at home" mandates were enacted in 2020, sales of fluid milk improved significantly, and briefly reached the prior year levels.  The sales quickly fell down in the second half of 2021.  Currently, sales measured in pounds are at declines similar to 2018 and 2019, around 80 million pounds per month.  The percentage decline (Chart III) reflects greater losses than in 2018 and 2019 and that percentage decline will continue to grow if the volume of pounds declining stays the same.

Chart II - Fluid Milk Decreases from Prior Year
Chart III - Fluid Milk Decreases by Percent

WHICH MILK PRODUCTS ARE DECLINING FASTEST?

The most used types of milk, whole and two percent fat milk are decreasing at about one percent annually (Chart IV).  Whole milk and two percent fat milk are similar in volume.  Currently two percent milk is slightly bigger, perhaps due to concerns about saturated fats as covered in the prior post.

Chart IV - Decreasing Sales of Whole and Two Percent Milk
Sales of one percent fat milk and fat free milk are dropping at eight percent annually.  Fat free milk has dropped by 44 percent in the last five years.  As mentioned in a previous blog post where plant-based "milk" was analyzed, one percent fat and fat free milk may be cannibalized by plant-based products which also have almost no fat and a better taste.  
Chart V - Sales of One Percent Fat Milk and Fat Free Milk
HOW IS ORGANIC MILK DOING?

Organic milk, despite significantly higher prices is holding its own while conventional milk is declining steadily (Chart VI).  In 2022, organic milk sales made up six percent of total milk sales.  Over five years, organic milk has grown by 10 percent while conventional milk has dropped by 10 percent.  When COVID "stay at home" policies were executed, organic milk grew by 12 percent while conventional milk fell by .7 percent.  Organic milk is following the healthy eating trends of emphasizing natural and organic products.

Chart VI - Sales of Organic Milk Compared to Conventional Milk
WHAT IS DRIVING THE DECLINE IN LOWER FAT PRODUCTS?

Although no surveys are publicly available to substantiate it, the increase in plant-based milk may be contributing to the losses in low fat and fat free milk products.  

The FDA has recently released a draft on "Labeling of Plant-Based Milk."  Yes, even in the title of this document, the word milk is used to describe plant-based products.  The proposal is suggesting labeling standards that are confusing.  As an example, the document suggests labeling "Cashew Milk" with the statement "Contains lower amount of potassium than milk."  If the customer is buying a container labeled as cashew milk, and he is also being told that the product is deficient in potassium compared to milk, that is really confusing.

The document contains statements like "one customer study suggested that about three-quarters of its respondents understood that plant-based milk alternatives do not contain milk."  What about the other 25% of respondents?  What about the other surveys?  

The draft document can be downloaded at this link.  It is 29 pages long.  The next post will cover the major topics in this document with comments.