Why is Milk Production Shrinking?

The prior post covered the shrinking demand for producer milk.  Demand for producer milk is not growing.  This post will examine the details causing the lower demand for milk.

The possible reasons cited for no growth in the previous post were lower domestic consumption of dairy products like fluid milk, cheese, and butter and/or lower exports of key dairy products.  This post will examine the growth trends of these dairy products that can change demand for producer milk.

FLUID MILK

Fluid milk consumption has been shrinking for decades.  Charts I and II below show the changing demand for fluid milk in pounds of milk sold and percent changes from the prior year.  Fluid milk sales were decreasing by about 2% annually prior to the disruptions from COVID policies.  The COVID mandates changed the norms as people working from home consumed more milk, probably for cereal.  However, as the "lock downs" were lifted, sales plunged.  The current decline in pounds fluctuates around 500 million pounds annually and the percent decline is now reappearing around 2% annually.

The current decline is really a continuation of a very long trend, but it does add to the overall decline in demand for producer milk.

Chart I - Fluid Milk Sales for First Half of
Years of 2017 Through 2023

Chart II - Fluid Milk Percent Change from Prior
Year for First Half of Years of 2017 through 2023

CHEESE

Cheese production is the largest use of producer milk.  The growth of cheese domestic consumption, as expressed in cheese withdrawals from inventory for domestic consumption, ranged around 2% to 3% annually from 2017 to 2019 (Chart III).  When COVID "stay at home" policies were imposed, sales became stagnant with no growth.  After the "stay at home" policies were lifted, cheese sales were again increasing at near normal rates.  

Then, sales withdrawals dropped drastically starting in 2022.   In March of 2023, domestic withdrawals from inventory dropped by 3.6% from the prior year (Chart III).  What could cause this?  Were inflationary prices responsible?  Diary product retail pricing will be covered in an upcoming blog post.

In the first half of 2023, exports of cheese also began falling (Chart V), wiping out another four million pounds per month of demand.  While cheese exports are important, they make up only about 7% of the total demand for cheese production (Chart VI).  The drop of four million pounds per month in exports is minor compared to the 43 million pounds per month drop in cheese withdrawals for domestic consumption.  

The decline in domestic consumption dropped by 4% and the drop in exports dropped by 5%.  The declines were very significant and unusual compared to prior trends.

Chart III - Volume of Cheese Withdrawals From
Inventory for Domestic Use

Chart IV - Percent of Domestic Cheese
Disappearance vs. Prior year

Chart V - Cheese Export Volumes

Chart VI - Percent of Domestic vs. Exports of Cheese

BUTTER

Butter demand (Chart VII) has seen a similar pattern of decreased demand in 2022 and early 2023 as withdrawals dropped by 16 million pounds per month.  Chart VIII, which expresses the decline of domestic butter demand in annual percent's, shows the decline started in 2020 and continues through early 2023.  The current decline vs. the prior year is only a 1% decline, but it is still a decline.

Butter exports are also down (Chart IX).  The export impact on overall demand is minimal as exports account for only 3% of overall demand (Chart X).

Chart VII - Volume of Butter Withdrawals From
Inventory for Domestic Use

Chart VIII - Percent of Domestic Butter
Disappearance vs. Prior year

Chart IX - Butter Export Volumes

Chart X - Percent of Domestic vs. Exports of Butter

SUMMARY

The lack of growth in producer milk volume is caused by drops in all the major product categories.   Fluid milk, cheese, and butter all dropped in domestic consumption.  The fluid milk drop is measured in retail sales and is at an ongoing level.  Almost no fluid milk is exported so exports do not come into play.  The decline can best be characterized as a change in eating habits where fluid milk in competing with many other fluid products offered.  

Cheese and butter both had declining domestic withdrawals from wholesale inventories.  There are two possible causes.  The most likely cause is based on inflationary pricing.  However, the health awareness of saturated fats may also be a factor.  See this earlier post on butter vs. margarine. 

The next post will review retail pricing.  Is inflation causing a decrease in sales?