Fluid Milk Sales Continue Downslide.

Full year 2020 fluid milk sales are now available.  While 2020 milk sales had a bright spot for a few months when quarantining for COVID began, in the fourth quarter, even though nothing had really changed with COVID and quarantining, milk sales began to fall behind the prior year.  Whole milk and two percent milk continue to hold their own while one percent fat and no fat milk sales continue to plummet.  Organic milk fell in 2019 from the prior year but made a major comeback in 2020.

Chart I below shows the monthly progression of milk sales.  While milk sales have been falling for many years, in March 2020 as COVID showed its face and quarantining kept people at home, milk sales bloomed to a three-year high.  Perhaps a part of this was hoarding, as consumer shelves were often bare.  However, the milk increases which occurred in March 2020 and continued for a few months are one-time events, not lasting trends.

Chart I - Monthly Milk Sales for 2018, 2019, and 2020

The next four charts show the changes by quarter in 2020.  The blip that increased sales in quarters one and two, evaporated in quarters three and four.   In both the third and fourth quarters, milk sales fell by 1.5 percent from the prior year.  Considering that COVID was still in full swing in quarters three and four, the decrease from the prior year would likely be in the range of 2 to 2.5 percent if COVID quarantining was not in effect. 

Chart II - First Quarter Milk Sales for 2018, 2019, and 2020

Chart III - Second Quarter Milk Sales for 2018, 2019, and 2020

Chart IV - Third Quarter Milk Sales for 2018, 2019, and 2020

Chart V - Fourth Quarter Milk Sales for 2018, 2019, and 2020

Whole milk and two percent fat milk held up well in 2020.  Whole milk sales, Chart VI, increased by 1.2 percent and 2.5 percent respectively in 2019 and 2020.  The greater increase in 2020 was primarily due to the pandemic buying spree which started in March 2020.  The whole milk gains in 2020 included the one-time event of COVID and without the pandemic the whole milk sales would likely be closer to the 2019 gain of 1.2 percent.

Two percent fat milk sales, Chart VII, decreased by 2.6 percent in 2019 and grew by 3.8 percent in 2020.  Again, the 2020 increase can mostly be attributed to the quarantining impact of COVID.  It is difficult to say how much of the 2020 gain is related directly to COVID quarantining.

Chart VI - Monthly Whole Milk Sales for 2018, 2019, and 2020

Chart VII - Monthly 2% Fat Milk Sales for 2018, 2019, and 2020

One percent milk and fat free milk, Charts VIII and IX, continued their decent.  One percent milk fell by 6.1 percent in 2019 and four percent in 2020.  Fat free milk fell even faster, down 11 percent in 2019 and 13.5 percent in 2020.

Chart VIII - Monthly One Percent Sales in 2018, 2019, and 2020

Chart IX - Monthly Fat Free Sales in 2018, 2019, and 2020

Organic milk sales did show strength.  Charts X and XI measure the impact of organic milk in two different ways.  Chart X shows the monthly sales in 2018, 2019, and 2020.  The sales of organic milk fell by 1.2 percent in 2019 but grew by 12.3 percent in 2020.

Chart XI shows the percentage of total milk that is organic.  Fluid milk sales are declining and have been for a number of years.  However, the percent of total milk that is organic has consistently grown.  It grew from 5.5 percent in 2018, to 5.6 percent in 2019, and 12.2 percent in 2020.  At 12.2 percent of the milk sold, organic milk is clearly more than just a niche product.

Chart X - Total Organic Milk Sales in 2018, 2019, and 2020

Chart XI - Percent of Total Milk Sales That Were Organic

SUMMARY

In the September 11, 2020 post to this blog, the per capita consumption of milk was decreasing at 2.6 percent annually.  With the current U.S. population increase of about .6 percent, that would make total U.S. demand of fluid milk decreasing at about two percent.  The current data for the third and fourth quarters show a 1.5 precent decrease during COVID lockdowns.  

It is reasonable that without the one-time influence of COVID, that domestic milk sales and consumption are still declining at about around two percent or slightly more annually.

U.S. Milk Production is Growing too Fast!

Milk and component production must stay within the bounds of enough milk so there are not shortages and too much milk that results in dumping and overproduction of dairy products.  This post will analyze the most recently available data on milk and component production.  There are concerns that the U.S. may be moving into a period of overproduction which will create high inventories and lower milk prices.  

The growth products, primarily cheese, are dependent on components.  The growth of components in the milk will be reviewed in the later sections of this post.

With one exception, this post will use 12-month moving averages which smooth out monthly variations and seasonal swings.  With fluid milk declining and cheese growing, the growth for domestic needs is somewhere under two percent.  Exports are not growing, as the largest U.S. export country, Mexico, is struggling with COVID and other issues and their purchases are down.  All charts are based on the most recent three years of data.  The year 2020 is based on data through November.

Chart I plots the production of milk.  Because it is based on 12-month averages, it lags the actual monthly impact.  Even so, the growth toward the end of 2020 shows significant growth in milk production.  Chart II expresses the same 12-month moving averages as a percentage increase from the prior year.  In early 2018, milk production increases were at 1.6 percent annually over the prior year.  In 2019, milk production increases dropped to a growth rate of just .2 percent and with the lower production growth, inventories decreased, and producer milk prices increased.  The year of 2020 was extremely volatile, and the U.S. dealt with the many food consumption changes caused by COVID and the lockdowns implemented to help prevent the spread of COVID.   With that, milk production began to grow.  In November 2020, the milk supply was growing at a rate of 2.1 percent annually based on the most recent 12-month moving averages (Chart II).

Chart I - U.S. Milk Production - 12 Month Moving Average

Chart II - Percent Growth in Milk Production

Milk per cow has been historically growing at the rate of about one percent every year (Chart III).  Currently, as shown in Chart IV, the growth of milk per cow is growing faster than one percent and in the most recently available data, milk per cow is growing at 1.3 percent annually based on 12-month moving averages.  That alone covers most of the need to satisfy demand.  

Chart III - Milk per Cow per Day - 12 Month Moving Average

Chart IV - Percent Growth Milk per Cow per Day 

One of the most concerning charts is Chart V.  The dairy cow count for the U.S. increased by 128,000 in 2020 to a record high of 9,443,000 dairy cows.  The growth in dairy cows shown in Chart V, which is not a 12-month moving average, is pushing milk production to the highs shown in Chart I.  

Chart V - U.S. Dairy Cows

Chart VI does show the dairy cow count based on 12-month averages.  It shows a growth of 45,000 cows in 2020.

Chart VI - U.S. Dairy Cows - 12 Month Moving Average

The growth rate for dairy cows based on 12-month moving averages is .5 percent for 2020 (Chart VII).  Chart VII is concerning in that the decrease in dairy cows that occurred in 2019 has now turned around with significant increases in 2020. In addition to the increasing number of cows, these cows are increasingly productive in both milk per day and components per hundred weight of milk.

Chart VII - Percent Growth - U.S. Dairy Cows - 

As mentioned above, the dairy growth products require components, not milk volume.  Chart VIII below shows the growth in butterfat per hundred weight of milk.  The growth rate grew by one percent over the prior year in 2019.  However, the growth in butterfat has increased by only .3 percent in 2020.  The lower growth rate in 2020 may have to do with actions taken during the volatile market caused by COVID.  

Each pound of milk now has more butterfat than ever.  While this is a magnificent improvement in component production, it does add to the concerns about over production.

Chart VIII - Butterfat Pounds per cwt.

The final chart, Chart IX in this post, shows the production of milk protein based on pounds of protein per hundred weight of milk.  As has been pointed out in prior posts, the growth of milk protein has been very mixed.  Milk protein is the highest paid component in milk and the amount of milk protein is manageable, which make it difficult to understand why milk protein is not growing steadily.

Chart IX - Milk Protein Pounds per cwt.

SUMMARY

In summary, combining the current increase in number of cows, milk production and the increase in component levels, the milk supply appears to be moving to a period of overproduction.  This typically brings increased inventories of cheese and butter and lower prices for butterfat, milk protein, and Class III milk.

This is a very concerning scenario and will continue to be followed in future posts.