Dairy Demand Starting to Outpace Supply, Thanks to Pizza Sales
Published: Friday, August 6, 2021
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Dairy farm bottom lines are getting a lot of attention these days by farmers and bankers. The National Milk Producers Federation said, "Positive aspects of the current dairy situation include a 4.7 percent annual increase for total commercial use of milk in all products, domestic and export, during March to May, when measured on a milk equivalent of total solids basis. Of total use, domestic use was 1.9 percent higher, while exports grew over 19 percent."
NMPF admits that while many year-over-year comparisons are currently less informative than usual given last year's pandemic, growth in total commercial use exceeded growth in both milk and milk solids production during the March to May period. That growth, plus the heat and drought situation in the Western states, should start to improve milk prices and margins, although the current situation continues to reflect higher production earlier in the year, NMPF concludes.
Pizza uses a tremendous amount of cheese and remember it takes about 10 pounds of milk to produce one pound of cheese. One of the biggest names in the pizza business today is Domino's, but Domino's has seen growth nearly six times faster in international markets than in the U.S., according to the July 23 Dairy and Food Market Analyst.
"The company reported that it opened 203 restaurants in foreign markets but only 35 in the U.S. in second quarter 2021. Growth was concentrated in China, Japan, the United Kingdom, Germany, Mexico and Turkey," according to the DFMA, "with impressive sales growth as well." The company said its total second quarter sales rose 17 percent year over year, driven by much-higher sales in international markets with same-store sales up 14 percent. Same-store sales in the U.S. grew just 3.5 percent, "lapping a difficult-to-beat increase of 16 percent in second quarter 2020."
Speaking in the Aug. 2 "Dairy Radio Now," DFMA analyst and editor Matt Gould pointed out that it's not just pizza driving cheese sales but credited quick service restaurant sales in general, which have soared, as we came out of the pandemic.
McDonalds reported U.S. sales were up 26 percent from a year ago, he said, and global sales were up 41 percent, although that's measured against weak comparables a year ago. He said "people are getting out, getting together and going thru drive-thrus." Considering overall cheese consumption, the sales are quite strong, he said. Comparable sales are also occurring in other chains, according to Gould, such as Burger King, Wendy's, Chipotle, Papa Johns, Little Caesars and others are "performing on all cylinders right now," he concluded.
The July 26 Daily Dairy Report adds that Nestlé, which makes DiGiorno, Tombstone, Jack's and California Pizza Kitchen pizzas, saw high single-digit growth in its frozen category last year, with DiGiorno called out as a key category." Staffing is one of the big issues they face, according to the DDR.
Back on the farm, "heat advisories lit up weather maps again this week," according to StoneX Dairy's July 29 Early Morning Update, "but this time the largest swath of heat was over the Great Plaines and Midwest. Washington State was, however, put back on an excessive heat warning once again as temperatures surge in that area of the country. All of this hasn't meant much to the price of milk or corn for that matter," said StoneX. "The prevailing belief is that heat will knock us down to where we ought to be as opposed to causing any great shortage. In slow demand markets, supply takes center stage. When demand improves, it's almost all about demand," StoneX concludes.
The cash dairy markets didn't have a lot to feed on the last week of July. There were no major USDA reports that the trade actively monitors so weather, emotion and rumor ruled.
The Cheddar blocks climbed to $1.6350 per pound last Tuesday and stayed there, up a nickel on the week but 61.75 cents below a year ago when they plunged 28.75 cents.
The barrels hit $1.4175 last Monday but rolled downhill from there to last Friday's close at $1.39, 1.25 cents lower on the week, 84.50 cents below a year ago, and 24.50 cents below the blocks. There were three sales of block on the week and 22 for the month of July, down from 82 in June. Barrel sales totaled 16 for the week and 111 for the month, down from 126 in June.
Packaging issues on the block side is creating an additional supply of barrels, according to StoneX. Meanwhile, Dairy Market News reports that Midwestern cheese producer's sales remain generally healthy. Italian-style cheesemakers say sales remain robust. Some Cheddar makers reported generally steady and healthy sales, but some customers have grown a little more hesitant as prices soften. Milk availability, after showing signs of increased prices the previous week, slipped back to the $5 under realm. A number of cheesemakers were running flush with internally sourced milk, but cheese stocks are not burdensome.
Western cheese demand, both retail and food service, held steady last week and the lower prices remain favorable to international buyers. Port congestion continues to delay loads which are building in warehouses due to a shortage of truck drivers and limited available shipping supplies, according to DMN.
Butter fell to $1.6225 per pound last Wednesday, lowest since Feb. 26, but rallied some last Friday to close at $1.6425, down 5.25 cents on the week but 3.50 cents above a year ago. Six sales were reported on the week and 55 for the month, down from 90 in June.
Butter producers continue to say summer sales lag week-to-week but they are not overly concerned as orders are generally in line with seasonal expectations. Cream availability is sporadic, but butter plant managers are able to clear cream if they are open to paying freight costs from Western states. That said, they say spot cream availability is up one week and down the next. Lighter ice cream production, seasonally, is assisting in availability week to week.
Cream is tightening in the West, according to DMN, but available to meet needs. Transporting cream remains a challenge as tankers and drivers are still in high demand with limited availability. Some plants are reducing butter output while others are maintaining active schedules. Inventories are heavy though much is under contract. Retail sales are steady but down from last year's pandemic baking buys. Some grocers are advertising promotions to move more butter. Food service orders are level but, in light of recent CDC guidance, public health officials in several counties have issued, or considering mask recommendations again for indoor settings. It remains to be seen what impact that might have.
Spot Grade A nonfat dry milk hadn't seen much movement in recent sessions until last Thursday's 1.50 cent jump. It added another .25 cents last Friday to close at $1.2675 per pound, up 1.50 cents on the week and 29 cents above a year ago. CME sales totaled six for the week and 34 for the month, down from 76 in June.
StoneX reported that NFDM values in last week's National Dairy Products Sales Report took an unexpected jump on stronger volume along with an announcement of decreasing volumes on GDT, which spooked the market higher.
CME dry whey lost 3 cents last Thursday and stayed there last Friday at 50.25 cents per pound, down 3.50 cents on the week but 16 cents above a year ago. Four sales were reported on the week and 17 for the month, up from 11 in June.
StoneX says stock level building is keeping pressure on the market and logistic issues continue to be a hurdle with movement of domestic product as well as getting product to port for shipment.
In the week ending July 10, 53,700 dairy cows were sent to slaughter, down 2,100 from the previous week but 3,600, or 7.2 percent, above that week a year ago.
Dairy Exports Surging
Checking the international scene, HighGround Dairy reports that New Zealand had a record second quarter for dairy exports, mainly due to the jump in volume to China. Whole milk powder exports were up 82 percent, though some of those gains were offset by steep losses to the Middle East and North Africa.
Whole milk powder exports to China jumped 147 percent in June alone, according to HGD, and first half of the year exports have been record high for WMP, fluid milk and cream, cheese and lactose. China's cheese consumption is growing says HGD, "whether in the form of pizza or as a lollipop," and "demand is expected to grow further as the Chinese dairy industry promotes cheese as nutritious, aligned with the country's growing focus on health."
In politics, National Milk Producers Federation executive committee member Allan Huttema testified at a Senate Finance Committee hearing last week on the impact of the U.S.-Mexico-Canada Agreement (USMCA). He said, "USMCA enforcement is essential for the agreement to reach its potential for U.S. dairy farmers."
"NMPF and the dairy producers it represents are grateful to the Senate Finance Committee for inviting Allan to discuss the benefits that the USMCA has brought U.S. dairy producers and cooperatives," said Jim Mulhern, president and CEO of NMPF. "But as Huttema said so well, adequate enforcement is necessary to ensure American dairy producers are provided the access promised in the agreement. We are grateful to the committee members for their advocacy in support of the recently initiated dispute settlement proceedings over Canada's dairy tariff rate quotas (TRQs), a critical step in enforcement of this agreement."
Huttema operates an 800-cow dairy in Parma, Idaho and serves as chair of the Darigold and Northwest Dairy Assn. boards, both of which are NMPF and U.S. Dairy Export Council members.
The International Dairy Foods Assn. called on the U.S. government and European Commission to "quickly resolve a regulatory dispute that threatens the export of dairy ingredients produced in the U.S. and used to make infant formulas and critical adult nutrition products in European Union member states and other nations. Unless the U.S. and EC resolve the issue in the coming weeks, the supply chain for global infant formulas will be thrown into chaos resulting in product shortages, job losses and price increases," IDFA warned.
The IDFA also announced that registration is now open for Dairy Forum 2022. The forum will be live and in person Jan. 23-26 at the J.W. Marriott Desert Springs Resort and Spa in Palm Desert. The forum will offer the latest thinking on leadership, policy, technology, people and workforce, economics., and innovation, according to the IDFA.
Return to Top of Page