Dairy products see surging demand; will it continue?

Issue Date: March 25, 2020
By Ching Lee

Panic-buying at grocery stores in response to the coronavirus has led to a surge in demand for food staples such as milk and dairy products, but dairy analysts say the pandemic's impacts on food service, the supply chain and export markets pose long-term concerns.

More immediately, the statewide stay-at-home order has Tulare County dairy farmer Ron Locke's Top O' the Morn milk-processing business "slammed." The farm markets a portion of its milk in glass bottles, selling to retailers and through its home-delivery and drive-through business. As a small processor, Locke said he's now running at 140% capacity to keep his customers supplied.

"The home delivery side, we literally had to shut our website off for a while because the demand was so high that we couldn't handle it," he said. "We actually have a waiting list right now on home delivery customers."

He noted his wholesale business has been "getting calls every day," with retailers asking for "as much milk as you can deliver," while his drive-through business also has been "really busy."

On the farm, there have been no disruptions to production and no shortage of raw milk, though Locke said he worries about running short on glass bottles and began rationing six half gallons per customer. With the state's shelter-in-place order, he said he expects his home delivery and drive-through business will "stay pretty consistent" and remains "hopeful … that this will reenergize the fluid-milk market."

"Now everybody is scrambling to get milk, so milk is back in their diet," he said. "Kids are home, and I'm sure they're eating cereal."

Ben Laine, a dairy analyst for Rabo AgriFinance, said the recent retail buying frenzy could be short term, adding that the initial surge in sales will slow once shoppers "feel a little more confident and do less stockpiling." In terms of what they're buying, Laine noted people are stocking up on dairy products "across the board." For example, sales of natural cheese, processed cheese and ice cream all rose, according to retail scanner data for the week ending March 8, said Mary Ledman with RaboResearch Food & Agribusiness.

Though school closures have reduced the sale of fluid milk to the national school-lunch program, which consumes about 7% of the nation's milk supply, Ledman said dairy companies from California to New York reported gains at the retail level have more than offset those losses.

Because many schools were already on spring break and the school year finishes in May, Laine said the timing of school closures and their impact on food service was "not as bad as it could have been if it were to happen in the fall."

With about 40% of U.S. cheese production consumed through food-service channels, Ledman said some losses—but not all—will be offset by increased retail sales.

Laine said the challenge now for dairy companies is trying to suddenly shift product mix and distribution channels to satisfy soaring demand from retail customers.

Organic dairy farmer Albert Straus, founder and CEO of Straus Family Creamery in Petaluma, said company operations continue "on a regular full-time schedule, balancing the higher demand for retail products with the softening of orders from restaurants, coffee shops and other businesses serving the public."

It's been "business as usual" for Tulare County dairy farmer Tom Barcellos, who noted his employees feel fine and are being cautious. But he said he remains concerned about pressure on the overall supply chain, particularly at the processing plant, which he said already gave notice to farmers about penalties for overproducing milk should the plant experience processing bottlenecks due to the virus and stay-at-home orders.

Having already reduced his herd due to unprofitable milk prices, Barcellos said he's not too worried about producing over his base, "but going forward, things could change in the next few weeks or the next few days."

As a large producer of nonfat dry milk, California will see immediate disruptions to the powder market, Ledman said, as China is expected to import about 20% less milk powder in 2020. Not only does China have large carryover stocks from 2019, she noted, but impacts from the virus also led China to convert more of its own milk production to powders.

"We've already seen the nonfat dry milk market suffer because of the coronavirus and the disruption to global trade because of it," she said.

Meanwhile, sales of whey, much of it fed to pigs, continue to be down due to African swine fever, which has decimated China's supply of hogs, Laine said.

Devaluation of the Mexico peso also could put at risk U.S. exports to Mexico, the largest importer of American dairy products, as the weaker peso will make U.S. exports less competitive, Ledman said.

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.




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