Pandemic will likely alter autumn dairy demand

Issue Date: August 26, 2020
By Ching Lee

Virtual schooling, empty stadiums and fewer social gatherings are expected to dent sales of milk and dairy products this fall, after recent months marked by record market swings driven by impacts from the COVID-19 pandemic.

In a more typical year, the fall season brings more fluid milk flowing into school cafeterias and cheese topping everything from nachos to burgers to pizzas at sporting events. Later in the season, holiday baking tends to boost butter sales.

"It's a different environment today," said Tulare County dairy farmer Joey Fernandes, who ships his milk to the dairy cooperative Land O'Lakes. "I would say demand has more reason to go down than go up, based on this current situation."

With its portfolio of butter, cheese, milk and other dairy products, the cooperative has always considered itself a "fourth-quarter company," he said, referring to the final part of the year when more home baking, school-milk programs and holiday meals lift demand.

Demand for cheese tends to be highest during the fall, said Annie AcMoody, director of economic analysis for Western United Dairies, with holiday home baking and cooking in the latter part of the season, and more grilling and tailgating parties associated with sporting events. This year, with people already baking and cooking more at home, the usual demand boost may not happen, especially if there are fewer gatherings, she added.

School lunches account for about 7% to 15% of total fluid-milk sales, according to estimates. Though California schools have largely begun their new academic years remotely, some U.S. schools are opening in person and may resume normal school-lunch programs, AcMoody said. Even schools that have gone virtual continue to offer meals, she noted, though not everyone will participate, which will lower milk consumption.

"However, kids being at home and families reconnecting with breakfast items like cereal will certainly shift some of that fluid demand to breakfast," she said, pointing to recent data showing a 35% rise in cereal sales.

Market uncertainties created by the pandemic are expected to lead to more volatility, "as long as COVID-19 makes its way through the economy," said Peter Vitaliano, chief economist for the National Milk Producers Federation. With milk prices seeing record fluctuations in recent months, "it has been indeed a roller coaster," he added.

Early in the pandemic, plummeting demand due to restaurant closures and surging retail sales created disruptions in the supply chain, with shortages at grocery stores and some farmers having to discard milk. Later, with some restaurants reopening and government purchases, and many dairies reducing production, "a pinch in the market balance … pushed prices up sharply," particularly for cheese, AcMoody said. Today, "that feeling of tightness in cheese availability" has ended, she said, with cheese prices dropping, though not back to where they were at their lowest level in April.

National milk production is also back up, she noted, and though government purchases have helped to offset some loss in demand, "how long will those go for—and what happens to the supply-demand balance when that goes away—is a key question," she added.

As a dairy farmer, Fernandes said he's paying attention to whether U.S. milk production will continue to climb. Because most dairy farmers knew record-high cheese prices in June would be short-lived, he said, many held on to their cows and put "as much milk as they can through the tank" to capture the strong market.

For California dairy farmers, at least, the recent heat wave has slowed production, he said, noting how his cows' feed intake had dropped "dramatically," a telltale sign production will decline.

Tulare County dairy farmer Ron Locke described the outlook for his Top O' the Morn milk-processing business as positive. He said though sales are not "crazy strong" the way they were early in the pandemic and have since "flattened out," demand remains good for the farm's milk, part of which he sells in glass bottles to retailers and through home delivery and drive-thru kiosks.

Though a struggling economy and less demand from schools and restaurants continue to hurt milk prices and the dairy business, Locke said people spending more time at home and eating more foods such as cereal will "hold demand up."

As an organic dairy farmer in Humboldt and Del Norte counties, Blake Alexandre said the pandemic has affected his business differently from those that produce conventional milk, because organic dairy products don't have "nearly as big a presence" in restaurants and other food service. Unlike the wild swings in the conventional market, "organic prices held," he noted, "because we're generally only at retail."

Alexandre bottles a lot of his own milk, which is sold in retail stores throughout the West Coast. Though sales surged early in the pandemic, he noted they've been "fairly flat" during the last four to five weeks, and said he hasn't yet noticed higher demand associated with increased autumn consumption. The farm has added some new stores where the milk is sold, he said, but average sales per store have been down about 20% to 30%.

"Overall, it's harder to survive," Alexandre said. "That's the hard part. Our expectations were to be selling more product, and we aren't right now. We've been muted down because of COVID."

The pandemic has made it more difficult for his sales staff to visit stores, he said, as many retailers have placed moratoriums on such visits.

One product that's been "taking off," he said, is powdered milk, of which there's been "a lot of new sales." Alexandre attributed the "new interest" in powdered milk to its convenience and shelf life, as people continue to shelter in place and make fewer trips to the store.

"We think that consumers are looking to old-school ideas, if you will," he 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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