In most cases, the story is similar throughout the U.S.: Retail dairy product sales are brisk, with consumers stocking up on basic needs as they either self-isolate or are being forced to stay home by state and regional travel bans. In contrast, food service demand has slowed to a crawl as restaurants and schools remain closed.
Retail fluid demand, which had offset the initial loss of school milk distribution, remains strong. The surge in retail demand is evident in terms of both dollars and volume, according to IRI data courtesy of Dairy Management Inc.
A weekly snapshot of U.S. dairy and dairy-related product sales (compared to similar periods a year earlier) shows total retail sales (dollar basis) were up 55% for the week ending March 15, with sales of virtually all products contributing to a $470 million increase compared to the same week a year earlier. With the two-week surge in the first half of March, year-to-date total 2020 retail dairy sales were up more than 7%; they had been up just 2% as of March 1.
On a volume basis, retail dairy product sales also posted strong growth during the week ending March 15. Sales of total refrigerated fluid milk volume were up more than 22 million gallons, a 34% increase compared to the same week one year earlier. As a subset, sales of branded extended shelf life (ESL) milks grew at an even faster pace, up 70%, or about 3 million gallons. Powdered milk sales were up more than 366%, or equivalent to 5.7 million fluid gallons. With the large spike, sales in the South-central and Southeast regions are now posting small volume growth for 2020 year-to-date.
Looking at other dairy products, retail sales trends were similar. For the week ending March 15, sales of cheese (both natural and processed) rose more than 39 million pounds, up almost 64% compared to the same week a year. Butter sales increased 85%, about 11.6 million pounds, and sales of yogurt were up 41%, an increase of almost 26 million pounds. Finally, sales of ice cream jumped almost 30%, or 22 million pounds.
Sales of frozen pizza were up almost 107% compared to the same week a year earlier.
Through March 15, the largest spikes in retail dairy product sales were in California and the West, areas of early infection and early shelter-in-place orders. Sales reports in future weeks will likely reflect COVID-19’s spread.
DMC margin forecast plummets
According to weekly summaries from Dairy Market News, some USDA industry contacts say they feel the bottling pipeline is filling up, and milk is starting to spill back into other processing channels. Heavier Class I sales also contribute to a flood of cream on the market.
With milk production growing as the spring flush kicks in, gains at retail sales aren’t likely to fully replace drops in food service sales, and U.S. inventories of dairy products are building. And through the first week of March, dairy cow culling remained about 4% behind the same pace a year earlier.
The USDA Dairy Margin Coverage (DMC) program outlook continues to change due to COVID-19 and its impact on domestic and global dairy markets.
The DMC Decision Tool estimates margin ranges and payment probabilities based on current milk and feed futures prices. The February 2020 DMC margin is announced March 31 and is expected to remain above $10 per hundredweight (cwt). However, the outlook gets substantially darker after that. As of the close of trading on March 27, DMC margins were forecast below $9 through December 2020, potentially dipping below $8 in April through August, and below $7 in May and June, with a low of $6.55 in June.
Due to the lack of expected payout during last year’s enrollment period, only 47.8% of U.S. dairy operations with production history and 56.2% of the volume of established milk production history were enrolled in DMC for 2020.
The National Milk Producers Federation (NMPF) has asked the USDA to reopen enrollment for 2020, but no action has been taken to date. Additionally, a proposal originally approved in the House version of a $2 trillion COVID-19 economic stimulus bill would have allowed dairy producers to update their production history under the DMC program. However, that provision was not included in the final version signed by President Donald Trump.
What others are saying: RaboResearch
In the latest RaboResearch Dairy Quarterly, senior dairy analyst Michael Harvey said improvements are already visible in China's dairy supply chain, and he anticipates consumer buying patterns will normalize there by the second half of 2020. However, the risk of a setback or a delayed economic recovery in China presents a major downward price risk.
Against that backdrop, the RaboResearch report indicates global milk production from the “Big 7” – the U.S., European Union, New Zealand, Australia, Brazil, Argentina and India – is rising. However, the rate of growth in surplus milk will be restrained, and lower commodity prices in the face of weaker economic growth will support buyers in price-sensitive regions that are not dependent on oil revenue.
However, the combination of reduced Chinese imports, significant supply chain disruptions, including extreme competition for shipping containers across the globe, and rising dairy surpluses in export regions will keep downward pressure on global markets through much of 2020.
- Progressive Dairy
- Email Dave Natzke