The US outlook for dairy
Dr Marin Bozic. Image credit: Department of Applied Economics, University of Minnesota.
The US outlook dairy is, like every other market, heavily impacted by the recent pandemic.
Dr. Marin Bozic, an assistant professor in dairy foods marketing economics in the Department of Applied Economics at the University of Minnesota, recently addressed the current US dairy situation during a webinar, hosted by the I-29 Moo University and Minnesota Milk.
Bozic noted first that nobody really saw this ‘black swan’ event coming, and back in late January, he himself gave a talk in which he predicted that 2020 was going to be a good year for dairy. “Two months later, and the world is unrecognisable. The streets are empty in my neighbourhood, where I sit and talk to you all from my home office,” he said.
The Dow Jones Index whipsawed up and down this week and last, recording its biggest drop and rallies for the past 87 years. Retail sales for dairy and other products have increased by 33.6% versus a year ago, and fluid milk sales have gone up in the San Francisco area alone by 42.8%.
Meanwhile, extended shelf life milk saw an uptick of 70.3% by volume, and this number is higher in areas of greater Covid-19 impact, Dr Bozic noted. Shelf stable milk in New York, one of the states with the highest number of cases, saw its shelf stable milk sales increase by 142%. Powdered milk has gone up by 366.8%, butter is up by 85.2%.
This is all food for home consumption. Food service is down almost 100% globally. “The world has shut down,” Dr Bozic commented. Around 30% of milk solids are consumed in food service. Meanwhile, deliveries have seen an uptick, with pizza cheese increasing. However, “more dairy at home won’t compensate for what we lost in restaurants,” he stated.
The US market, like the EU, has asked the US Department of Agriculture for intervention purchases. The government is considering it and Bozic predicted that the market is likely to see it.
He discussed hedging tools such as the Dairy Margin Coverage in the US, and said there is interest in reopening it for 2020. A fair amount of the commodities that were set to go into food service need to be repackaged for the consumer market, but the issue here is that dairy will be competing with the other commodities in the market for funding from the government to do this.
He said the way going forward for dairy farmers and processors in the US is about loss mitigation rather than profit or even breaking even, through the third quarter of 2021. In the short term, he noted, “There’s going to be an April like you’ve never seen it before, and I suspect it’s going to get worse before it gets better. There is a cost to reopening the economy, and it’s a terrible debate to have – how much is saving a life worth if 30% of the population is unemployed?”
Overall, Dr Bozic said he thought it foolish and dangerous to be confident this event will blow over by the summer. Past events have precipitated new eras and this virus could be a trigger to a new world regime rather than an isolated event, he noted. “It might fast forward us to a new world.
“It will also add uncertainty over a longer time. There will be a longer tail with this and people will worry, and companies will worry more about the length of the supply chain.”
To listen to Dr Bozic’s webinar in full, click here.