Asia’s growing thirst for milk is spilling over into the US market, driving up prices for consumers and squeezing profits for some food manufacturers.
US exports of powdered milk and other dairy products to China, Indonesia and Vietnam have increased over the past year as drought has dampened production at rival New Zealand, historically a major supplier of dairy products in Asia.
Record exports are boosting U.S. dairy farmers’ incomes and sending milk futures prices skyrocketing.
But soaring prices are squeezing some dairy processors, including Dean Foods Co.
the largest U.S. milk processor by sales, which are caught between higher ingredient costs and still tepid milk demand from U.S. consumers.
“The business of transporting products overseas has exploded over the past two years,” said Ronald K. O’Brien II, dairy strategist and trader for Interfood Inc., a unit of the based dairy retailer. in the Netherlands Interfood BV. “The majority of end-users bought overnight in complete and utter shock at these prices.”
U.S. retail milk prices rose 1.5% in January from a year earlier, according to federal data, and the government estimates prices for all dairy products will rise by as much as 3, 5% this year. Consumers paid $3.552 a gallon for fresh whole milk in January, the highest in 13 months.
Class III milk futures, the Chicago Mercantile Exchange’s benchmark contract, hit a record high of $23.21 per hundred pounds last month and are up 22% this year. The first-month Class III contract rose 0.05 cents to $22.65 per hundred pounds on Friday.
“What we’ve seen in futures over the past two months is the sharpest upside move I’ve ever seen,” said Eric Meyer, an analyst at Chicago-based brokerage High Ground Trading, which has been tracking the $1.8 billion milk futures market since 2001. “This one caught a lot of people off guard.”
According to the US Dairy Export Council, US dairy exports rose 19% in volume last year as US companies shipped record amounts of powdered milk, cheese and lactose, which is used in formulas. infant formula and baked goods. The rise in prices means that the value of these exports increased further, jumping 31% to $6.7 billion.
The demand for dairy products in China and other Asian countries has been growing rapidly for years, due to population growth and changing tastes.
Chinese purchases of foreign milk powder have grown particularly rapidly, averaging 33% a year for skimmed milk powder since a 2008 scandal in which locally produced milk contaminated with an industrial chemical killed six children and sickened them. about 300,000.
Total dairy sales to China, including powdered milk, soared even faster last year, by 70% to $706 million, largely because of New Zealand’s drought and inclement weather. in Europe and South America reduced production in these regions.
Export demand has caused a tight supply of milk in the United States, boosting the prices American farmers can get for the key ingredient in everything from cottage cheese to ice cream.
“Every drop of milk we can squeeze right now pays off,” said Skip Hardie, a dairy farmer in Lansing, NY. .”
The average milk price paid to U.S. dairy farmers in February hit a record 24.7 cents a pound, up 27% from a year earlier, according to the U.S. Department of Agriculture.
US consumer demand for cheese, yogurt and some other dairy products has been strong. But per capita milk consumption in the United States has been declining for decades, partly reflecting stiff competition from flavored waters, juices and other beverages, and shows few signs of improving.
This creates a dilemma for suppliers such as Dean Foods, as it cannot easily pass on higher costs without risking lower sales. Last month, the company blamed rising raw milk costs for a steep fourth-quarter loss.
Chief executive Gregg Tanner said on an earnings call that the increase in export demand is not new, but “its magnitude and intensity have been underestimated.”
“Prices have definitely gone up,” said Mara Van Nostrand, a stay-at-home mom in Houston whose family of five consumes two gallons of skim milk a week. She says she tries to “buy the private label” to save money.
Some small dairy processors are also facing headwinds. Al Bekkum, owner of Nordic Creamery in Westby, Wis., said he was trying to develop new artisanal cheeses, such as sweet buttermilk ricotta, to offset rising costs for some of the cream used to manufacture the company’s specialty butters.
“We try to get more money back from the products we buy, so that we don’t have to raise the price of our butter,” Bekkum said.
Analysts and industry executives have said milk prices could start falling later this year amid forecasts of higher production in the United States and other major dairy exporters, including the New Zealand and Australia.
Global milk production in the world’s five major export markets, including the United States, is expected to rise 2% this year to around 608 billion pounds, according to the US Department of Agriculture.
Production in the United States, the third-largest exporter of dairy products, is expected to rise 4.5 billion pounds, or 2%, from last year.
Prolonged drought in California, the largest US dairy-producing state, could also play a role as farmers grapple with arid pastures.
Geoff Vandenheuval, a 53-year-old dairy farmer in Chino, Calif., said he was reluctant to expand his herd after a “disastrous” period of high feed prices and relatively low milk prices in recent years.
“What interests me is getting out of debt, not putting money at risk anymore,” said Vandenheuval, who milks around 750 cows, up from 1,400 several years ago.
Write to Kelsey Gee at [email protected]
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