Dairy Processing - July/August 2022 - 68

ASSOCIATION INSIGHTS
WEATHER volatility,
SMARTER milk pricing
Growth should keep the US competitive on
the world cheese stage for years to come.
by John T. Umhoefer | Wisconsin Cheese Makers Association
V
olatility will shape the dairy industry in the coming year.
Beyond the challenges of volatile prices and markets,
inflation, business consolidation and milk contraction
will create anything but a calm year for farmers and processors.
Volatility offers upsides. Dairy exports from the US are
strong, with cheese moving abroad up 14% through May 2022.
The US Dairy Export Council leans bullish for the coming
months with US cheddar capacity growing, US cheddar prices
competitive with world market prices, and demand strong in
markets like Japan, South Korea and Mexico.
Wisconsin Cheese Makers Association recently assessed
the oncoming production boom for cheddar and American
style cheeses in the US. By 2025, production at new and
expanded cheese manufacturing sites around the US will
create one billion new pounds of cheddar, Colby and jack
styles compared to 2021 volumes. That's 19% growth in four
years. Growth at this pace should keep the US competitive on
the world cheese stage for years to come.
Yet volatility sets traps for long-term predictions. Domestic
inflation - up over 8% across all categories in 2022 - is rocking
a new generation of shoppers. Retail prices for dairy foods
are closer to 12% higher compared to a year ago. Cheese,
specifically, is up over 8% according to Consumer Price Index
data released by the US Bureau of Labor Statistics.
Lagging retail sales data (from May 2022) finds consumers
sticking with cheese - retail sales volumes in the spring were
up 9% compared to pre-pandemic 2019. But cheese used in
foodservice was off 1.8% in the first five months of 2022 as
consumers continue to evolve their eating patterns.
USDEC notes that inflation - and the specter of recession
- could extend to dairy customers around the world. But this
key dairy organization adds that data does not reflect a slowdown
in import interest to date.
68 JUL-AUG 2022 | DAIRYPROCESSING.COM
An artificial pressure - broken mechanisms in the
classified milk pricing system in the US - compound volatility
and may add fuel to processor consolidation in the dairy
industry. The make allowance in the Class 3 price for cheese
milk, as well as the other solids portion of the Class 3 price,
are beyond broken and directly contribute to depooling of
milk in federal milk market orders. Why? The Class 3 milk
price formula, with its 14-year-old make allowance and other
solid value locked to dry whey prices, now churns out milk
prices that processors simply cannot afford.
Reforming milk price formulas and committing additional
financial resources for the US Department of Agriculture in
the upcoming US Farm Bill are high priorities in the months
ahead. With more funds, USDA could regularly update make
allowances for dairy products, and commit to studies to
improve milk price formulas, making them more equitable to
dairy manufacturers large and small.
Volatility isn't only a dairy processors story. Dairy farms
in the US and around the world face tight margins due to high
input costs for fuel and fertilizer despite record high values
for fresh milk. US milk production through May is down about
1.0% compared to record setting production in 2021. EU milk
production is down 0.6%, with Ireland down 0.7%, France down
1.3%, Germany off 1.7% and Netherlands down 2.3% through
April 2022. USDA's Foreign Ag Service pegged New Zealand
milk production down 6.0% in the first quarter of 2022.
Growing dairy exports and milk price reform are key
strategies to blunt volatility in the year ahead.
John Umhoefer is the executive director of the Wisconsin
Cheese Makers Association (WCMA). WCMA has encouraged
and supported growth in US dairy through advocacy,
education and healthy competition and collaboration.
http://www.DAIRYPROCESSING.COM
Dairy Processing - July/August 2022

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