Dairy Processing - July/August 2023 - 76

COMMODITIES
Declining demand
L
Inflation is cooling, but consumer dairy demand remains weak.
by Nate Donnay | nate.donnay@stonex.com
ast year in the State of the Industry issue, I wrote
about recession and modeling the impact of economic
growth on dairy demand. Well, after 12 months of nearly
continuous tightening by central banks around the world, the
anticipated recession is finally ... still not here.
While we haven't technically entered a recession in the
US, demand has weakened significantly this year and we're
seeing that reflected in dairy prices that are down 15 to 40%
from last year in July. The drop in dairy prices has now pulled
milk prices down below the cost of production for most dairy
farmers. The underlying stories for the second half of 2023
and into 2024 will center around the eventual improvement
in demand along with how quickly, and to what degree, the
supply side will adjust lower.
It is hard to pin down the exact macroeconomic drivers of
the slowdown in demand. The economy is still growing. The
unemployment rate is near a record low. Wages are growing.
76 JUL-AUG 2023 | DAIRYPROCESSING.COM
Inflation is cooling. But consumers are still in a bad mood and
dairy demand is weak. Weak demand is likely being primarily
driven by two things: the hangover from the rapid increases
in spending during 2021/2022 and the negative impact the
widespread inflation has had on household budgets.
SPENDING TRENDS
Both the surge in spending and the hangover can be seen in
US retail sales data. From 2014 to the end of 2019, retail sales
increased by about $14 billion a year on an annualized basis.
But from mid-2020 to mid-2022, sales increased by $56.7 billion
per year. Spending on goods increased at four times the normal
pace during the pandemic and early post-pandemic period,
which is obviously unsustainable. Retail sales hit about $590
billion in March of 2022, and they have effectively stuck there
since. It's as if consumers have set their budget and that is all
that they are willing to spend at the store each month.
©mtrlin-stock.adobe.com

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Dairy Processing - July/August 2023

Table of Contents for the Digital Edition of Dairy Processing - July/August 2023

Dairy Processing - July/August 2023 - Intro
Dairy Processing - July/August 2023 - 1
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