Dairy Processing - May/June 2022 - 58

COMMODITIES OUTLOOK
Forced change
Fluid milk consumption continues on a long-run downtrend.
by Nate Donnay | nate.donnay@stonex.com
M
eet the new normal, same as the old normal. Early
in the pandemic there was a lot of speculation about
how our world was going to be different going
forward. It turns out we just want to go back to doing what
we were doing before the pandemic, but maybe work from
home a little more. That " return to normal " can clearly be
seen in the consumption of fluid milk in the United States.
Fluid milk consumption has been on a long-run downtrend.
Consumers have an increasing array of options when it comes
to beverages. First it was soda, then bottled water, then energy
drinks, flavored water, and now milk substitutes like oat milk.
Some of the decline is also attributed to the trend toward eating
more meals outside of the home where milk sometimes isn't on
the menu, and if it is, the refills aren't free.
When we were first stuck at home, we were eating at
restaurants less and taking more time to eat breakfast at
home, which boosted cereal and milk sales. For the first time
in a long time, volume sales of milk at retail were growing.
Then government food aid programs like the Farmers to
Families Food Box program kicked in and provided millions
of gallons of milk to people in need. But even with all of that,
fluid milk sales for the year were still down 0.1%. Then we
went back to doing what we were doing before and fluid milk
sales fell 4.1% in 2021, putting sales back onto their long-run
trend. The declines have continued into 2022, and with milk
prices pushing to new record highs, it is hard to see a story
that will shift the trend over the next six months.
The continued downtrend in consumption is going to force
changes for the industry. First, we need fewer and fewer milk
bottling plants. But as we close plants, milk is having to travel
longer distances to reach consumers. That could eventually
mean limited or no access to bottled milk in rural parts of the
58 MAY-JUN 2022 | DAIRYPROCESSING.COM
country. That is likely going to drive an increase in production
of extended shelf-life milk as well as ultra-high temperature
pasteurized (UHT) products.
We've already seen some new investments in processing
capacity for these products. The other big change could be
in the way that we price milk. The Federal Milk Marketing
Orders, which set milk prices in most of the country, are
designed around fluid milk sales. As those sales fall and
become a smaller and smaller share of revenue for the dairy
farmers, the current pricing system makes less and less sense
and the incentives for yogurt, ice cream, cheese and butter
plants to participate in the Federal Orders is declining. The
dairy industry is currently debating changes to the pricing
system, but my guess is we will kick the can down the road
and the changes that we see in the near future will be small.
The big changes will come five to ten years from now.
The long-run trend for fluid milk consumption is clear. US
consumers are moving toward alternatives. It's possible the
US could find new consumers in the export market, but that
would require a change in our pricing structure which doesn't
look likely in the next five years.
Editor's note: This material should be construed as
market commentary, merely observing economic, political
and/or market conditions, and not intended to refer to
any particular trading strategy, promotional element or
quality of service provided by the FCM Division of StoneX
Financial Inc.
Nate Donnay is the director of Dairy Market Insight
at StoneX and has been applying his interest in large
complicated systems and statistical analysis to the
international and US dairy markets since 2005.
©Alphonse Mc Clouds - stock.adobe.com
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