Dairy Processing - November/December 2024 - 75

Thanksgiving, to Christmas and all the year-end holidays -
even the Super Bowl in February - (there's) lots of consumer
demand for dairy in the upcoming months. "
IMBALANCE
The imbalance of lower dairy supplies and higher demand
is being felt even more profoundly on a global scale. In the
European Union, butter prices already have increased 83%
compared with a year ago, reaching a record $8,706 per tonne,
the EU Commission reported on Sept. 30. EU cheese was up
10% year over year, while in Asia butter prices were up 36%
and cheese prices were up 12%, according to the EU report.
Oddly enough, the overall decline in global dairy supplies
that is helping keep prices higher is partly a seesaw effect
from " an 18-month period of really low milk prices in 2023
into 2024, " Feuss explained.
" When that happens, profitability on farm shrinks,
margins become challenging, and farmers usually make
some tough choices to cut costs, maybe cut cow numbers,
and shift strategy at the farm level because of those low milk
prices that we saw, " Feuss said. " As a result, we saw lower
milk production for more than a year now, and we're finally
starting to see some of the impacts. "
The spread of diseases affecting dairy cows also has played
a role, though to what extent is an open question, Feuss said.
Cattle in Western Europe recently have been affected by
outbreaks of bluetongue and Epizootic Hemorrhagic Disease,
while dairy herds in California and several other states have
been hit with avian influenza throughout 2024.
" Ultimately, I think prices and margins are driving the milk
production weakness, but it's probably safe to say that bird flu
has had a slight impact, as well, " Feuss said.
Supported by supply issues, in September US cheese
prices notched a five-year high on the CME Group, with
cheddar barrels at one point trading near $2.60 per lb, up
more than $1 from the same time a year ago.
" I think it was kind of a perfect storm there of shortage of
fresh product that was available to the market (and) timing on
milk production declines, " Feuss said.
The higher prices for cheese and butter come at a time
when Americans increasingly are eating, rather than drinking,
their dairy. In 1975, Americans consumed about 247 lbs of
fluid milk per person per year, according to USDA figures. By
2022, that had plummeted to 130 lbs per year, a 47% decrease.
Compare that with Americans' cheese consumption. In 1975,
Americans ate about 19 lbs of cheese per person annually.
Since then, US cheese consumption has more than doubled.
" Consumers continue to eat more and more cheese year
after year, " Fuess said. " The US per capita consumption
continues to increase - we're at more than 40 lbs per person
per year now. We're also seeing pretty firm export demand.
We'll probably have a record cheese export this year. As we
eat more domestically, as the world eats more globally, as our
exports increase, that continues to drive cheese consumption
from every demand angle that you look at. "
GLOBAL DEMAND
Even as China, the world's largest dairy importer, works to
increase domestic supply and become less dependent on
major exporters like New Zealand and Australia, the adoption
of Westernized dietary staples like pizza and bubble tea is
pumping up dairy demand globally, especially in Asia.
" If you look at the per capita consumption in Asia, it's still
exceptionally low, so they have a long way to go to think about
matching or even halving the cheese consumption that we
have here in the (United States), " Feuss said. " Western diet
popularity, things like milk tea in Asia - wherever you look
there's more and more innovation and Westernization of diets. "
A lot of co-ops and processors
right now are looking ahead to ... all
the year-end holidays - even the
Super Bowl in February - (there's)
lots of consumer demand for dairy
in the upcoming months. "
Lucas Fuess, RaboResearch Food & Agribusiness
That should keep the price of cheese and butter on the
high side entering 2025, with manufacturers and consumers
sharing the costs. Eventually, however, the seesaw will tip
back the other direction, with higher values for butterfat
ingredients incentivizing dairy farms to raise production, in
turn easing prices in the second half of 2025 into 2026.
In its latest global dairy report, RaboResearch projected a
recovery of supplies in 2025 as the world's top dairy producers
- the United States, the European Union, Brazil, Argentina,
Uruguay, Australia and New Zealand - show at least marginal
production gains as they adapt to current market conditions.
Lower feed costs and higher milk prices should increase
output in South America. Australia's recent milk production
growth is expected to carry momentum into the new year.
And New Zealand should remain a strong producer, with
34% of its dairy exports still flowing into China while the rest
become available to help fulfill global demand.
Editor's note: This story originally appeared in Food
Business News as part of Sosland Publishing's Market Insights,
which provides in-depth coverage of the commodities that are
critical to food and beverage product development.
DAIRYPROCESSING.COM | NOV-DEC 2024 75
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