Milk production grew 2.4% on a liquid basis in August driven largely by a 174,000 head year-over-year increase in the milking herd. Rising supply was met with divergent demand trends as superb demand for dairy proteins is juxtaposed by underwhelming consumption of cheese and butter.
Consumer economic conditions have worsened in recent months, particularly for lower-income individuals, as inflation accelerated to 3.7% in September on account of elevated energy prices driving costs higher throughout the economy and tightening consumer budgets. Economic pressure has eaten away at cheese retail sales and QSR foot traffic in particular, resulting in weaker cheddar prices for the last several months until a rally in mid-October. Still, despite the economic challenges, dairy—and dairy protein in particular—remains a consumer staple. NFDM prices have once again surged amidst strong competition for skim solids, and CME dry whey prices set all-time highs as the whey stream is increasingly directed towards protein concentrates.
August’s DMC margin fell to $9.34/cwt as a decline in the All-Milk Price coincided with an increase in feed costs. Although CBOT corn and soybean meal futures have eased from September highs, increases in fuel, electricity, labor, and borrowing costs continue to place pressure on producers.
Breaking a long trend of steady growth, retail sales of cheese fell 0.3% over the summer. Tightening budgets and health-conscious consumption help explain subcategory differences. In response to economic pressure, volumes of shredded and sliced cheeses are falling, but block or natural cheeses are seeing slight growth, a sign that consumers are turning towards slightly cheaper formats. As consumers seek cleaner labels, sales of processed and non-dairy cheeses have fallen, but cheese sticks have seen sales growth as a kid-approved lunchbox protein boost.
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