The author is senior vice president, economics, communications and legislative affairs, Agri-Mark, Inc., Lawrence, Mass.

Robert D. Wellington
Recent milk check articles have done an excellent job explaining the current weaknesses in dairy markets both here and abroad. Unfortunately, little has changed in the past few months except the possibility of further weakness.

Butter has been the one bright spot with its rehabilitated image, stronger demand and above-average prices steadily exceeding $2 per pound at the Chicago Mercantile Exchange. However, even that product is being stressed as more winter and spring cream heads to the churn.

National butter inventories are growing even beyond the improved demand. Butter fell below $2 per pound in early March. While a collapse in butter prices is unlikely, equally unlikely is an autumn rebound above $3 per pound that had occurred in the past two years.

Continued financial pressure

Farm milk prices fell in 2015 and have continued to fall this year. Last year's All-Milk price netted $17.08 while the mailbox price averaged $17.02. For more details on that front, turn to page 242. As for this year, USDA economists have forecasted that the All-Milk price could average $15.25 per hundredweight with a potential range of $14.95 to $15.55.

Given these pay prices, most farmers I speak to in the Northeast are under financial stress. We are seeing large numbers of small and medium farms going out of business. Many larger farms with economies of scale and lower production costs continue to produce more milk and drive total regional milk production up despite the decline in farm numbers. These farmers see a strong future in dairying despite these roller-coaster economic conditions and have invested accordingly.

When things get tough, human nature often gets people caught up in the immediate conditions and project that they will continue indefinitely. This has never been the case in dairy over time. Milk is nature's most perfect food and not only has the nutritional and versatility profiles to prove it, it has the superior taste that draws all consumers domestically and internationally.

Prior to a decade ago, the problem with dairy consumption was not the desire for people to have it, but the ability of many of those consumers to pay for it. Rising middle class populations around the world, but most notably in countries like China and India, have sought better diets with dairy as an integral component. Recent financial and political upheaval there and in many other countries have depressed that demand, but I have confidence that it will return and grow even further.

Creative cats

Dairy farmers and dairy companies are incredibly innovative. We have seen whey and whey product demand explode as it has been formulated as an ingredient into thousands of food products. As beverage milk sales slowed, a surge of milk-based adult drinks like lattes become the rage.

Small artisan cheesemakers and even larger ones like Cabot Creamery have made great inroads into the high end specialty cheese markets previously dominated by imported varieties. Greek yogurt burst on the American scene not even a decade ago but captured and initially expanded much of the yogurt market with a product that uses twice the milk protein as traditional yogurt.

Cutting edge research has finally disputed the false nutritional and diet information about butter and butterfat. Not only have butter sales risen as a result, consumers are returning to whole milk and higher fat yogurts. Butterfat carries much of the flavor in dairy foods. Better tasting, higher fat dairy products will lead to higher total consumption as well. I hope that adding low- fat and full-fat milks back into the schools instead of just skim milk drinks will occur and improve both their nutrition and consumption for the benefit of all school children.

In addition to reacting to dairy trends, dairy companies continue to embrace consumer convenience as well. Shredded cheese did that more than a decade ago, but now the traditional bars of cheese in the supermarket are becoming consumer friendly by being sold presliced in a form known as "cracker cuts." As my friends in sales have said, "How many loaves of bread in the bakery aisle are not presliced today?"

Not only will this provide convenience to busy consumers, I believe that it will boost overall cheese consumption. When I had presliced cheese in my home during my sons' teenage years (too many years, too long ago), they would always grab a large handful as they came and went but rarely stopped to slice their own. This new packaging will encourage snacking on cheese more often. As everyone knows, when one prepares a mid-day, late night or TV watching snack, the first one or two slices you pop in your mouth don't count (except to dairy farmers and cheesemakers).

Finally, there's the fact that dairy generates revenue for many of our partners. That makes the category an area worthy of continued investment for all interested parties.

"Dairy provides one of the best returns on invested capital," said Doug Adams, president of the Prime Consulting Group, in a presentation earlier this year. "Only produce, bakery and deli outshine dairy for those in the grocery business."

In making those statements, Adams pointed to the Willard Bishop Grocery Super Study that is helping those selling dairy products to convince grocers to further reinvent the dairy aisle. That could yield tremendous opportunities not only for grocers, but the entire dairy sector as that study noted consumers purchase beverage milk 31 times per year. With better in-store presentation, the number of purchasing events could improve even further.

Dairy brings value

"The dairy case is a $60 billion category, and beverage milk is one quarter of that," said Genevieve Poirier-Richards with the National Fluid Milk Processor Promotion Board. "With the value dairy brings to grocers, we hope to make some inroads in presenting dairy to consumers." Of course, this will be critical to bolstering the dairy beverage category that has been sluggish. However, the resurgence of positive views on dairy fats does have the whole milk category in a growth phase.

The just-released 2015 Dietary Guidelines for Americans backs up dairy's bright future. One of the core reasons dairy foods held its position of three servings per day, and even its own category for that matter, is the woeful bone health amongst Americans. (The five main categories are fruits, vegetables, grains, proteins and dairy.)

In the latest suggestions for American eating, scientists noted that 15 percent of women suffer from osteoporosis . . . brittle and fragile bones due to an inadequate intake of calcium and vitamin D. Once in motion, the condition is very difficult to reverse. While the 15 percent figure may not be that alarming, the fact that 51 percent of American women are categorized as having "low bone mass" is concerning. This situation is less profound in men but still apparent.

There will be a rebound

The dairy markets will recover and dairy consumption will rise strongly once again. It might take a year or perhaps a bit longer, but people's appetites for dairy products around the world will bring them back and expand consumption further. Of this, I have no doubt.

This article appears on page 261 of the April 10, 2016 issue of Hoard's Dairyman.

Return to the Hoard's Dairyman feature page.