COVID-19 Lockdown Bears Consume Dairy Demand
As COVID-19 continues to run rampant throughout the U.S., many states and cities have moved toward full lockdowns again. While the lockdowns will be much less disruptive to the dairy market this time around, Nate Donnay of the StoneX Group says they are a net negative for dairy demand.
With partial or full lockdowns in place across the country foodservice demand and school sales are expected to decline just as we saw this spring. Retail sales will be required to carry the bulk of the demand, Donnay says.
“Retail is all we got and it ain’t looking so hot,” he says. “Retail sales of dairy products were a little disappointing in October.”
While sales were up from last year for all of the major dairy products, the pace of growth slowed between September and October, he notes. Natural cheese sales slowed from 12.9% growth in September to 8.7% in October on a volume basis. Butter fell from 24.5% growth in September to 13.6% in October. Fluid milk went from 1.6% to 1.2%.
“There are anecdotal reports of a surge in retail sales in mid-November as consumers are anticipating new lockdowns, but after this surge, we can probably expect retail sales to stabilize back near September/October levels again,” Donnay says. “Don’t get me wrong, high single digits or low double-digit growth in retail cheese/butter sales is very good growth from a long-run perspective, but these sales are not offsetting declines in foodservice/school sales.”
Government purchases have been making up for lost demand in foodservice and schools, Donnay notes, but their future is uncertain.
“We don’t have exact numbers because the USDA has not released detailed data on what was included in the food boxes, but roughly 1.4% of U.S. milk production cleared through government programs (not including school lunch) during 2020,” he says. “Most of that moved through the food box program.”
According to Pro Farmer policy analyst Jim Wiesemeyer, these government programs are not likely to continue under the Biden administration. There’s a 100% chance it won’t continue next year he said on AgriTalk Friday, joking “They’ll come up with a food box better program.”
While there are some Section 32 purchases lined up for early 2021, right now it looks like we are facing a very steep drop off in dairy moving through government programs, Donnay notes.
