Is a Volatile Summer Ahead for Dairy?

This summer is shaping up to be a volatile one for dairy. This year’s delayed planting season and a slowdown in global milk production, along with weather uncertainty in other parts of the world and ongoing supply chain issues, could radically throw off the supply side of the dairy balance sheet, according to Betty Barning, analyst with the Daily Dairy Report.

Intermittent cream shortages have already developed as the tightest labor market in decades has cut capacity at some plants just as Memorial Day kicked off the summer ice cream season.

According to Berning, cream supplies around the country have varied this spring, but relatively stable supplies in western dairy states have allowed loads to move to the central and northeastern parts of the country when transportation has been available. However, Berning noted that throughout April and May, labor shortages caused dairy plants to run below capacity, limiting output even when cream was available.

“Demand for cream from processors weakened around Memorial Day, likely due to plant closures and maintenance over the long holiday weekend,” Berning said. “In addition, some ice cream manufacturers canceled orders, due to limited availability of certain ingredients, such as sweeteners—the result of ongoing supply chain issues.” However, she anticipated that cream demand would pick up in early June and supplies would once again tighten.

While butter is the primary user of cream, it is also used in Class II products, such as whipping cream, ice cream, and cream cheese. As summer ramps up, more cream is pulled away from butter and into ice cream and frozen novelty products. This pull will be happening at a time when butter supplies are already tight, she said.

April butter inventories fell 23% below year-ago levels, and April marked the ninth consecutive month of year-over-year declines in stocks, according to USDA data. With the ice cream season ramping up, butter stocks could dwindle through summer as cream moves to other uses. If that happens, she said butter inventories will  be low headed into the fall and winter baking season.

“Weather has been further complicating the cream supply,” Berning said. “While spring flush tends to be heaviest in April, this year’s flush was hum drum due to unseasonably warm weather in the southern United States and colder-than-normal temperatures in northern dairy states at the start of flush.” Plus, unseasonably hot temperatures and high humidity in southern states during the heart of the flush and across the country at the end of the season further limited output.

“With a lackluster spring flush and lower global milk supplies, the supply side of the dairy balance sheet is already feeling the pinch,” Berning said. “At the same time, demand for milk and dairy products appears to be steady—at least for now. Thus, with less milk available and the same volumes of milk required to fill steady demand, dairy prices will stay lofty for the time being.”