Ice Cream Makers Skim off Available Cream

Demand for ice cream appears to be strong despite a relatively mild summer across much of the country. Robust demand for cream and cream-based products means manufacturers have been paying a hefty price for what is becoming a hard-to-find product.

“Cream supplies are tight as most ice cream processors are using most available cream,” writes USDA’s Dairy Market News about the Midwest cream market for the week ending July 26.

For the same week in the Northeast and Mid-Atlantic regions, DMN notes that “cream markets are firming” and “cream supplies have been unattainable at times.”

Cream inventories were also tight throughout the western United States in late July, where demand for cream from ice cream, butter, and cream cheese manufacturers has been fierce.

The spot price for Class II cream in the Upper Midwest ranged from $2.6159 to $2.9896/lb. last week, up 10.9 cents from the previous week, according to DMN.

“Rising cream multiples—the factor used to convert the CME butter price to a spot cream price—are common in the summer as ice cream manufacturers compete for cream, but cream multiples have not been this high since 2010,” says Sarina Sharp, agricultural economist with the Daily Dairy Report.

For the week ending July 26, cream multiples in the Upper Midwest were between 1.4 and 1.6, which means those buying cream last week paid 1.4 to 1.6 times the CME spot butter price per pound of fat, notes Sharp.

 "The fact that cream multiples are particularly high this year implies that manufacturers must pay a hefty premium to secure a source of cream,” says Sharp. “This is in stark contrast to milk destined for cheese plants.”

Surplus milk in the Midwest, for example, has provided cheese manufacturers with the opportunity to purchase excess loads of milk for $2/cwt. under the Class III price. Earlier this year, Sharp notes that discounts were even larger.

“The large U.S. milking herd and the late onset of summer heat in the Midwest have not sapped cream premiums, which implies that demand for butter, ice cream, and other cream-based products is robust,” says Sharp. “If milk production slows, cream multiplies could exceed historical levels by even greater margins.”

Moreover, she adds, if milk production declines continue to widen in California, where roughly one-third of the nation’s butter is made, cream multiples could climb even further.

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