Dairy and Plant Based Milk - A Market Report 2018
Dairy is Changing
The dairy markets have seen better days. Weak demand and increased production have inventories well above average for nearly every dairy ingredient except butter. We’ve seen the price for Nonfat drop below $0.70 and WPC 80 as low as $1.40 as production continues to over cast sales. Inventories are high and production numbers are up. Unless production slows down or new avenues for sales are found the dairy markets will continue to struggle.
Factors playing a role in the changes:
There has been a shift in production and demand in the world markets and it has left the US in a difficult spot.
· World Milk Production
· NAFTA
· Canada’s increase in production
· China’s domestic dairy growth
· Drop in demand
· The growth in demand for plant based dairy alternatives.
World Milk Production
There have been changes in world milk production that have influenced the direction of the industry. Increases in Europe, Canada and China have affected the export markets and created more competition for the same international business.
World demand is good, but not good enough to balance with current production. Since the EU milk cap was lifted the increase in supply has been substantial and with weak demand inventories have grown and continue to grow. China’s domestic growth is strong reducing the need for import and Canadas’ increase creates new challenges for the US.
With 2018 World production numbers expected to be on the plus side and world inventories already high there are mixed feelings about the direction of the market prices in 2018. Optimists hope that the second half will bring stronger numbers but there are others concerned about the year and hoping that 2019 will be better.
NAFTA:
Since the breakup of NAFTA Mexico has sought out other sources to fill some of their needs. The US was supplying Mexico with as much as 90% of its import demands but now Mexico has contracted with Canada and Europe to cover 20% of their needs. Some reports suggest that Mexico will continue to seek contracts outside the US relying less on US support.
Canadas’ Increased Production
Canada has increased their domestic production to help cover the rise in demand for butter and cream reducing the need for imports from the US. The export of Butter from the US into Canada dropped 60% this past September.
While the increase in Canadas’ production is focused on high fat this also increases the supply of SMP which falls under Canadas’ class 7 milk and is being offered to the world market at very low cost and competes with the US.
China’s Domestic Dairy Growth
While China’s demand for dairy continues to grow their need for imports from the US is not as strong as it once was. Part of the reason is a shift in suppliers and part is their own domestic dairy growth.
For the past 10 years, since the Melamine scandals, Chinas Government has been focused on changing the reputation of their domestic quality and it is finally paying off. They are gaining back the trust of the consumer. The Chinese Government has implemented new regulations, industry standards, tightened supervision and shut down unqualified dairy operations to ensure the quality of product and safety of the consumer. China is the 4th largest producer of Milk in the world and they are growing domestically with the help of new technology, and increased milk output per cow.
China will always need to import dairy to keep up with the growing population and demand but as they continue to improve on their own dairy growth they will become less reliant on the outside world.
Drop in Demand
Demand for fluid milk has been on the decline since the 70’s but the decline has really escalated over the past few years. Between 2012 and 2017 demand for plant based milk products increased 61% while demand for fluid dairy milk dropped 28% over the same time period and is expected to continue to drop another 11% over the next 3 years.
The US is not the only part of the world to experience the loss. In a report put out by Mintel it’s mentioned the same is happening in Western Europe where plant-based sales increased 19% over the past year and dairy milk dropped 11% and is expected to continue dropping over the next few years.
Plant Based Growth:
Based on research by Nielsen, sales of plant-based food in the US jumped up 8.1% in 2017 reaching over $3.1 billion in sales. This included the sales of plant based dairy alternatives such as milks, yogurts, ice creams and cheeses as well as plant based meat alternatives.
Plant-based dairy alternatives are expected to represent 40% of the combined total of dairy and dairy alternative beverages within three years.
Vegan cheese is experiencing great success with the global market estimated to be worth just under $4 billion by 2024, growing at an estimated annual rate of 7.6% now to 2024, according to a report by research firm Bharat Book.
While plant-based milk sales grew 3.1% in 2017, cow’s milk sales declined 5% and are expected to drop another 11% through 2020, according to Mintel.
Signs of the times:
Dean Foods (largest Dairy Supplier in the Country) reported a 3rd Quarter 2017 net income of just $1.4 million, down from $14.5 million in the same period a year ago. This was mostly due to a loss in Dairy Demand
Murray Goulburn; The largest Dairy Co-Op in Australia has shut 2 facilities due to weak demand and too much world supply. They are hoping to salvage the rest of the company by selling to Saputo for $1.3 Billion. The approval of the sale is scheduled for March 1, 2018.
DFA - On December 1, 2017 DFA was scheduled to release National Farmers Organization (NFO) from contract leaving 180 farms without representation. These farms are all located in the Northeast where the industry has been struggling for sales and processing.
McDonalds recently announced it will no longer be offering Chocolate milk or cheeseburgers in the Kids meals in order to reduce calories and fats. They will add a kids sized bottled water as a choice of beverage.
McDonalds also launched a Vegan Burger in Sweden and Finland at the end of 2017. The burger has been deemed a success after selling 150,000 burgers in 1 month.
Nestle; Seeing the growth in plant-based foods bought 2 Vegan companies in 2017.
Pizza Hut launched a Vegan Pizza in England. The pizza is a topped with non-dairy cheeses produced in Greece.
Dominoes Pizza launched 3 different vegan cheese Pizza’s in Australia.
Tyson is partners with “Beyond Meat” which is a plant-based meat alternative that is gaining a lot of attention and is very successful.
Professional athletes are talking about dairy free like never before. Athletes like Drew Brees (NFL Quarterback), Tom Brady (NFL Quarterback), The Williams Sisters (Tennis Pros) all claim their success is due to their diets which are all without dairy and often plant based. In the 2017 NFL season 11 of the Tennessee Titans players turned to a vegan diet and claim it made them better players.
These are only a few examples of dairy free athletes. If you Google dairy free and Vegan athletes, you’ll be surprised by how many are jumping on board and claiming success because of it.
The plant-based growth is not to be ignored. Regardless of the health benefits of dairy the consumer is looking elsewhere, and the trend does not seem to be slowing down.
So what is 2018 looking like for the US dairy markets? Not too bright!
Unless production slows down the industry will continue to struggle. The world is saturated with milk and continues to produce on the plus side, and the plant based growth is substantial. The US dairy markets are in a position they have never been in before; competing for business in areas it has not had to compete in, and sales are down. It’s time to readjust!!!
I have been involved in the dairy industry for over 18 years and have never experienced as difficult a time as this. These difficult times require change.
Please feel free to contact us with any questions or requests, I’m always happy to talk dairy!!!
Paul J Knox
LoAnn Enterprises
443 604 1441