1) Fat is where it’s at! And it’s not just butter
You’ve seen the headlines. Ed Sheeran is putting butter in his coffee. Butter is on the cover of Time Magazine. What hasn’t been in the headlines: USA Consumers are eating more butterfat, everywhere, or at the very least… in a lot of places. Whole fluid milk sales are up. Higher fat cheese sales are up. Higher fat yogurt sales are up.
And butter sales? After seeing “2 for $4.50”promotions in 4Q13, consumers in 4Q14 balked at”2 for $7.00”. Sales slowed. This has since changed. Lower prices are finally being passed to consumers. Butter sales are up.
2) Imports
The question isn’t if we’ll import more cheese and butterfat this year, but rather, how much cheese and butterfat will we import? USA futures prices of butter and cheese have been above rest-of-the world spot prices for some time. During Feb, butterfat imports were up 376% at 5 million lbs; cheese imports were up 36% at 13 million lbs
Butterfat enters the USA in the form of anhydrous milk fat blends, typically destined for confectionaries, processed cheesemakers and other ingredient uses. Cheese comes in when there are opportunities to clear that large (~$0.50lb) tariff/cost hurdle.
3) Milk production in the USA and EU: The contraction in California milk supply (down 3% in 1Q15) has been faster than expected. For most-of-the-rest of the country, margins are still positive, especially with lower corn, soybeans and hay prices.
In the EU, now in a post-quota era, some indicators suggest more milk in the region: Declining spot raw milk prices; declining dairy product prices. The hard milk production data is always old enough to shave. We wait for March data.
The big questions: What will milk production growth look like in the USA and EU? How much pressure will EU milk production (and the according price declines) put on USA exporters?
4) USA foodservice demand: Lower oil prices and a buzzing USA economy has caused customers to eat out more and to move up the menu-price ladder (pay for higher priced items which is friendly to natural-cheese usage).
Many data indicate YoY sales growth in the high single digits. This is in dollars. Not volume. Traffic (think number of customers) is probably up somewhere between three and four percent.
5) China:
All eyes and ears are focused on Chinese milk powder stocks. Growth in Chinese consumption of milk powders came in the low single digits during 2014. Chinese whole milk imports were down 50% during 1Q15; skim milk powder imports were down 38%.
Source: AgWeb
