Reducing Milk Supply Raises Concern

Too much emphasis may be focused on reducing the milk supply and that may lead to milk shortages ahead, according to Jerry Dryer, editor of the Dairy and Food Market Analyst and chief market analyst for Rice Dairy in Chicago.

Speaking in Wednesday’s DairyLine broadcast, Dryer said a drop in demand is “what got us into this pickle, in terms of the economic crisis that consumed markets around the world and put a dinger in demand.”

But, domestic demand is very good, according to Dryer, based on the latest retail sales data covering March, April, and May.

Natural cheese sales were up 7-8 percent from a year ago, he said, there’s been a lot of promotion at retail, and people are eating at home more so that’s helped retail cheese sales. And, sales over the past year were up 3 percent, accordingto Dryer, “so sales have been strengthening the last few months.”

Food service cheese sales are also good, according to Dryer, as “the value menu is still important and it’s very cheese friendly at the McDonalds and Burger Kings of the world,” although high end restaurant sales may not be as good.

Dryer also says the dairy export side of the business is stronger than many expected, though it’s running about two thirds below a year ago but it didn’t absolutely fall apart and he’s optimistic that exports will improve as we progress through the year.

“Then why are dairy prices so low?” I asked. “Because we’re making more than the markets will absorb right now,” answered Dryer. Inventories were built late last year and were added to early this year, he said, “when demand wasn’t as robust as the numbers I’m showing you right now and it’s going to take us a while to chew through those inventories and it’s going to take a while to get demand back internationally at the level it was a year and even two years ago.”

So, yes it does come back to supply and Dryer said some production capacity needs to be “wrung out” but he’s concerned that too much will be lost because “We’ve been in this situation for so long that we may lose a big chunk of productive capacity and that would be tragic because, just about the time we lose a large chunk of it, we’re going to need it because demand will have recovered.”