Thursday, November 8, 2007

Understanding the Changing Dairy Industry

From John Herrera, US Foodservice San Francisco

From the farm to the consumer, the dairy world is changing rapidly. We are seeing conditions we’ve never seen before, which has caused the markets to be on an upward trend.

 US demand is outpacing milk growth.

 Grain prices are skyrocketing due to global shortages. Weather has depleted global reserves. Drought conditions in Australia and other parts of the world have really put a strain on the cost of feed. In addition, over 160 corn ethanol facilities have popped up in the US, pulling feed from the dairy industry.

 US dairy exports are up 27% because the dollar value is weak which is driving foreign buyers to shop in the US. This is increasing domestic prices.

 China consumption is up 12% and their milk powder sales are up 176%. With limited resources and the country becoming more westernized, this forces them to seek dairy products outside China.

 European subsidies have been suspended, again making our dairy products very appealing from a price standpoint.

 Of greater concern is the potential shortfall in cheese supply by 2010 due to the fact that many cheese manufacturers are moving away from cheese.

o Manufacturers are taking big hits in cost increases such as fuel/freight, packaging, healthcare, utilities, etc.
o Manufacturers are finding it more profitable to produce milk powders, etc. where the market price for these items due to global conditions have skyrocketed.

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