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Dairy demand is strong, but inflation looms


Despite the oddities that 2021 brought, with the continuing pandemic and beginnings of rising inflation, University of Wisconsin-Madison’s Mark Stephenson said it was still a good year for domestic dairy demand. According to USDA data, per capita dairy consumption in 2021 was well over 660 pounds of milk equivalents.


During the January Hoard’s Dairyman webinar, the recently retired director of dairy policy analysis shared that the American cheese and other cheese categories continued to see strong growth, along with yogurt and butter. “These are the categories we want to salute,” Stephenson said.


On the production side, milk component levels are following a similar trajectory, as we have seen substantial gains in milk components in the past decade. The U.S. dairy herd now produces milk with more than 4% butterfat.


“It is really quite astonishing,” Stephenson said. He noted the change is partly due to genetics and partly because we understand how to feed cows better, and these higher fat and protein levels meet the growing needs of dairy processors.


“Components matter to manufacturing,” Stephenson said. “Components matter when making cheese.”


Meanwhile, fluid milk sales have continued their downward trend, and since 2010, we have seen a loss of per capita consumption and total sales. During 2020, there was a small blip upward when people were eating more meals at home, and Stephenson said this was a pleasant reversal of that trend, but it did not last long.


Still, whether they eat it or drink it, people continued to consume more dairy in 2021, and that is great news for the dairy industry. Stephenson predicts that 2022 might be a little different, though, as inflation starts to take a toll.


While estimates show consumers spent 22% more to purchase dairy products in 2021, sales were down almost 2% in volume. However, Stephenson said he would still call that a win, as basically flat consumption is not bad considering the 22% jump in costs.


Unfortunately, inflation has been a major headline in this country for a better part of a year, and a 7% to 8% inflation rate has really challenged consumers and producers. Stephenson said people have been accommodating inflation and greater retail costs by using credit and saving less, but this is not a long-term strategy. If inflation remains at a high level, we could certainly see changes in domestic demand for dairy and many other products.


Hear more of Stephenson’s predictions for the year ahead in the Hoard’s Dairyman webinar, “The dairy situation and outlook for 2023.” This webinar was sponsored by QLF.


Abby Bauer

January 16, 2023


hoards.com

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