In the prior post, analysis of U.S. dairy consumption was promised. Here it is. Actual per capita consumption data lags significantly, so this analysis will review domestic disappearance of products from wholesale inventories. This is a good analysis for consumption trends as product removed from inventory will quickly be used to resupply consumer and commercial supplies. The products covered will be the same products covered in the prior post; butter, cheese, nonfat dry milk (NDM), and dry whey.
The charts used are based on 12-month moving averages of withdrawals from inventory expressed as a percent change from the prior year. These charts help express why and where producer prices are moving.
BUTTER
Chart I tracks the domestic disappearance of butter from wholesale inventories. The increases and decreases are dramatic. From 2019 to the start of 2023, butter headed for consumption declined. Beginning in 2023, the decline reversed quickly, with withdrawals increasing significantly.
One of the big movers of butter consumption is the change in medical research. Historically, butter was considered bad for health as it is a saturated fat. See the 2023 post discussing this. More recently, sentiment in the medical field has changed to accepting the health benefits of butter and dairy products while suggesting that they be consumed in moderation. Eating habits change slowly, but in 2023, the market shifted significantly, putting pressure on the butter supply.
More pressure on the butter supply results in higher prices.
CHEESE
Cheese consumption shows a very different picture. Chart II follows withdrawals of all cheeses from inventory, and Chart III tracks withdrawals from American cheese specifically. Cheddar cheese, which is used to price milk protein, represents about 70% of American cheese. Production of Cheddar cheese is down in 2024 compared to the prior year.
Chart II tells a very telling story. During the COVID period in 2020 and 2021, eating out was discouraged, and cheese consumption remained flat for one year. It quickly recovered as eating habits normalized, but since then, annual growth has slowed to near zero.
Chart III tracks the impact on American cheese withdrawals, where growth has turned negative.
Less pressure on Cheddar Cheese supply results in lower prices.
NDM
Nonfat dry milk is important as it influences the price of Class I milk for drinking and Class IV milk for butter. Data for domestic disappearance and exports combine NDM and skimmed milk powder (SMP). USDA pricing formulas use the prices of NDM only. The U.S. produces twice as much NDM as SMP. Domestic consumption of NDM is primarily used as an ingredient in baked goods. Most NDM is exported.
As shown in Charts IV and V, the growth of both domestic disappearance and exports has significantly declined and is continuing to shrink.
Less pressure on NDM supply results in lower prices.
DRY WHEY
The growth of dry whey for domestic consumption has increased significantly over the last four years (Chart VI). This is offset somewhat by declining exports (Chart VII). As more dry whey is used domestically, less is available for export.
More pressure on dry whey supply results in higher prices.
SUMMARY
Butter is in demand, but new production is difficult because the value of NDM is low, and finding a home for this byproduct results in lower prices. Therefore, wholesale prices remain high. Retail prices will be covered in an upcoming post.
The slowdown in cheese consumption is difficult to understand. Retail prices do not appear to have increased enough to cause this. The U.S. per capita cheese consumption is much lower than that of many European countries. More data on this will be supplied in upcoming posts.
NDM and dry whey are byproducts of other dairy products, specifically butter and cheese. They must find a home. Domestic consumption of dry whey appears to grow as it is recognized as a healthy product with a high percentage of protein. NDM is very dependent on exports which are declining and will probably continue with low prices making profitability of Class IV milk more difficult.
