Dairy has found opportunity in crisis

This story appeared in the DBA September newsletter. Click here to view the digital version of the newsletter.

By John Umhoefer, Wisconsin Cheese Makers Association

“Along with danger, crisis is represented by opportunity.”

The extraordinary economic disruption sparked by COVID-19 has revealed strategic truths about the dairy industry that no brainstorming session or market forecasting could have ever unveiled. When then-Senator John F. Kennedy offered that quote at the height of the Cold War, the U.S. produced 1.3 billion pounds of cheese — just 10 percent of cheese production today. 

His words ring true for the dairy industry during this current crisis. Any marketer that declared dairy a “mature” category should be stunned to see how Americans have flocked to natural cheese, butter, sour cream and even cottage cheese in the months since March. Total grocery store sales are up 11.6 percent nationwide this year and total dairy sales are up 15 percent. 

Butter continues to astound with sales up 31 percent this year compared to the same weeks last year and butter remains hot even into summer. In the week ending July 26, butters sales were up 25 percent. 

Cheese is the other grocery store star, with sales up 16 percent this year. Wholesale block cheddar pricing at the Chicago Mercantile Exchange camped out above $2.50 per pound from June 2 to July 24, yet consumer cheese purchasing averaged well over 20 percent growth during those two months. Cheese is a crucial part of America’s diet. 

Certainly, food service sales are seriously hampered, throwing markets and pricing signals into chaos, but lost dairy sales at restaurants, schools and institutions are due to closed doors, not consumer disinterest. Processors remain bearish on food service growth in this third quarter of 2020.  

Pizza sales are an exception to food service pessimism: sales among the large chains remain strong with Domino’s reporting sales up 16 percent in the second quarter, Papa John’s up 28 percent, and Pizza Hut U.S. sales rising 1 percent. Even frozen pizza sales are up 34 percent in March through July. 

Finding opportunity in crisis is evident in strong dairy and cheese exports in the first half of 2020. Cheese exports in June were 38,427 tons, 29 percent more than last year and the most ever in a month. Low cheeses prices presented opportunity and manufacturers responded quickly with sales abroad.   

Similarly, USDA’s Farmers to Families Food Box Program has moved $2.6 billion worth of dairy, meat and produce to families in need this summer. Add these new domestic sales to export growth, and strong retail sales and a slow revival in the food service sector and you end up with a wholesale cheese market rocketing to $3 per pound in July. 

It has been nothing short of miraculous to see dairy farms weather dismal prices this spring and dairy manufacturers pivot within days to new market opportunities, new market channels; and deliver quality, wholesome dairy products in the most uncertain economy of our lifetimes. Dairy has found opportunity in crisis.