February 15, 2018

Class I Sales Hit Record Low

 |  By: Fran Howard

Average daily fluid milk sales in 2017 fell below 132 million pounds for the first time since recordkeeping began, making last year the eighth straight year of record-low milk sales. For producers, that means less money in their milk checks is coming from the high-value Class I market, and for Class I processors, it means growing fixed costs.

“For decades, USDA reported that total fluid milk sales remained about the same year in and year out. Every year, increases in the U.S. population just about offset declines in per-capita fluid milk sales. However, beginning in 2010, fluid sales began a decline that continues today,” notes Bob Yonkers, former chief economist for the International Dairy Foods Association.

The Class I price for farm milk used in fluid milk products was still the highest of any of the class prices in 2017 across the federal order system, but the share of Class I milk in federal order pools is shrinking, notes Yonkers.

According to USDA’s fluid milk sales reports, the value of farm milk used in Class I products in 2009 accounted for 35.9% of the total pool value across all 10 federal marketing areas. By 2017, Yonkers notes that the Class I contribution to the total pool value in the same eight orders had dropped to 26.1%.

According to Yonkers’ analysis, 2017 was the first year to see a month (July) with less than 120 million pounds of average daily sales and the first year with average sales below 138 million pounds per day in each month of the year. That translates to 20 million pounds less fluid milk sold each day, on average, last year compared to the same period in 2009—a loss of roughly 2.3 million gallons in sales every day, he notes.

Declining Class I milk sales also take an economic toll on processors of fluid milk. “For processors, lower sales mean greater fixed costs in the post-farmgate supply chain for every gallon of fluid milk sold. This includes everything from lower plant capacity utilization to fewer gallons delivered at every customer stop,” Yonkers says. “Declining fluid milk sales mean that for every 10¢ per gallon of fixed costs in 2009, processors needed about 11.5¢ for every gallon sold in 2017.”

For producers, while continued declining sales will continue to erode the share of the pool value coming from the Class I market, strong demand for butter and cheese could add value to the portion of the pool money coming from the Class III and IV markets. But Class I processors need to find other ways to recoup increasing fixed costs, Yonkers says, such as passing them on to consumers.