August 27, 2020

School Dairy Use ‘Fluid’ Situation

 |  By: Jim Dickrell

The opening of schools across the country is laced with uncertainty, creating an extremely ‘fluid’ outlook for dairy demand, say economists with INTL FCStone Financial.

They spoke this morning in an hour-long webinar. About 5% of U.S. milk solids are consumed annually by students ranging in age from kindergarten through college. Students’ biggest consumption comes in fluid milk (12% of fluid use) followed by cheese (about 2%) and butter, yogurt and powder, about 1%.

According to recent estimates, about 60% fewer meals will be served by schools this fall, based on reports that more than half of classes will be in the form of distance learning and only 25% of classes will be taught in person and another 20% will be taught as a hybrid model (a combination of in-person and virtual learning).

Some of the lost dairy consumption will be made up by meals at home, says Dave Kurzawksi, team leader of dairy risk for FCStone. “There could be a 40% decrease in dairy use by students overall, my customers tell me. It’s a very fluid situation.”

“And we have no idea how the year will finish out,” says Nate Donnay, director of Dairy Market Insights for FCStone. “Hopefully, 5th graders will make better social distancing decisions than college students.”

Dairy Exports

The economists also aren’t sure that the strong level of global dairy trade in the second quarter of 2020 will be sustainable this fall. They note that overall, the world imported between 400,000 and 500,000 more metric tons of dairy products year-over-year, a 2.1% increase.

They fear, though, that the strong level of purchasing was driven over fear of food shortages and stockpiling by some countries and very weak commodity prices. Some dairy prices dropped 20% to 40% in the spring due to COVID-19 issues. Prices have since rebounded, particularly cheese.

The U.S. continues to maintain a competitive advantage with skim milk powder (SMP) prices. U.S. powder prices continue to hover around $1/lb. Prices in Europe and Asia are 18% higher than that. So that will make U.S. SMP very competitive this fall.