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Quick Bites: Dairy at Home

  • If we have learned anything about consumer shopping trends during the pandemic, it’s that people want dairy products. We saw it early in the stock-up-to-stay-home movement with consumers wiping the shelves of fluid milk. We see it continuing as consumers go back week-to-week, picking up lots of cheese, butter, ice cream and frozen pizzas.
  • Retail sales growth has slowed some from the initial push to fill the fridge, but IRI scanner data suggests that, in the past few weeks, fluid milk sales were still running up around 15% year-over-year. Cheese demand growth is steadily tracking at around +30% to +35%.
  • Butter demand continues to impress, with demand up by more than 50% between late March and early April. With more time at home, consumers appear to be turning on the oven. Google Trends data points to a surge in searches for chocolate chip cookie recipes … and the top hit uses a cup of butter.
  • Consumers are either going to come out of quarantine sick of pizza or with a renewed love for it. Recent scanner data points to growth in frozen pizza sales of between 40% to 50% over the past few weeks. That compares to less than a 5% gain in early February.
  • Though overall offtake is probably down because of demand destruction in the food service space, seeing such strong retail performance offers reassurance to dairy producers, manufacturers, and marketers.

Today's Special

  • What’s going on in the crude oil market?!?! Those sorts of texts and emails were flying around early this week with the complete collapse of nearby WTI crude oil futures. On Monday, May futures actually turned negative. That meant sellers had to pay someone to take product. Add that to the list of crazy records set in 2020.

  • So…what’s changed in the past week to cause dramatic price implosion? For starters, fuel demand has fallen off a cliff as lockdown measures around the world keep people off the roads and away from airports. In the U.S., for example, gasoline demand is down nearly 50%. Credible estimates point to a 30% decline in global oil demand, in turn creating a massive glut of supply. Last week OPEC and G-20 producers agreed to cut daily production by a record 10 million barrels in May and June, but the pact does little to shore up a daily surplus that is reportedly running at 25 to 30 million barrels. The surplus has become so severe in the U.S. that a lack of storage options has forced drillers to pay to have it moved versus shutting down rigs altogether.

  • Further amplifying this week’s pricing action: the expiration of the May futures contract, which went off the board on April 21. Market participants with contracts still in hand (i.e. long futures) at the start of the week were frantically trying to sell in order to liquidate positions before having to take physical delivery. Nothing would stir up neighborhood gossip like an oil tanker parked in the front yard.

  • June U.S. crude oil futures – now trading near $15 per barrel offer a more unobstructed view of fundamentals. And as crude oil valuations plummet, U.S. diesel and gasoline prices are dropping fast. Diesel prices were trading below $2.50 per gallon for the week of April 20, down more than 50-cents from the beginning of the year and nearly 70-cents from last April. That’s making hauling less expensive. And, with unleaded gasoline prices lower than $1.00 per gallon in many areas, consumers will see their discretionary dollars go further, perhaps helping speed economic recovery.

Something Sweet: Farm Margins Minute

International Dairy Foods Association

1250 H Street, NW • Suite 900

Washington, DC 20005

202.737.4332

www.idfa.org

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