American dairy giant Land O’Lakes Inc. is selling record amounts of butter as consumers cook more at home, helping boost profits even as the pandemic upends global commodity markets.
The Minnesota-based cooperative expects butter sales to reach 275 million to 300 million pounds in 2020, an increase of more than 20 per cent from a normal year, said Chief Executive Officer Beth Ford. That’s more than offset a decline in food services as lockdowns from New York to Los Angeles slashed demand from restaurants, which usually account for 15 per cent to 20 per cent of the company’s business.
Dairy farmers across the U.S. were forced to dump milk as stay-at-home orders curbed demand from food services, which use up about 50 per cent of American cheese production. Schools were also shut, slashing consumption of fluid milk at a time when cows had just entered the peak milk production period. Still, Land O’Lakes says butter was flying off the shelves.
“Often times, even for the retail business, what you do is you make a lot of butter because it’s peak milk production time, and you store it for the key season,” during the holidays, Ford said in an interview. “But the buying was so strong that we didn’t do that, because we were selling right off the line.”
Meeting rising butter demand means that Land O’Lakes, like many other packaged-goods companies, had to adapt its production lines, by removing some products from shelves, said Ford, who took the top job in 2018.
Animal Feed
While Land O’Lakes is better known for its dairy products, its Purina unit, which makes animal feed, also saw an increase in sales of ration for companion animals like horses and rabbits (the Purina that makes dog and cat food is owned by Nestle SA). An 80 per cent increase in backyard flocks helped boost results for that business, she said.
Land O’Lakes profit surged more than fivefold in the third quarter to US$66 million and by 22 per cent year-to-date, the company said in a statement. All business units performed better in the quarter than a year earlier.
Dairy markets have faced a wild swings this year as prices first tumbled due to the pandemic and then surged as the U.S. Department of Agriculture stepped in to buy for its Farmers to Families Food Box program. That demand should last through the fall and winter, Ford said.
Aid programs have helped maintain farm profitability, pushing U.S. milk production growth above the historical rate of 1.5 per cent a year, Rabobank said in a report earlier this month.
On speculation prices will collapse when government support dries up, Ford said: “There will be disruption, we don’t all understand what the path to reopening will look like, but what I have is confidence in my team.”
Butter demand, typically strongest during the winter, may also face challenges as some consumers may forgo large holiday gatherings in efforts to main social distancing. Some 372 million pounds of butter were in cold storage at the end of August and inventory levels will depend on demand during the “less-than-typical holiday season,” Rabobank said.
Ford said Land O’Lakes is keeping an eye on how holiday sales fare.
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