By Justina Vasquez and Isis Almeida
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% 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% to 20% 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% 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.”
The surge in retail sales is an astonishing comeback for butter, a restaurant favorite that had seen demand plunge when lockdowns shut restaurants across America. But the pandemic has lasted so long that people are starting to dish up richer meals at home while many have taken up baking, benefiting Land O’Lakes, which is more focused on retail.
Meeting rising butter demand means the company, like many other packaged-goods companies, had to adapt its production lines. It’s no longer selling retailers 18-pound cases and focusing production on 36-pound ones to maximize output, said Ford, who took the top job in 2018.
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% 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 $66 million and by 22% 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 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% 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.”
Ford said Land O’Lakes is keeping an eye on how holiday sales fare.
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.
© 2020 Bloomberg L.P.