Goat Milk

General Mills has reported its fiscal second-quarter results, surpassing Wall Street expectations with adjusted earnings of $1.10 per share, above analysts’ projections of $1.02. Despite facing challenges from the sale of its yogurt business in North America, the company’s shares rose by 1.17% following the announcement. Net sales for the quarter ending November 23 reached $4.9 billion, exceeding the consensus estimate of $4.78 billion, though representing a 7% year-over-year decline.

The divestment of the yogurt business, which included the Yoplait brand, led to a 10% decrease in sales for the North American Retail segment, which saw a 13% fall in net sales. This strategic move is part of General Mills’ shift towards higher-margin categories with less competition from private labels, which have affected their fresh dairy market share. The yogurt segment, with its high perishability and logistical costs, has faced profitability pressures in mature markets due to consumer shifts towards plant-based or premium functional products.

Organic net sales, excluding acquisitions and divestitures, dropped by only 1% year-over-year, demonstrating the resilience of the remaining portfolio. Jeff Harmening, CEO of General Mills, noted that investments in product innovation, premium packaging, brand communication, and omnichannel execution are driving organic volume growth in North America, enhancing competitiveness across all segments.

The North American Pet segment saw an 11% increase in net sales, benefiting from the acquisition of Whitebridge Pet Brands. The International segment experienced a 6% growth, driven by strong performance in Brazil, China, India, and North Asia. This geographic diversification helps offset domestic market weaknesses, where private-label competition and consumer preferences for fresh, local, and less-processed foods pressure traditional categories like cereals and baking mixes.

General Mills has reaffirmed its fiscal 2026 outlook, expecting organic net sales to range between -1% and +1%, with adjusted operating profit and diluted earnings per share projected to decrease by 10% to 15% in constant currency. This cautious guidance reflects a transitional year post-dairy divestment, prioritizing reinvestment in strategic brands over short-term margin expansion.

The U.S. dairy industry has traditionally relied on monthly milk production reports from the USDA to monitor the availability of milk supplies and project dairy product output. Historically, decreases in farmgate milk production indicated reduced supplies of both fluid milk and key milk components, like butterfat and protein, which are essential for producing dairy products such as cheese, butter, and yogurt. A decline in milk supplies often signaled the potential slowdown of dairy processor expansion plans.

However, the dynamics of U.S. milk production are evolving. While the total volume of milk production has declined for 14 consecutive months through September 2024, the production of butterfat and protein—key components in many dairy products—has increased in 12 of those months. This shift underscores a significant transformation in the industry, where milk composition now plays a more critical role than overall milk volume.

A report from CoBank’s Knowledge Exchange describes this “decoupling” of fluid milk production from milk component production as a paradigm shift driven by increased consumer demand for manufactured dairy products. More than 80% of U.S. milk is used for producing solid dairy products that depend heavily on milk components, while less than 20% is used in fluid beverages.

To adapt to these changes, the report suggests that the USDA’s milk production reports should be expanded to include data on protein and butterfat levels, providing a more comprehensive view of the industry. Corey Geiger, lead dairy economist at CoBank, noted, “A more robust report would be informative to producers, processors, and retailers for better planning and risk management.”

The shift in focus from milk volume to milk solids is reshaping the dairy market. Cheese production, for instance, has benefitted from higher butterfat and protein yields in milk, with each 100 pounds of milk yielding 11.2 pounds of cheese in 2023, compared to 10.1 pounds in 2010.

This trend extends beyond the U.S. domestic market, as manufactured dairy products are driving export growth, further emphasizing the demand for milk components. With over $7 billion invested in new dairy processing capacity, both at home and abroad, the industry is poised for continued growth in response to these shifting demands.

The Milk Component Pricing provisions have incentivized dairy producers to focus on increasing protein and butterfat content in their milk, driven by soaring consumer demand for high-quality dairy products like cheese and yogurt.

While updating the USDA’s monthly milk reports to include milk component data may pose challenges, Geiger emphasizes the long-term benefits for the industry, given the permanent shift towards milk solids in consumer preferences.