Few, if any, supplier industries have a closer tie to the well-being of its major customers than the relationship of flour milling to baking. As a result, taking the pulse of one sector provides important insights into how the other is doing. Albeit, strikingly different issues may weigh on both to create periodic dichotomies when milling may be suffering from developments that are outside the influence of baking and baking may experience a range of issues that do not directly affect how its suppliers of flour are doing.
The present provides a remarkable example of how each industry may face serious issues even though taking a measure of each reveals positive conditions. Overall baking volume, which relates directly to the main business of its flour milling suppliers, is quite good but for shortfalls in a few specific areas like private label bread. Except for disclosures by individual companies, it is quite difficult to measure how baking is doing volume-wise. That is particularly the case in light of the way the structure of baking has changed recently.
Milling has very much the same positive attitude about the status of grain-based foods. Millers are just as wary as bakers in wanting to be alert to the near revolution under way in the consumer marketplace due to shifting consumer attitudes toward food in general and toward every kind of baked food. Regardless of how individual millers may feel about the direction of their own industry as well as of baking, they have access to specific production figures covering their industry and its major sectors. They watch statistics compiled by an agency of the U.S. Department of Agriculture. This is the National Agricultural Statistics Service (NASS), which began covering milling last year. Similar statistics have been issued for nearly a full century. No other food industry has a better data record than grain-based foods.
Examining flour production data covering the first six months of 2015 (see report on Page 36) highlights several conclusions. One is that total flour utilization is holding nearly steady as reflected in production of 208 million hundredweights. That half-year output is down less than 2 million hundredweights from the prior year, of which most is due to differences in exports and imports. While there is nothing wrong in assessing an industry using such data, it is imperative to note that steady output figures related to consumption mean lower per capita consumption at a time when population growth is continuing.
In addition to data on flour production, the NASS report says daily flour milling capacity increased to a record high of 1,622,899 hundredweights in the second quarter of this year. Relating that peak capacity to the quarter’s output indicates a running time for American mills in the second quarter of 84.1 per cent of six-day capacity. That operating rate is the lowest in 11 years, or since the same quarter in 2004 when milling and baking felt the worst of the Atkins anti-carbohydrate attacks.
To have the run rate fall from a fairly lengthy period when it hovered near 90%, which is the target indicating maximum efficiency, is a warning shot across milling’s bow. That is a self-inflicted “shot,” seeing as how the numerator in determining run time, milling production, is within a few hundredweights of being at a new record. It is the denominator, which is the daily milling capacity converted to a capacity for the quarter, that has caused this fall in the run rate of milling. At a time when output was slightly less than last year, daily capacity showed an equally small gain, leading to an operating average three to four percentage points below a year earlier.
This is not the first time milling capacity has run ahead of production. The signal this provides to millers is clear and no different from the way a shortfall in retail space and sales warns bakers of the need for moderating plant expansion.