Home bakers bought more butter, lifted profits at Land O'Lakes

Before even hitting peak holiday baking season, Land O'Lakes Inc. is having a banner butter year.

The Arden Hills-based dairy and feed cooperative reported limited third-quarter results Friday that reflected the shift in demand resulting from the global pandemic.

While net sales for the quarter ending Sept. 30 were down slightly to $2.9 billion, profit skyrocketed on soaring consumer demand for dairy products. Land O'Lakes tallied net earnings of $66 million, compared with $12 million in the same period a year ago.

That huge increase in profit was in large part due to Americans eating, cooking and baking more at home, said Beth Ford, chief executive of Land O'Lakes.

The cooperative is best known for its branded products in the dairy aisle, but it has large businesses selling raw commodities — such as milk powder and fluid milk — to other companies. These wholesale markets crashed in the spring as restaurants, schools and large institutions closed their doors under stay-at-home orders.

This led to a huge supply-demand imbalance in the dairy industry. Retail shelves were depleted and yet farmers who typically ship to wholesale users were having to dump milk.

Ford applauded the company's workers who quickly had to pivot its farmers' milk supply toward retail markets, which presented packaging and other logistical challenges.

Land O'Lakes found manufacturers with extra production capacity where they could turn more of Land O'Lakes milk into cheese. "We then put together packaging and sold that at Cub Foods," Ford said, citing an example.

With America's new pandemic-induced baking obsession, butter has been in high demand. In recent years, the company has sold between 215 million and 225 million pounds of butter, but it is forecast to sell between 275 million and 300 million in 2020.

"That's a significant increase in our butter business," Ford said. "That strength is more than offsetting the disruption [to the business-to-business dairy sales]."

And branded products sold to consumers yield much higher margins for Land O'Lakes than bulk wholesale milk products sold as ingredients to other food makers.

Besides dairy, Land O'Lakes has large businesses selling livestock and animal feed to farmers and hobbyists as well as agricultural data and technology products.

Animal Nutrition earnings improved on a surge in backyard chicken coops, bolstering its higher margin "lifestyle" segment. Profit on its crop inputs unit was also up on improved seed performance.

Land O'Lakes posted liquidity of $847 million, up 70% from a year ago.