The prior post confirmed that U.S. domestic consumption of dairy products is down. Why are they down? Is it the retail pricing? Is inflation still increasing prices on retail dairy products? Inflation is typically measured in year-to-year changes. But inflation is cumulative and builds continuously over time. This post will compare current retail pricing to the 2019 retail prices of dairy products, before COVID and before major inflation started. The products reviewed will be the same as covered in the prior post, fluid milk, cheese, and butter.
For 15 months, the Food CPI indexes of inflation has stayed above the overall CPI. The fluid milk price increases has exceeded the high Food CPI inflation. Current fluid milk prices compared to 2019 reflect price increases of 36%!
The rate of price inflation for cheese and butter have been significantly less than the increases for fluid milk. Cheese and butter prices compared to 2019 are up 10% and 11% respectively in May.
FLUID MILK
Fluid milk now costs 36% more than it did in 2019 (Chart II). This is way above any wage and salary increases during this time. But the amazing thing about fluid milk, as mentioned in the prior post, is that the pattern of domestic consumption has not changed. If demand has stayed the same at higher prices, why should prices be lowered? However, fluid milk is a commodity and competitive prices should lower the price over time. In 2023, fluid milk inflation has been lower and in May the price decreased compared to the prior year, marking deflation.
Further declines in fluid milk prices are likely in the near future. As mentioned in the prior post, domestic fluid milk consumption will likely continue to decrease by 2% annually for some time. The decreases are coming primarily from 1% fat and fat free milk. As these become minimal, what will decrease next?
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| Chart I - Retail Price of a Gallon of Whole Fluid Milk |
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| Chart II - Percent Increase in Fluid Milk Price |
CHEESE
Cheddar cheese, which is used in the pricing of Federal Order producer milk, had major retail price increases in 2022, but in 2023, those prices are declining (Chart III). Cheddar cheese prices increased by 14% in March 2023 compared to 2019 but in May prices increased by only 10% above 2019 prices (Chart IV). The 2023 prices are still higher than the previous year, but the rate of increase is slowing and may soon become negative compared to the prior year.
The only reason for the decreased consumption covered in the
prior post is the mid 2022 high prices combined with the overall inflation in grocery items and the fears of high interest rates and a coming depression. Producer milk is currently low priced, and this pricing should follow through to wholesale and retail Cheddar prices and hopefully will bring back growth in cheese consumption.
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| Chart III - Retail Price of Cheddar Cheese by Month |
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| Chart II- Cheddar Cheese Price Increases Compared to 2019 |
BUTTER
Butter prices fell in 2020 and 2021 (Chart III). However, 2022 saw huge retail price inflation and in January 2023 prices were up 33% over 2019 prices. Prices since then have fallen and are now only 11% over 2019 prices (Chart IV). The 2022 high prices might have discouraged some from buying butter. It may take lower prices to get consumers back. Margarine is significantly lower priced than butter and is an alternative when butter prices are high. See
this post for details on margarine vs. butter. When a consumer makes a purchasing change, it can take time and favorable prices to win them back.
The price drop beginning in 2023 may take some time to bring consumers back.
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| Chart III - Retail Price of Butter by Month |
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Chart VI - Retail Price Increase of Butter
Compared to 2019 Prices |
ICE CREAM AND YOGURT
The
prior post covered domestic consumption of the three major dairy products, fluid milk, cheese, and butter. Ice Cream and Yogurt are the two smaller dairy products that are not byproducts. Both are much smaller volumes than the three covered in the prior post. Ice cream has dropped by 25% in per capita consumption over 23 years. During that time, volume has been made up by population increases.
Yogurt had a real growth spurt between 2000 through 2013. Per capita consumption then began dropping. In 2020 with the "stay at home" policies in place, yogurt has returned to a growth dairy product. Unfortunately, it is not a big enough item to tip the scales on milk production.
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