How are Cheese and Butter Different?

     

Current Class III milk prices have fallen as high butterfat prices and low protein prices have evolved (Click here for details). This post will review the trends in pricing of cheese and butter used to price Class III milk.

CHEESE

Chart I below covers the retail and wholesale prices of Cheddar cheese used to price milk protein.  Retail prices have remained stable for over five years.  In May 2024, the retail price was $5.37 per pound and over the five plus years in the chart below it averaged $5.57 per pound. Wholesale prices are only slightly different, with a May 2024 price of $1.87 and a five-year average of $1.83.  Overall, prices of cheese at the retail and wholesale levels are very stable in spite of inflationary pressure.

Chart I - Retail and Wholesale Prices of
Cheddar Cheese

Wholesale prices are significantly influenced by wholesale inventory levels.  Chart II shows that a very consistent wholesale supply of American cheese, which is mostly Cheddar cheese.  With the exception of the COVID period, days' supply of inventory has remained very consistent.  The five plus years average is 56 million pounds and the current supply is also 56 million pounds

By using the days' supply of inventory as a measurement, both production, removal from inventory, and inventory levels are used to calculate a supply level that should be stable.  The 12-month moving averages are used to be consistent with butter days' supply covered below which has a very volatile annual pattern. 

Chart II - Wholesale Days' Supply of
American Cheese

The above analysis shows very consistent statistics, resulting from well managed processes of Class  III milk production, cheese production, and management of consumer changes .  The consistent pricing is amazing in a time of significant inflation.

BUTTER

The butter data below shows a much different pattern than cheese data above.  The retail and wholesale prices started a significant price increase in 2022.  Over the span of the charts below, retail prices have increased by 13% and wholesale prices have increase by 36%.

Chart III - Retail and Wholesale price prices

Chart IV below covers the day's supply of butter from 2019 to the present.  During the COVID period, the supply of butter went very high as eating habits changed from eating out to eating in the home.  Comparing the beginning and ending sections of Chart IV, the day's supply has been very consistent.  That should correlate to a consistent price, but the retail and wholesale prices have changed significantly as shown in Chart III.

Chart IV - Wholesale Days' Supply of Butter

The growth over the span for the period in Chart V shows a growth in inventory of 9%, close to the growth in retail sales and production. 

The inventory levels do not show tightened supplies that would increase butter prices.

Chart V - Total Wholesale Butter Inventories

What is causing the significant increase in butter and butterfat prices?  USDA butter pricing is complicated.  Butter has a 25-year record of continuous price increases.  Butter exports have always been minimal ranging from 4% to 5% production.  Imports have increased more than exports resulting in net imports, not net exports.  Both butter exports and imports are minimal.  

The packaging of butter for homes and restaurants are different and have resulted in major swings when purchases for restaurants fell quickly and home purchases increased during COVID.   When butterfat is removed from Class IV milk, skimmed milk and nonfat dry milk (NDM) are left.  Skimmed milk has almost totally disappeared as a consumer product and wholesale NDM have not gained in value.  The 25-year value of NDM is $1.14 per pound, the same as the current price.

Any or all of the above could be impacting butter prices.