Are Record-High Dairy Prices Affecting Sales?

Many in the dairy industry have wondered what impact the record-high farm milk and dairy product prices reported this year by the U.S. Department of Agriculture (USDA) would have on sales.
calendar icon 23 November 2007
clock icon 3 minute read

Bob Yonkers, IDFA Chief Economist, Ph.D.

Although the availability of USDA data on sales lags behind the data on production and prices, a better picture is beginning to emerge: Prices are much higher, but sales on average so far this year surprisingly have not really suffered yet. Sales for some dairy products have been flat so far, while others are up; however, more recent data suggests that sales for some products have begun to decline.

The U.S. Bureau of Labor Statistics (BLS), which collects and publishes data on the average retail price of various products, reports that through October the average retail price of a gallon of whole milk was $3.427, 10.6% higher than the same period in 2006. (Whole milk is the only fluid milk product for which an average retail price is reported.) For the month of September, however, the reported price was $3.841 per gallon, the highest ever and 26% higher than last year.

As retail fluid milk prices climbed higher earlier in the year, total U.S. fluid sales didn't suffer (they were up 0.9% in the first half of 2007) until July, when they edged down 1.1%. August sales sagged by 0.6%, and September sales dropped 4.9%, bringing the year-to-date sales through September to minus 0.1%. (USDA's Agricultural Marketing Service reports its estimates of total fluid milk sales with a five- to six-week lag, so data from September is the most current.)

While the wholesale price of cheddar cheese at the Chicago Mercantile Exchange so far this year averaged the highest ever, BLS reports the average retail price of cheddar cheese per pound through October actually averaged $4.185, 3% lower than for the same period last year. (This is the only type of natural cheese for which an average retail price is reported). However, for August through October, the retail price averaged 5.4% higher than last year.

So far in 2007, American cheese commercial disappearance is 2.62 billion pounds, 0.3% higher than last year. However, the August volume was 4.2% below last year. For all cheese other than American, USDA's Economic Research Service (ERS) reports commercial disappearance through August of 4.05 billion pounds, 4.6% higher than last year; in fact, monthly volumes have been higher every month so far in 2007. (Data on the commercial disappearance of American cheese, which includes cheddar, is published by ERS with a longer lag time, so that data is only available through August. In addition, commercial disappearance does not distinguish between domestic and export sales, but rather includes both.)

BLS reports the average retail price of butter through October has been 3.9% higher than last year at $3.045 per pound. The commercial disappearance through August, according to ERS, was 886 million pounds, 6.2% higher than the same period last year.

To sum up, year-to-date sales so far in 2007 appear to be running about even with last year for some dairy products, such as fluid milk and American cheese, and higher for others, such as cheeses other than American and butter. Sales averaged higher in the first half of 2007, with more recent data indicating declines compared to last year.

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