The last two posts, October 25 and November 1, covered U.S. consumption of dairy products. This post will dig a little deeper to understand better what is driving the increased consumption and what is not driving consumption.
Typically, if products cost more, less will be sold; if prices are lower, more will be sold. Both butter and fluid milk are showing significant sales growth. Is it because of lower consumer prices? The charts below will show the consumer purchasing prices of fluid milk, butter, and cheese. It is not low prices that are increasing sales.
FLUID MILK PRICES?
After decades of lower consumption, fluid milk sales are increasing (see the prior post). The categories that increased were whole milk, organic milk, and other milk driven by lactose-free milk. The additional good news is that consumers are buying more, even with higher prices.
The price of fluid milk has steadily increased from $3.00 per gallon from 2019 to 2022 and has now leveled off at over $4 per gallon. (Milk is sold in many sizes but is reported in the Federal Reserve Economic Database (FRED) as USD/gallon.)
This is very good news for the dairy industry, as it shows that consumers want to buy more milk because of nutrition and taste, not price.
BUTTER PRICES
Butter consumption (Chart II) has significantly increased in 2023 and 2024 (see the October 25th post). Retail prices continue to hit new record highs as consumption has increased. Again, this does not show lower consumption at higher prices. Consumers are buying more even with the higher prices.
CHEESE PRICES
As covered in the October 25th post, cheese consumption increases have slowed in 2024. Is it because of high prices? Chart III follows the retail price of Cheddar cheese, which is used to represent overall cheese prices in the Federal Orders.
Retail prices declined by nearly 10% between 2023 and 2024. Recently, there have been some small price increases. This does not follow the norm that when prices are low, more is sold.
SUMMARY
The conclusion from the last two posts and this one are that demand for dairy milk and butter are being driven by increased consumer demand. Cheese consumption is showing slower growth. If the acceptance of butter and butterfat is growing due to revised medical knowledge, cheese should also follow this trend as cheese is mostly butterfat.
Changes will be followed in future posts to this site.
ADDENDUM
Recently, there have been articles on retail price gouging causing inflated retail prices. Chart IV shows the margin between retail and wholesale prices of butter. The six-year trend line does not show any evidence of gouging at the retail level. The wholesale price is determined by supply and demand which happens with capitalization.
