Editorial Comment Publisher/Editor

 

Lower Retail Prices Could Help Boost Dairy Sales

Dick Groves
Publisher/Editor
Cheese Reporter Publishing Co., Inc.
dgroves@cheesereporter.com 608-316-3791

November 30, 2018

 

From a sales perspective, the good news for the dairy industry is that retail dairy product prices have actually declined at least a little bit over the past couple of years. The bad news is that these retail prices should probably be lower than they currently are — and those lower prices could, in turn, boost dairy product sales.

For this column, retail prices refer to those collected monthly by the US Bureau of Labor Statistics. The BLS reports average retail prices for, among other products, Cheddar cheese and whole milk (for the latest BLS figures, please see Dairy CPI Rose 0.1% In October; Retail Cheddar, Whole Milk Prices Increased, on page 7 of our Nov. 16th issue).

According to the BLS, in October, the average retail price for natural Cheddar cheese was about $5.16 per pound. October marked the 10th consecutive month in which the average retail Cheddar price was above $5.00 per pound.

So what’s the problem here? During the first 10 months of 2018, the CME price for 40-pound Cheddar blocks averaged around $1.58 per pound. In other words, retail Cheddar prices are averaging more than three times the level of CME prices.

Some historical comparisons will help put these high average retail Cheddar prices in perspective. In 2017, for example, the CME block price averaged roughly $1.61 per pound, or all of about three cents above this year’s average through October, but retail Cheddar prices averaged under $5.00 per pound in nine of 12 months, and dipped below $4.80 per pound in four of those months.

How about, say, in 2014, when the CME block price averaged a record $2.11 per pound? That year, retail Cheddar prices averaged above $5.30 a pound every month, but never averaged above $5.75 a pound.

The last time retail Cheddar prices averaged under $5.00 per pound for a majority of months was in 2010, when they averaged under $5.00 per pound every month except for November, with a low of $4.53 a pound in June. The CME block Cheddar price that year averaged just under $1.50 per pound, or less than 10 cents lower than it averaged during the first 10 months of this year.

As difficult as it may be to believe in 2018, there was a time when retail Cheddar prices averaged under $4.00 per pound, and even under $3.00 per pound (in 1996). The last time retail Cheddar prices averaged under $4.00 per pound for at least half a year was in 2001, when they averaged under $3.90 a pound for four months and then around $3.96 a pound for two months before climbing above $4.00 a pound in each of the last six months of the year.

The CME block Cheddar price averaged around $1.44 a pound that year, or about 14 cents a pound lower than during the first 10 months of this year. But retail Cheddar prices averaged more than a dollar per pound less in 2001 than they have this year.

Another problem with retail Cheddar prices is how much they vary from region to region. And this regional variation doesn’t always make a lot of sense (although it probably makes a lot of cents for at least some folks).

For example, in October, average retail Cheddar prices ranged from a low of $4.71 a pound in the West to a high of $5.78 a pound in the Northeast. In between those two extremes were the South, at $5.34 a pound, and the Midwest, at $5.40 a pound.

These numbers, and a lot of recent regional retail Cheddar prices, raise a whole bunch of questions, starting with: Why are retail Cheddar prices higher in the Midwest than in the South?

Frankly, we didn’t even bother to see how the BLS defines its regions; it goes without saying that the Midwest region produces a heck of a lot more Cheddar than does the South (last year, Wisconsin, Minnesota and Iowa accounted for over one-third of US Cheddar output).

We’ll mention just one other question regarding regional retail Cheddar prices: How is it that, in the Northeast and in the South, retail Cheddar prices averaged higher in October 2018 than in October 2014 (when the CME block price averaged $2.19 a pound)?

Then there are retail whole milk prices. In October, they averaged $2.91 a gallon, marking the 10th straight month that average whole milk prices were under $3.00 a gallon. That’s not too bad, considering that retail whole milk prices had averaged above $3.00 a gallon for almost every month from June 2004 through December 2017.

But we are again struck by differences in regional whole milk prices, which in October ranged from a low of $2.02 per gallon in the Midwest to a high of $3.17 per gallon in the West. In between was the West, at $3.00 a gallon

The BLS hasn’t published an average retail whole milk price for the Northeast since May, when it was $3.35 a gallon (the highest of the four regions that month; the South averaged $3.22 a gallon).

Obviously, the key question here is: Why does a region with ongoing surplus milk issues (the Northeast) have higher retail whole milk prices (using May figures) than a region with chronic milk deficits (the South)?

This is a somewhat simplistic look at average retail prices for a couple of key dairy products. Certainly there are a wide variety of factors involved, ranging from farm milk prices to transportation costs to retail competition.

It’s just hard to understand why retail prices are seemingly so high at times, and we can’t help but wonder how much sales might increase if retail prices were lower.


Cheese Reporter welcomes letters to the editor. Comments should be sent to: Dick Groves by Fax at (608) 246-8431; or e-mail your comments to
dgroves @cheesereporter.com.

 

 

Dick Groves

Dick Groves has been publisher/editor of Cheese Reporter since 1989. He has over 35 years experience covering the dairy industry. His weekly editorial is read and referenced throughout the world.
For more information, call 608-316-3791 dgroves@cheesereporter.com
https://twitter.com/cheesereporter.


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