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As far as dairy products being a great buy for consumers is concerned, the bad news is that retail dairy prices set a number of new records last year. The good news is that those records are likely to stand for quite a while (well, at least through 2015).
As reported on our front page last week, the Consumer Price Index (CPI) for dairy and related products averaged a record 225.31 in 2014 (1982-84=100), and December’s dairy CPI of 229.87 was also a record high.
Pretty much every dairy-related category tracked by the US Bureau of Labor Statistics set records last year. The CPI for cheese and related products reached a record high of 240.046 in November and averaged 234.051 for the year; the butter CPI reached an eye-opening 256.715 in October and averaged 227.375 for the year; and the whole milk CPI reached 231.574 in September and averaged 227.74 for the year.
To put these CPIs in a bit of historical perspective, back in 2007-08, when dairy product prices set many previous highs, the dairy CPI reached 214.748 in August of 2008 and averaged 210.396 for all of 2008; the cheese CPI peaked at 222.456 in August of 2008 and averaged 214.546 for all of 2008; and the CPI for whole milk peaked at 225.366 in July of 2008 and averaged 217.22 for all of 2008.
Still, many of the retail dairy prices tracked by the BLS didn’t break the records that have been set in recent years. For example, the highest average retail Cheddar cheese price last year was $5.733 a pound, in April.
But that fell well short of the record-high average retail Cheddar price of $5.936, set in February of 2013.
Likewise, the highest average retail whole milk price last year was $3.858 per gallon, but that was more than 10 cents below the record high of $3.961 per gallon, set back in July of 2008.
Indeed, there was a period of 15 consecutive months back in 2007-08 (July of 2007 through September of 2008) in which retail whole milk prices averaged above $3.70 a gallon, including above $3.80 per gallon for seven straight months.
In 2014, there were only two months in which retail whole milk prices averaged over $3.80 per gallon: November and December.
All of this brings us to January of 2015, where retail dairy prices might be headed, and the context in which these prices will occur.
Obviously, the starting point for retail dairy product prices is commodity prices. A year ago (January of 2014), the CME Cheddar block price averaged about $2.22 per pound, while the barrel price averaged about $2.17 a pound.
At this point, the CME block price is on track to average somewhere around $1.55 a pound this month, with barrels a few cents lower.
Meanwhile, the CME butter price averaged almost $1.78 a pound in January of 2014; in January of 2015, the CME butter price is on track to average somewhere around $1.55 a pound (same as blocks, which is interesting in and of itself).
The biggest change, though, is with nonfat dry milk prices. A year ago, the NDM price at the CME averaged $2.071 a pound; here in January of 2015, the CME price for NDM was $1.00 a pound through January 8, and has been under a dollar a pound since then.
As farmers know all too well, these much lower commodity prices have already translated into much lower milk prices. December’s Class III price was $17.82 per hundredweight, down more than four dollars from November and the lowest Class III price since July of 2013.
The Class I base price, meanwhile, averaged a record high of $23.29 per hundred last year, and was above $21.00 a hundred every month, but by January had declined to $18.58 per hundred and then fell to $16.24 per hundred for February.
What all of this adds up to is that retail dairy product prices should provide some pretty nice bargains for consumers as 2015 unfolds. USDA’s Economic Research Service expects retail dairy prices to increase 2.5 to 3.5 percent in 2015, after rising 5.3 percent in 2014.
Frankly, that seems a bit on the high side. USDA is currently forecasting an all-milk price average for 2015 of around $6.00 per hundred below 2014’s record-high average. The last time there was such a huge drop in milk prices (2009), the CPI for dairy products actually declined 6.4 percent.
Obviously, there are a lot of differences between 2009 and 2015, but it seems at least possible that the CPI for dairy and related products could record a rare decline in 2015, given current prices and forecasts for the remainder of the year.
There are a couple of additional aspects to retail dairy prices that bear mentioning here. First, gas prices right now are at their lowest level since 2009, so as retail dairy prices decline, consumers with a bit more money in their pockets might be ready to pounce on some dairy bargains.
Second, compared to most other food groups, dairy products remain a bargain, at least as measured by the CPI. As noted earlier, the dairy CPI was a record-high 229.87 in December, but that was actually well below the CPI for food at home (242.457).
It was also well below some other key food categories, most notably meats, poultry, fish, and eggs, for which the December CPI was 261.055. And the ERS forecast is for most CPIs for this category to increase by at least as much as the dairy CPI here in 2015.
Yes, retail dairy prices got pretty high last year, but they should be at least somewhat lower this year, when consumers also have a bit more gas money to spend and other food prices remain relatively high. Retail dairy sales could be poised for some big gains in 2015. DG
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