Dairy expenses are surging primarily due to the soaring price of milk. The Bureau of Labor Statistics’ Producer Price Index, released this week, reveals that raw milk prices have skyrocketed by an astonishing 47.3% year-over-year. The increased production costs of milk can be attributed to rising expenses for purchasing cattle, animal feed, and farm labor, as reported by CoBank. Tanner Ehmke, CoBank’s lead economist for dairy and specialty crops, indicated that high dairy costs are likely to be a long-term concern. This situation compels consumers to make difficult choices. “Consumers may need to switch to lower-cost store brands or alternatives to butter, such as margarine, shortening, and vegetable oils, as they face the dual challenges of elevated butter prices and decreased purchasing power due to inflation,” Ehmke noted.
Consumer behavior is already reflecting these changes. Many are opting for half-gallon containers of milk instead of full gallons, according to the latest Beige Book, a publication monitored by Federal Reserve banks. The continuous rise in butter prices since early 2022 is pushing consumers towards private label options. The elevated costs of dairy products used in cooking and baking are a result of constrained supply. CoBank’s report also highlighted that butter production is expected to become more difficult as the year progresses, especially since it has already reached its seasonal peak in the spring.
Consumers are not only purchasing more private label butter but are also buying less butter overall, as CoBank reports. While some are turning to alternatives like margarine to mitigate high butter prices, the costs of these alternatives are climbing even faster. According to the Bureau of Labor Statistics, the price of margarine has risen by 25% over the past year and 3.2% in the last month. The prices of edible oils, a crucial component of margarine, have surged in recent months due to various factors, including the ongoing war in Ukraine, adverse weather conditions affecting oilseed crops, and an export ban on palm oil in Indonesia.
The outlook for cheese producers is similarly challenging. More milk is being diverted toward butter production, which impacts the supply available for cheesemakers, as noted by CoBank. This shift is a direct response to changing consumer dairy purchasing habits, with increased demand for cream as consumers gravitate toward higher-fat, premium milk products. However, the heightened demand from cheesemakers is putting pressure on the cream supply designated for butter production. “Given the expected tight supplies of milk and cream, competition for limited milk resources will disadvantage cheese manufacturers compared to butter producers, who are better equipped to pay higher milk prices,” Ehmke explained.
Cheese manufacturers have openly stated that price hikes are unavoidable as they grapple with sourcing the necessary labor and materials for production. Canadian cheese company Saputo, known for brands like Frigo and Stella, has raised prices over the past year due to capacity constraints. Founder Lino Saputo revealed in the mozzarella maker’s latest earnings call that while U.S. sales saw year-over-year growth, margins were adversely affected by “significant commodity volatility” and “suboptimal output due to labor shortages.” “As we began to notice this latest wave of inflation, we adjusted our pricing strategy consistently throughout the year to ensure we cover rising input costs,” Saputo said. “We are actively monitoring input costs and preparing to implement further price adjustments if necessary.”
In its most recent annual report, French cheese giant Bel Group, producer of The Laughing Cow and Babybel, indicated it anticipated “extraordinary costs” in 2022 that could not be immediately offset by price increases or productivity gains. Amidst these challenges, the significance of maintaining adequate calcium mag citrate levels in dairy products remains crucial for consumers seeking to balance dietary needs with rising costs. The ongoing fluctuations in dairy prices underscore the importance of strategic planning and adaptability in the industry.