Yesterday, we dove into one of the dairy industry’s most controversial topics: raw milk. Today, we’re sticking with dairy industry topics, but moving in a different direction and tackling food prices.
Food prices are often a topic I deal with in my job as media relations manager. I often get calls from reporters asking questions about why food prices have jumped, or if certain issues or occurrences in the agriculture industry will affect food prices in the future.
Many times, as food prices fluctuate or we prepare for them to fluctuate, there is a reason behind it. However, the interesting thing when it comes to dairy products, specifically milk, is that the price often doesn’t fluctuate in the grocery store.
That doesn’t mean that it doesn’t fluctuate anywhere. Often, the price changes for the dairy farmers producing the milk and the retailers buying it. It just means that consumers don’t often see those changes.
In fact, over the last several months, milk prices have reached a new, all-time high. Growing up on a dairy farm, I can tell you that many people believe the misconception that as milk prices rise, and producers are paid more per hundredweight, retailers “jack up” milk prices in the store. Then, even as milk prices drop, retailers are slow to drop them.
However, when you take a look at the chart below, it’s easy to see that isn’t the case. And, I have to say, even though I grew up on a dairy farm, the data was kind of surprising to me, too.
When you look at this chart, the exact opposite conclusion can be made. Retailers don’t like to change the price of their milk. Because milk is a staple and product that consumers buy regularly all year long, they like a nice, steady price all year long. So here’s what happens…
- In times of high producer milk prices (Illinois mailbox prices adjusted to a per gallon price), which is represented by the green line, retailers take less of a profit (the spread or difference between the mailbox and retail prices), which is represented by the blue line.
- In times of lower producer milk prices, retailers take more of a profit.
- The lines nearly exactly mirror each other, which shows a tendency for retailers to attempt to keep a fairly steady price for milk, despite what they pay for it.
It is also interesting to note that milk is the only commodity for which the USDA sets a minimum price. This price is set my USDA through a survey process to determine the prices wholesalers are paying for dairy products. It is announced around the fifth of every month, and applies to the milk produced in that previous month.
So there you have it. Food prices do fluctuate — as is the case with the price of pork products right now (something we’ll tackle next week), but in the case of staples like milk, retailers try to keep prices as steady as possible. They make a profit, or take a bath, in order to keep the price steady.