High Retail Prices to Collide with Spring Flush - Cowsmo

High Retail Prices to Collide with Spring Flush

The consumer price index (CPI) is on the rise for the major protein, but to date the dairy CPI trails the other categories. The CPI measures the average change over time in the prices paid by urban consumers. In the case of food products, the CPI measures changes in retail prices. In February 2014, the beef and veal CPI topped 281.6, up 4% in a single month and 5% greater than in February 2012. Higher beef prices are attributed to the multiple-year drought that occurred in 2011, 2012, and 2013, which contributed to the downsizing of U.S. beef herd to 88 million—the lowest level since 1951.

The CPI for pork has risen steadily since mid-2013 with the February 2014 CPI up 4% vs. last year. The pork industry has been battling a virus that has killed about 6 million pigs, reducing the national herd by about 10%, according to Steve Meyer, president of Paragon Economics.

The CPI for dairy products has posted only a modest 1% year-over-year gain as of February 2014. However, price changes within the dairy product categories illustrate that consumers are faced with fluid milk prices that are rising more quickly than cheese prices. The fluid milk CPI increased 3.6% from July 2013 to February 2014. Meanwhile, the CPI for cheese increased only 0.7% during the same period.

Fluid milk prices in the United States are determined using the “higher of” either the value of milk used to produce butter and milk powders or cheese and whey products. During most of 2013, the butter-powder value set the fluid milk price. Strong global demand, particularly for milk powders, contributed to a 50-cent increase in the raw milk cost of milk processed into fluid products from June 2013 through March 2014. In contrast to the CPI for milk, the cheese CPI was very stable in 2013 and early 2014, but that is likely to change in the near future. The CME Group Cheddar block cheese price averaged $1.76/lb. in 2013 and traded below $1.90 until December. Since today’s market closed at $2.4275. Retail cheese price increases tend to be passed through the supply chain at a slower pace than fluid milk prices. Nevertheless, cheese for the Easter and Passover season is likely to be pricier than cheese purchased for the year-end holidays.

The same is true for butter. Relatively low butter prices during 2013 provided real butter bargains during the seasonal high-demand period in Q4 2013. Retail specials at $2/lb. were common. That is not likely to be the case during the spring holidays because the butter CPI has increased 4% since the end of 2013.

Fluid milk prices have trended higher annually since 2009, and year-over-year fluid milk sales have declined. It is unclear at this point just how severe domestic demand destruction will be as additional price gains for cheese and other dairy products are passed through the system. The timing could be precarious. That is, consumers are likely to face higher dairy product prices just as milk production is reaching its peak during Q2 2014.

Cheese and Butter Stocks: As expected, cheese and butter stocks as of Feb. 28, 2014, are lower than last year. American cheese stocks totaled 628.1 million pounds as of the end of February, down 0.3% vs. the prior month but 5% less than last year. Lofty cheese prices prevented manufacturers and end-users from building cheese stocks. Butter stocks increased 26.9 million pounds to 163.7 million pounds, which was just under the five-year average February stock build of 29.5 million pounds but remain 31% less than the prior year.

Source Daily Dairy Report


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