- The price of food at home increased 11.9% over the past year, the largest 12-month increase since April 1979, according to the U.S. Bureau of Labor Statistics’ Consumer Price Index data for May. On a monthly basis, the price index rose 1.4%, marking its fifth consecutive increase of at least 1%.
- All of the six major grocery food groups saw prices go up on a monthly basis, with dairy seeing the steepest increase at 2.9%. Dairy prices increased 11.8% year-over-year, with milk rising 15.9% and cheese jumping 8.7%. Butter prices rose nearly 16% over the past 12 months.
- High milk prices are trickling down to other dairy products, forcing consumers to make tough choices when shopping for butter at the grocery store and putting makers of cheese in a potential supply crunch, according to a recent CoBank dairy market analysis.
Specifically, dairy costs are skyrocketing because of the high cost of milk. According to BLS’ Producer Price Index released this week, raw milk costs have increased at a staggering 47.3% year-over-year. Milk has become so expensive to produce due to heightened costs of buying cattle, animal feed and farm labor, according to CoBank.
High dairy costs will be a long-term issue, CoBank’s lead economist of dairy and specialty crops Tanner Ehmke said. This means consumers will increasingly be forced to make tough decisions.
“Consumers may be forced to shift to lower-cost store brands or to butter alternatives like margarine, shortening, and vegetable oils as they face a double whammy of high butter prices right as inflation has muted their spending power,” Ehmke said.
Consumers are reacting accordingly. Many are buying half gallons of milk instead of gallons, according to the most recent Beige Book, a trade publication reported on by Federal Reserve banks.
Butter prices, which have consistently risen since the start of 2022, are driving consumers to trade down to private label offerings. Prices of the dairy-based product used for cooking and baking are so high because supply is tight. CoBank’s report also stated butter production will only get more challenging as the year continues, since butter production already hit its seasonal peak in spring.
Consumers are not only buying more private label butter, they are also buying less butter overall, CoBank said. While some are shifting to alternatives, including margarine, to avoid high butter costs, the prices of those alternatives are rising at an even higher rate. According to BLS, the price of margarine products increased 25% over the past year and 3.2% over the past month. Prices of edible oils, a key ingredient of margarine, have shot up in recent months due to a slew of factors including the war in Ukraine, poor weather for growing oilseed crops and an export ban of palm oil in Indonesia.
The outlook for cheese producers is also fraught. More milk is going towards butter production, which affects the supply available to cheesemakers, according to CoBank. The financial institution said in its report this comes in response to consumers shifting their dairy purchasing habits. Demand for cream is up as consumers shift toward higher-fat, premium milk offerings, while heightened demand from cheesemakers is straining supplies of cream used to make butter.
“With milk and cream supplies expected to remain tight, competition for scarce milk will put cheese makers at a disadvantage to butter manufacturers that are better positioned to pay higher prices for milk,” Ehmke said.
Cheese manufacturers have made it clear that price increases are only going to continue as they struggle to acquire the labor and goods needed for production. Canadian cheese company Saputo, which makes brands including Frigo and Stella, has raised prices over the past year amid capacity constraints. Founder Lino Saputo said in the mozzarella maker’s most recent earnings call that although U.S. sales increased year-over-year, its margins were hurt by “substantial commodity volatility” and “suboptimal output due to labor availability”.
“As we started to see this latest wave of inflation coming, we took action on pricing just as we did throughout the year, consistent with our objective for pricing to cover higher input costs,” Saputo said. “We are continuously monitoring input costs and are preparing ourselves and our customers to possibly go for further pricing rounds should we need it.”
In its last annual financial report, French cheese giant Bel Group, maker of The Laughing Cow and Babybel, said it anticipated “extraordinary costs” in 2022 that could not be immediately met by increasing costs or gaining productivity.