The US milk supply has been lower but so have dairy prices, with the consumer price index declining year-on-year.
Low supply would typically result in stronger prices, but this hasn’t quite happened. Rabobank dairy analyst Lucas Fuess explained that equally sluggish demand is the reason for this.
“The issue that we’ve been dealing with is that demand for dairy has been slightly weaker as well, especially from a place like China, the world’s number one dairy importer,” he said, adding that supplies in New Zealand and the European Union have also been lower.
“We just haven’t seen buyers in those regions jumping on dairy products like we typically would expect. So in general, that has actually created lower milk prices of late, regardless of the weaker supply overall.”
He noted that the US consumer price index is lower versus last year’s steep gains but added that not all dairy products are seeing lower prices.
For example, lower milk prices have largely driven the weaker dairy CPI, but products such as American cheese and ice cream are actually trading slightly higher than a year ago.
“Retail cheese prices saw significant increases throughout 2022; in some cases, record-high milk prices,” he said. “And we haven’t necessarily seen any serious relief since.
“When we look at the cost of those slices of cheese for the barbecue versus one year ago, we are up modestly…, but we are up significantly over several years ago, and haven’t really seen significant change after that steep increase in 2022.”
He said that cheese prices overall peaked in Q4 2023 and there has been some relief since the winter, but prices are higher on this time last year.
Healthy cheese demand but 'tough signals' ahead
Still, cheese prices have been cheap at the farmgate throughout the first quarter of the year, and cheese prices at retail are lower than they were in December 2023. Since 2019 however, the price of American cheese has risen 7.7%, Rabobank estimated.
Consumption has continued to rise across nearly every cheese variety, with US dairy processors in new capacity to meet domestic and international demand.
But there are some tough demand signals ahead.
“We saw that cheese prices in the first quarter average much lower versus the long-term average,” Fuess said. “But we’ve seen recently some really bullish overall fundamental factors emerging in this market”.
For example, cheddar production is well below prior-year levels, a trend that is not expected to persist into the second half of the year. “We are seeing increased capacity either from new cheese plants opening or already existing cheese plants expanding their production capacity,” the analyst said.
“I do expect a bit of recovery in the cheddar production numbers, but of late, bullish data points that there was less cheddar overall in the first few months of this year.”
He noted that despite weaker demand from China, record exports to Mexico in certain months of this year have been supportive of higher cheese prices.
In ice cream, Fuess predicted prices to remain high as butter and ice cream producers compete for cream – see more on this here.
What will a July 4th barbecue cost in 2024?
In other headline findings from its 2024 BBQ Index, Rabobank estimated that hosting a 10-person barbecue in 2024 will set consumers back $99 – the highest amount on record, up $3 from last year and $73 from 2018, with beer, beef, soda and lettuce accounting for 64% of total cost.
Inflation gain for a July 4th BBQ is up 32% since 2019, the bank estimates, and despite a slowdown in the overall pace of inflation, prices are still going up. This has hit consumer sentiment, which fell to 69.1 in May as measured by the University of Michigan’s index, making it the lowest on record since November 2023; credit card debt has risen, particularly for Millennials aged under 35, while savings have decreased, the bank notes.
This puts fiscal restraint in sharp focus – in the first half of 2024, consumers have traded down, a trend consistent across age group but more pronounced among younger consumers, according to a McKinsey & Company consumer insights survey quoted by Rabobank. According to the findings, 56% of Gen Z and Millennial shoppers – versus 45% of older generations – said their main aim was to shrink down quantity or package sizes on their grocery list.
Beef makes up 14% of the price share of the BBQ, and prices are poised to further increase due to tighter supplies and challenging business conditions for cow-calf producers. Nevertheless, domestic demand is healthy, the bank reports. “To find bargains in beef this grilling season, look for featured promotions at your local supermarket or club store,” said Lance Zimmerman, senior beef analyst at Rabobank. “Beef prices may be at historical highs but many store owners are willing to take a loss by putting various cuts of meat on sale knowing shoppers will fill their carts with other menu items - beer, burgers, hot dogs, sides and salads. They want to boost foot traffic and win loyal customers.”
Lettuce, one of the main drivers of the record-high price of a BBQ this year, remains expensive as production has been lower than expected for this time of year, pushing prices higher than 2023. Availability is expected to improve in July however, which should ease prices.
Beer is set to make up 27% of the cost of a 10-people BBQ meanwhile, with Americans spending about $2.66 per person just for beer, while beer plus soda - up 10% on 2019 - adds up to about 40% of the overall cost. This is in part due to high beer prices, which have outpaced those of wine and spirits.