Milk and cheese flooding market

Two years ago Missouri dairy farmers were experiencing cream-of-the-crop milk prices. The profitable conditions were an incentive for dairy farmers to invest in more cows and increase production.

However, the surge of milk production has weakened prices for dairy producers and led to an increase in cheese production. Wholesale prices of cheese have already decreased, and one market expert thinks retail prices are soon to follow.

Dairy farmers have recently seen decreases in commodity-milk prices due to the increased output. According to the Missouri Agricultural Electronic Bulletin Board, northern Missouri dairy farmers in May 2004 sold 100 pounds of milk, or a hundredweight, for $18.40. By April of this year, the selling price was down to $11.49.

More milk means more cheese: The pounds of American cheese produced nationwide between February 2005 and February 2006 rose from 292.2 million to 304.4 million, according to the U.S. Department of Agriculture’s Economic Research Service.

More cheese has led to a 50 percent drop in wholesale prices from the high point two years ago to an average of about $1.20 a pound, said Joe Horner, an MU beef and dairy economist. The reduction of cheese prices is connected to the surplus of milk in 2004 and 2005.

This year, monthly milk production has increased about 5 percent over the same month last year, Horner said. To keep up with demand each year, milk production need only increase 1 to 2 percent. Since milk can’t be stored until it is needed, what isn’t consumed as fluid milk is used for butter, cheese and dry milk.

“When you have a surplus of milk, you make cheese,” Horner said. “With more cheese in the market, you have to lower the price.”

Chadd Wortman, a grocery stocker at Patricia’s Foods on Keene Street in Columbia, has seen more vendors wanting to stock cheese in the store.

“We are being asked by other vendors to carry their cheese, but we just don’t have the room for it,” Wortman said. “From what I can tell, there is a lot of supply out there.”

Scott Brown, a dairy economist with the Food and Agricultural Policy Research Institute at MU, said retail prices for cheese haven’t fallen nearly as much as wholesale prices. Price adjustments from increases in supply take a while to work through the system, he said.

“Retailers like to hold a price,” Brown said. “They’re hesitant to make changes.”

The average per-pound price of cheese declined eight cents in the past year, the government reports, and Brown said consumers can expect additional savings on dairy products. “Consumers are going to continue to see better deals through 2006,” he said.

Randy Todd, grocery manager at Patricia’s Foods, said consumers can expect to pay $3.69 to $4.55 for a pound of cheddar cheese, depending on brand.

Todd said prices noticeably decreased about two years ago when Kraft Foods offered cheese to the stores at a reduced price. Before the price reduction, consumers were paying about $2.59 for an eight-ounce bag of Kraft shredded cheese. With the markdown, the same bag is about $2.

“That has helped their sales, and it has definitely helped move their product,” Todd said.

Some pizza restaurants are benefiting from the lower prices of bulk cheese. Michael Sapp, general manager of Wise Guy’s Pizza on Sixth Street, said there has been a “gradual but significant” decrease in the price of cheese. In the past six months, Sapp said, his prices declined about 54 cents a pound.

Noah Schmidt, co-owner and general manager of Gumby’s Pizza of Columbia, on Broadway, has seen similar decreases in cheese prices. “I’ve seen vast decreases in cheese prices — enough to affect one’s bottom line,” Schmidt said. “We’re spending less and decreasing food costs.”

Elvin Hollon, a market analyst for Dairy Farmers of America, said the cost of milk plays the biggest role in how much consumers pay for dairy products at the grocery store. Other factors that can affect price, he said, include marketing, energy and packaging costs.