Cutting the Cheese
Feb 26, 2009
If there’s one shocking statistic that really captures why dairy farmers right now are looking at the lowest prices in 30 years, it’s this one: total commercial disappearance of cheese in 2008 dropped for the first time since 1975. Cheese sales actually shrank 0.3% last year, a stunning reversal of the vehicle that has allowed the U.S. dairy industry to continue growing while other commodity sectors stagnated or shriveled.
In fact, fluid milk sales have been flat for decades, and have actually been falling when measured on a per capita basis. Cheese has been the shining star in the dairy sky; fully 43% of the milk produced in the U.S. goes into cheese, and commercial disappearance – in essence, overall sales – had been growing upwards of 2% per year. So, when that cheese engine suddenly stops and goes backward, it’s no surprise that farmers collectively are suffering from an agonizing case of whiplash.
At Thursday’s USDA Agricultural Outlook Conference, the chief USDA economist, Joe Glauber, said that he’s calculating farm-level milk prices in 2009 will be the lowest since 1978. And if there’s one form of entertainment we don’t need in dairy, it’s that 1970s Show all over again. `70s prices, with 2009 input costs, will mean cancellation of a whole lot of equity in the dairy business this year.
As to why cheese sales shrank suddenly last year, there was – perhaps coincidentally, perhaps not – a prescient article in the Wall Street Journal earlier this week about the troubles the pizza business is having. The WSJ reported that while overall fast food sales grew 6.4% from 2002 to 2007, pizza sales during that five-year period only rose 2.5%. As one food industry consultant put it:
"The pizza segment's struggles are part of a longer-term secular trend in which market share is being lost to healthier and fresher dining options on one side and less expensive burger and sandwich players on the other," says Walter Butkus, principal at Restaurant Research LLC, a Redding, Conn., consulting firm.
Translated, that means less demand for mozzarella, and less demand for milk from thousands of America’s dairy farmers who rode the pizza wave as Baby Boomers scarfed down tons of pies from the 1960s on until, well, recently. But pizza’s slice of the food industry is shrinking at a time when we can least afford it, creating Ford-era milk prices with it.