Milk Pricing at the Farm and at the Store: What Students Found

Dr. E. Bruce Godfrey
USU Extension Economics Specialist
    Every dairy producer knows that the price they have received for milk has varied greatly during the last two years. It was at the lowest point in more than a decade last fall. A frequent comment I have heard from producers is that the prices they have received have fallen but the price never goes down at the store. During the fall semester of 2000 I taught a marketing class at Utah State University. One of the assignments given to students was to record weekly prices for a commodity that was sold by farmers and purchased by consumers. Two students recorded prices for products that are of interest to dairymen. One student chose mild cheddar cheese and the other student chose 2% milk. These prices were for the same labeled brand at a particular store every week.

    During the period from 30 August to 8 December 2000 monitored by these students the price of milk at the farm level (as measured by the price for the nearest futures contract on the day consumer prices were recorded) varied from a high of $10.73 per cwt (or $0.92 per gallon) on 23 September to $8.57 per cwt ($0.72 per gallon) on 1 December.

    The price of milk at the store chosen by the first student started at $2.59 per gallon on 30 August, but was reduced to $1.50 per gallon the next week. The following week 2% milk at this store was $1.99 per gallon and back to $2.59 per gallon during the week of September 30. This roller coaster pattern continued throughout the semester. From 30 August through 8 December milk prices were at $2.59 a gallon eight weeks, $1.99 one week and $1.50 (generally advertised as 2 gallons for $3.00) five weeks. These changes in the price of 2% milk were in contrast to cheese prices which varied very little during the semester. Several comments should be noted about the price of milk at the farm and at the retail level as recorded by these students. First, the common statement that milk prices decline at the farm but never decline in the store is simply not true. Secondly, while prices for fluid milk declined at the particular stores used by these students, they commonly did not decline during the same week at other stores in Logan. As a result, one can not say that fluid milk prices at the retail level declined in general. However, the lowest price ($1.50 per gallon) became more common during the semester at other stores, which suggests that competition has some influence on milk prices at the retail level, but it is probably not a large influence. Third, milk prices at the farm level have recently increased, but the low prices at the retail level have often been $1.50 per gallon since 1 January. There is therefore apparently little correlation between the price paid to farmers for milk they produce and prices paid by consumers for milk in Logan, Utah. This is even more true of cheese than it is for fluid milk, because cheese prices were basically stable while farm level milk prices varied throughout the semester. These differences are particularly interesting in light of the trends in utilization of milk products nationally ­ fluid milk consumption per capita declined in the 1990's while cheese consumption increased. Trends such as these have caused several people to question the competitiveness of the milk distribution system. More will be said about this situation in future issues of the Dairy Newsletter.