Cheap milk, that is. The cost of a gallon of milk on supermarket shelves was almost 6% higher in July compared to a year earlier. And prices could soon approach a record.
Rising milk and beef prices help explain why many Americans think inflation is higher than official government statistics suggest. Americans go to the grocery store several times a week, and they are quick to take notice when the price of breakfast or dinner-table staples soar. The cost of food used to prepare meals at home, for instance, has climbed rapidly in 2014 to a 2.7% annual pace in July from just 0.5% in January.
What’s going on with the price of milk? U.S. milk exports have exploded to record levels and domestic production hasn’t kept up. Feed costs, though they’ve fallen sharply in the past year, may have also played a small role.
In supermarkets, whole milk rose in May to an average nationwide price of $3.74 a gallon to mark a five-and-a-half year high, according to the Bureau of Labor Statistics. The price slipped to $3.65 in July, but milk futures leaped to a record in early September. That signals potentially even higher prices in the next few months.
Beef prices have undergone an even sharper surge. A pound of 100% ground beef, for example, climbed to a record $3.88 in July from $3.46 a year earlier – a 12% increase. And ground beef is up 25% in the past 24 months. The reason: Drought, high feed costs and the smallest U.S. cattle herd in decades.
The news is not all bad, though. Milk producers at least are stepping up production and that could soon temper the gain in prices. Feed prices have receded from very high levels, too.
The cost of milk is also actually cheaper compared to a decade ago when taking inflation into account. Whole milk, for example, averaged $4.39 a gallon in 2004 in inflation-adjusted terms, according to the CPI inflation calculator. That’s 20% more than the cost of milk today.
Beef prices will take longer to fall since it takes several years to substantially increase the size of the U.S. cattle herd.
Source: MarketWatch
