This question could go in GQ, but since it’s so food-related and the food experts hang out in CS, I’m putting the post here.
As we all know, the price of milk has gone through the roof lately. the prices of butter and cheese have gone up as well, but not nearly as much.
This puzzles me, as it is my understanding that it takes many gallons of milk to make a pound of butter or cheese. If it takes ten gallons of milk to make one pound of butter (just pulling figures out of the air, here) and the price of milk has doubled from $2.50 to $5.00 then the amount of milk needed to make a pound of butter has risen from $25.00 to $50.00, which is damn steep.
Obviously, farmers don’t pay retail prices for milk or anything like it, but if they’re using ten gallons of milk that they could get $50 for, to make a pound of butter they get four bucks for, how does that make sense? Wouldn’t it make sense to drop butter production entirely or let the price go up until it’s as profitable as milk?
I know I’m missing part of the equation here, anybody know enough about the economics of this stuff to fill in?
I don’t know enough about the economics to comment intelligently, but you didn’t specify that. There are a couple of factors that might contribute. The biggest is that milk is difficult to transport to the stores. There is an article here http://www.scdigest.com/assets/newsViews/08-07-16-1.php?cid=1801&ctype=content that suggests that changing the type of container can save 10-20 cents per gallon on the price of milk. Contrast with milk delivered to a processing plant in a very efficient tanker truck.
I would also assume that the transportation costs of the milk to the processor would be low (I would assume that processing plants that make cheese and butter are located in milk-producing areas), one is shipping e.g. 5 gallons (or roughly 40 pounds) of milk say, 20 miles, and then shipping the resulting 1 lbs of cheese a couple of hundred miles, rather than shipping the milk the couple of hundred miles. Put (hopefully) slightly more clearly, one doesn’t have to pay to ship a bunch of water along with solids, so shipping costs aren’t driving up the price of cheese quite as much as the price of milk. The benefit of being nutritionally dense. I am not sure that shipping costs are sufficient to account for the difference, though.
I am also not sure what percentage of the cost of cheese the raw material represents. Certainly, for higher end, longer aged cheeses, the cost of the milk may be outweighed by the cost of capital (that is, you pay for the milk, then sit around for a really long time before you get to sell the cheese). If the COGs represented by the milk are a small enough percentage, the small but present increase in the price of cheese may account for it.
Finally, I would assume that milk is less elastic, pricewise, than cheese. I am not sure how this would apply, though, other than that dairy farmers may be able to increase prices in a way that cheese producers can’t.
It’s an interesting question. I’m off to see if I can quantify any of the above.
Although they require refrigeration, butter and cheese aren’t quite as perishable as liquid milk. Perhaps that affects costs? There might be less spoilage that needs to be compensated for by higher prices.
Also, doesn’t the production of both butter and cheese result in byproducts that can then be sold for profit as well as the butter and cheese? Cheese making produces whey, which is an additive in some foods. Butter production results in buttermilk. So producers may be getting two (or more) products out of the milk they use.
Butter and cheese have alternatives. Milk doesn’t. Dried might stretch the supply, but milk users are kinda stuck with their fix, for whatever reasons. The kids gotta drink, you gotta buy. The demand is rather inelastic. Doesn’t matter if the price of milk goes through the roof. People are still going to buy it. If butter gets pricey, people switch to margarine or olive oil or the like. When cheese gets outrageous, you switch to Velveeta or do without. Milk…
Actually, butter lasts at least a couple of weeks unrefrigerated as long as you keep it in a dark cool place. Probably a lot longer than that, I just tend to use up butter. (I seem to recall in “Farmer Boy” Alonzo’s mother sold butter once a year, but that’s hardly a cite) At any rate. like all things made chiefly of oil, bacteria have a very hard time growing in butter. Oxidation (“going rancid”) is a concern though, as is melting in the summer months.
Refrigeration is only a requirement insofar as it is needed to get the product to market in good aesthetic shape. Whereas, for milk, it is required to get the product to market in a way that will not cause illness.
Also remember people make contracts and those don’t necessarily reflect immediate demand. If a dairy makes a contract for a year to supply milk they have to give the cheesmakers their milk regardless. They may have contracted for $1.00 a gallon and thought it wouldn’t go up, but it did. So they honor their contract for a year, THEN the price of cheese will go up. The two related products won’t necessarily go hand and hand in price.
Some good ideas there. Maybe it’s a combination … lower shipping costs for butter and cheese, relatively inelastic demand for milk, contracts that are still in effect at lower prices for milk, and the byproducts involved in butter and cheese might offset the cost greatly. All good points, thanks for your responses. I don’t know that I’ve heard anything yet that makes me exclaim ‘THAT’S IT!’ but there may be no “It” to exclaim about.
A friend keeps a dairy herd as livelihood, primarily in the service of cheese making. This gives him great control over the quality of the milk and the quantity of milkfat produced.
When not making cheese, he sells the milk bulk, with a few come-to-the-farm raw milk buyers.
As explained to me, the price of milk is regulated at X per pound. He gets up to 15X for cheese with potential for more, lacking price regulation.
You really need to look at the price farmers are paid for the milk, not what the end cost of dairy products is in the store. It’s the cost of the raw material going up that requires price adjustments to the end product. The farmer’s cut on the product has been a small percentage for the raw milk.
I did say after the floods in Wisconsin that you should expect soaring dairy prices by fall. Besides cow fodder being made into fuel, the crops around hear were ruined. Some farmers had sweet corn for sale a month and a half later than normal. There are loads of sweet corn still going to the processors. We are 3 weeks past our first possible freeze date. Luckily the weather held out and the gamble on short term replacement crops worked out for some of the farms.
Oil raises the crop prices in multiple ways.
Chemical fertilizers.
Pesticides.
Equipment fuel.
Drying fuel costs
Transport to processor.
Use of crop to make fuel.
Add all that to the crop losses and need to repair damage to fields, dikes, building, and you get a reason for the price going up.
I won’t quote others but I’m nodding at a lot of what’s been said.
So you have a cow. If you aim to make butter or cheese, or just sell the raw milk, some costs are probably identical: feeding them, veterinary bills, milking them, etc.
IIRC it was a Kraft ad that said they put 5 oz of milk into every 1 oz of their singles. Well o’course, Kraft isn’t buying 5 gallons of milk off a store shelf. They’re getting it at a lower cost, before it’s put into bottles with labels and shipped etc. If we pretend that shipping cost is strictly by weight, they’ll end up paying 1/5 as much to get it to the store.
I would also think milk is more of a time bomb. If it doesn’t get sold in a week (?), it’s worthless. Cheese keeps longer, so there seems more chance of selling it (i.e. not eating losses).
The French say their cheeses are much better because they start with raw milk…not pasteurized or homogenized or anything, I guess. We probably don’t go quite that far but maybe there are fewer processes required to treat the milk when it’s intended for cheese. I.e. is the gallon of milk intended for drinking different from the gallon of milk destined for the cheese line?
Note: since butter is made from the cream, I would expect it to be higher in cost b/c cream is the tastiest and pre-nutrional consciousness, nirvana. But I think it’s also a good example of the hocus pocus of dairy: take off all the cream to make your skim milk. Use the cream to make butter, and sell your byproduct for $$$.
Milk is a raw material and a finished product. When you buy Milk in the store, the cost is (let’s say) 85% bulk milk cost, 5% manufacturing, 10% transport/storage, etc. When you buy cheese, the cost is more likely 45% bulk milk 50% mfg, 5% transport/storage. If you raise the cost of bulk milk, it’s going to get you a bigger percentage increase in the price of milk, than the price of cheese, because bulk milk is a bigger percentage of the cost.
(I seem to recall in “Farmer Boy” Alonzo’s mother sold butter once a year, but that’s hardly a cite) At any rate. like all things made chiefly of oil, bacteria have a very hard time growing in butter. Oxidation (“going rancid”) is a concern though, as is melting in the summer months.