Wednesday, August 25, 2010

Oversupply of Milk Leads to Softening of Ice Cream Prices

This year’s oversupply of milk, which is being produced in record quantities in spite of falling demand, has led to record-high cheese inventories, as much of the leftover milk is made into cheese. It is also, now, leading to a reduction in ice cream prices. In my local supermarket, ice cream prices have fallen about one third from their peak of the last two years. This means the price for a carton of ice cream is similar to what it was before the spike in prices a few years ago. That doesn’t mean the price for ice cream is low again, though; cartons contain one fourth less now.

Are the lower prices driving up consumption of ice cream? Maybe a little, but I couldn’t find any hard evidence to verify that. And it’s not as if prices are low. From the consumer’s perspective, prices have gone from shockingly high to merely uncomfortably high. A consumer who goes to the ice cream freezer looking to see if ice cream prices are low again will be disappointed again. But more likely, most people who were shocked by recent ice cream prices are not even checking that section of the supermarket anymore.

Even if consumers were to start eating 25 percent more ice cream, which seems unlikely, the increase would have little effect on the global milk supply, which seems certain to remain in excess until governments take steps to reduce milk production.

In the United States, ironically, there is a move in the opposite direction, with two senators introducing a measure that would create national milk price supports. If passed, which seems unlikely, this would surely lead to a substantial increase in milk production, a tragic outcome that would lead perhaps a fourth of milk production to go unsold and create, for the first time, a national black market in milk.