Farm-Retail Milk Price Spread Tightens
An analysis of the spread between farm and retail milk prices shows the spread has actually narrowed over the last two years, says Jim Dunn, an agricultural economist with Pennsylvania State University.
In 2009, when farm prices for fluid milked crashed to $1 per gallon, the spread between farm and retail was $2.40/gal. Today, that spread has shrunk to about $2. “This is a surprise, given that the margin showed a fairly steady increase for the first 10 years of this data [starting in January 2000],” Dunn says. “The data also shows that retail prices do fall with farm prices, as well as rise.”
Dunn also notes his data is simply the spread between the Federal Order Class I mover and retail prices, and does not include any “spatial adjustment” or over-order premiums. So the true spread is likely even less than $2.
Since 2000, retails milk prices have climbed 31%, which is less than the overall consumer price index increase of 34%. Farm prices are currently 81% higher than they were in 2000, which is a reflection of current market highs. “The farm price varies much more than the retail price on percentage basis, making dairy farmer incomes as variable as anywhere in the economy,” he says.
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