"Milk -- it does a body good -- if you can afford it."
As taglines go, this probably isn't going to drive quite as many consumers to the supermarket as the dairy industry's original version did. But it's pretty accurate. For the past two months running, American consumers have gotten socked with record-high prices for milk.
'Milk' Isn't as Simple as It Sounds
To understand why, you first need to understand at least four kinds of "milk" are sold in America:
Class I milk is what you ordinarily think of -- the ice-cold, refreshing, Grade A stuff that comes in gallons, for drinking, baking or pouring over your cereal.
Class II milk is used to manufacture such soft dairy products, such as yogurt.
Class III milk gets turned into hard cheeses, such as cheddar. Its producers are paid based on the amount of milk protein, milk fat and other solids contained in the Class III milk. As a rule, the price is set in relation to the wholesale price of cheddar cheese, as reported by the National Agricultural Statistics Survey.
Class IV is nonfat dry milk -- powdered milk.
As a rule, milk producers consider Class III and Class IV milks the most important. Class I milk's price is based on the prices for either Class III or Class IV -- whichever costs more. Class II milk is set at the price of Class IV, plus a premium.
Now here's why all of the above is important: In February, Class III milk hit an all-time high price of $23.35 per hundredweight (100 pounds). This was a result of that federal cheese price quotes also hitting record highs. In March, Class III milk's price dipped only 2 cents, to $23.33 per hundredweight. At the same time, every other class of milk hit new record highs.
But we repeat: Why?
High Demand for American Cheese
According to dairy industry website DairyReporter.com, it all comes down to cheese -- and who's buying it. Cheese prices determine Class III milk prices, and Class III milk prices determine the cost of the Class I milk you buy at the grocery store. American cheese inventories plunged earlier this year -- despite record levels of production -- because cheese exports also hit a record high.
%VIRTUAL-article-sponsoredlinks%All told, 32,118 metric tons of the stuff left U.S. borders in January 2014 (about 7.4 percent of U.S. production), traveling abroad to satisfy the surging demands of up-and-coming consumer economies in South Korea (which imported 36 percent more American cheese in January 2014 than it did in January 2013), Mexico (48 percent more), and China (up 100 percent) -- and higher levels of export to Canada and Australia besides. (Among developed economies, Australia in particular seems to be going on a cheese bender, importing 142 percent more in January 2014 than it did the previous year.) Adding financial insult to pocketbook injury, American consumers didn't even get to enjoy the benefit of the infinitesimal, two-cent drop in Class III milk prices last month -- because no sooner had Class III "cheese-milk" prices fell than Class IV "powdered milk" prices surged to a new high.
The reason? You guessed it. Exports of powdered milk are also surging. And you're getting stuck with the bill.
How Much Is This Going to Cost You?
Dairy analysts estimate that retail prices of milk gallons at the supermarket could surge 60 cents this year -- perhaps hitting an average of $4.10.
Meanwhile, the U.S. Department of Agriculture is warning that as a consequence of the wholly unrelated drought now afflicting California (America's breadbasket for many agricultural products), consumer food prices overall are set to rise past the 1.4 percent inflation rate set in 2013. Estimates for 2014 are 2.5 percent to as much as 3.5 percent.
Relative to the cost of milk, that's a bargain.
Motley Fool contributor Rich Smith did not wear a milk mustache during the writing of this column. Nor does he have a financial interest in any dairy stocks.
12 Ways to Save Money on Food
More Moola for Your Next Gallon of Milk
This advice applies to adults and kids alike. Plan out your shopping list before you head to the grocery store so you’re not tempted by impulse buys, and let any children along for the ride know that you plan on sticking with that list. Small expenditures add up to big money, so try to avoid giving in to any last-minute requests.
If your children continue to insist that you purchase their requested items, then ask them to bring their own piggy bank money. Remind your children they are only allowed to pick something they can afford. It's good practice for grown-up budgeting.
You might not have 20 hours a week to scour multiple publications for the best deals, but if you focus on searching for online coupons, you'll end up saving just as much. Search online for products with the word "coupon" afterward. For instance, if you're looking for Cascade dish soap, search for "Cascade dish soap coupons."
To make sure that you don't waste money on impulse buys, schedule your shopping around paydays. The day or day after you get paid should be your shopping day. Before you go shopping, make a list and make sure it has everything you'll need until the next shopping day on it. Now make a commitment to yourself that you will make what you're going to purchase last until the next shopping day.
Stocking your freezer with frozen meals can help you save money on lunch, since they cost just about $5 each. It can even be a healthier option because they help you practice portion control. Just make sure you're purchasing meals that have no preservatives, and watch out for sodium levels.
Don't waste your time making a sack lunch every day. Instead, prepare a week's worth of lunches on Sunday, and your body will thank you for the extra 10 to 30 minutes of sleep you'll gain each night. If you cook one big meal on Sunday, make sure it's easy to change up throughout the week. Chicken, rice and vegetables all cook quickly and taste great with different sauces and cheeses.
Most families throw away so much food on a weekly basis. A better idea is to turn your dinner leftovers into a lunchtime feast. Apps like BigOven help you use your leftovers to make yummy, new dishes. All you have to do is enter the ingredients you have, and the app will show you different recipe options for your leftovers. You'll save money using food that would have been thrown out.
If you know you have $400 to spend per month on your food budget, that's roughly $100 a week. Whether you shop once or twice per week or use cash or credit doesn't matter as long as you stay within your spending limits. Just be sure to only spend the amount you allotted per week.
Keep your shopping list in a set location so all members of the household can access it. Write estimated prices of the items you are going to buy next to each item on the checklist. It can serve a dual purpose as a price book you can use to guess how much you will spend.
If you've ordered from the kids menu at a restaurant recently, then you know how big the meals are – they're almost as big as meals for adults, and they can cost up to $10 each. If you have multiple children, an easy way to cut down on this expense is to have them share a meal. Not only does this lower the cost of feeding everyone, but it also cuts down on food waste.
Most stores are open late, and without the distraction of announcements, people and maybe even your kids, you can have your own Zen moment. When you are clearheaded, you're more likely to zone in on what you really need and leave out what you really don't. Plus, it's easier to give the cashier coupons without causing any delays for the people in line behind you.
We are a society consumed by all sorts of apps, but if you want to grocery shop, save money and still be lazy, let Favado, an app created by Savings.com, do the work for you. The app will tell you about items on sale from different stores, and if there is a store coupon or manufacturer coupon, it will also let you know that too. (Of course, you can just use it to scan the weekly ads to keep things simple.) And if you're already glued to your smartphone, it's easy to incorporate into your shopping routine.