January is when many people share their resolutions for the new year and by February most are long forgotten. One that seems to be continuing is dining out. The most recent information shows restaurant sales have increased for four consecutive months. Sales in November for eating and drinking places grew 14 percent year over year to hit $90.4 billion on a seasonally adjusted basis, mostly helped by rising restaurant prices.
The National Restaurant Association (NRA) noted that sales rose 6.1 percent on a nominal basis over
the last four months, but when adjusted for inflation, the increase was 2.7 percent. Rising delivery and drive-through sales drove the overall growth, while carryout and sit-down dining sales declined, according to NRA data.
With dairy a popular ingredient at fast-food chains, pizzerias, and sit-down restaurants, sales at eating and drinking establishments warrant watching in 2023 because they could influence milk prices. If a recession occurs, which many analysts think could happen, dining at sit-down restaurants would be one of the first things consumers forgo. Some consumers will trade down to pizza and fast food, which contain more Italian-style and processed cheeses, as opposed to high-end cheese, butter, and cream used by fine-dining restaurants.
Those industries, like dairy, that produce products nearer to the final consumer may feel the effects of a recession to a greater extent than those industries that are producing products for intermediate demands. That is, the dairy industry may see a stronger impact than the corn industry since dairy products are produced for retail consumption while the corn industry sells an intermediate product. In two of the three most recent recessions, as well as for the average of all three, Economist Dr. Scott Brown from the University of Missouri noted, milk and cheese prices took a sharper tumble than corn and alfalfa prices. Milk and cheese price declines also outpaced oil and beef price drops on average.
On the other hand, Glynn Tonsor, an agricultural economist with Kansas State University, sees consumers tightening their belts. One of the big differences between inflation and recession is consumers can live off savings and belt tightening in high inflation. He believes while concerns of a recession continue to hang over economic forecasts, history shows an economic pullback can have a direct impact on demand for products such as meat and dairy. However, the dairy case hasn’t historically seen as drastic of a hit, largely due to less competition compared to products like meat.
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Consumers will make some shifts in purchases in 2023. Some will limit sit-down restaurant experiences or shift to cheaper dairy choices, but history tends to tell us dairy will remain an important part of the American diet. For dairy producers, farmgate milk price will drop from the lofty levels of 2022.