The price of milk has fallen in recent weeks, and this is certainly going to have a significant impact on how ice cream producers like Nestle set prices for their products. The share prices of leading milk processors such as Dairy Farmers of America Inc.
(DFA) and Dean Foods Co. (DF) are falling with the news that dairy farmers will receive lower payouts for their product, which they sell largely to these two companies who process it further into things like cheese or yogurt.
Milk is a key ingredient in ice cream production, and the price of milk directly impacts how much Nestle pays for its raw materials.
The company has been responding to the fall by raising prices on some products like Chunky Kit Kat bars that contain chocolate sourced from cocoa butter (a product made with milk). Other recent changes have included changing recipes so less dairy-based ingredients are needed or adding non-dairy substitutes such as soybeans.
The drop in dairy prices could be good news if it means farmers make more money. It also helps Nestle’s bottom line because they’re paying less at the producer level for their most expensive input material – but bad news for consumers who may see an increase in retail prices.