Got milk? Get ready to pay more
Higher prices for a glass of milk - not to mention pizza and lattes: yet another casualty of corn-based ethanol craze.
NEW YORK (CNNMoney.com) -- Got money?
You better hope so, because you'll need more of it to get milk.
Most agriculture experts say milk prices will jump in coming months as producers pass along increased costs for livestock feed (read: higher corn prices because of ethanol) and a spike in overseas demand.
But while the news may be bad for consumers, an uptick in prices is manna from heaven for dairy farmers looking for relief like Lorraine Merrill who got hammered during the 2006 spring drought.
"We have been through some really grueling times," said Merrill, 55, who grew up on the Stratham, N.H., farm where four generations of her family - she and her husband, her parents, along with her son and his family - still live. "We will see our prices go up significantly over the next two or three months, but we desperately need that."
How much that increase will be depends largely on whom you ask and where you live.
Ken Bailey, a dairy expert at Penn State University's College of Agricultural Sciences, predicts an overall 8 percent increase for whole milk, from an average of $3.07 a gallon to about $3.35 in October.
The news is worse, though, if you live in New York, where milk this week shot up 60 cents a gallon to $3.54, a 20 percent increase, according to the U.S. Department of Agriculture. In Chicago, milk prices in April jumped 12 percent from a year earlier and are expected to rise further. In Boston, prices are 8 percent higher over last year and are also seen moving higher.
Merrill said she and other dairy farmers will take whatever they can get right now.
"We have lost a lot of ground and have a lot of lost equity to make up," she said. "If that surge in milk prices for farmers does not happen, then you're going to see a whole lot more farms go out of business this year."
Even if prices do go up as much as expected, this still is shaping up as a lean year for the $90 billion dairy industry. Milk price increases right now are acting as little else than another link in the chain reaction caused by the increase in corn demand from ethanol makers.
Corn prices hovering near $4 a bushel have driven up feed prices substantially for livestock farmers, putting upward pressure on the cost of milk, beef, pork and any number of other items for the dinner table.
But corn isn't the only villain in the milk soap opera.
After years of flooding international markets with surplus milk products, the European Union, under heavy pressure from within, has curtailed its €43 billion ($59 billion) annual subsidy system, at least where dairy is concerned. Combine that with drought conditions in New Zealand and Australia, two big milk-exporting countries, and it makes for tight supplies worldwide, and higher demand for U.S. product.
But the milk issues stretch well beyond the liquid you pour in a glass.
Prices for nonfat dry milk, used for baking and sent to feed people in developing countries, have jumped 30 percent, according to the International Dairy Foods Association. And prices for dry whey - the byproduct left when making cheese and other products that's widely used in processed foods - are at record highs.
Rising milk prices can also push prices higher for things like ice cream, energy bars and pizza, as well as anything else made with dairy. Economists said they couldn't pinpoint how much prices might rise on those products but they said consumers will notice.
"They should just be aware that they're going to be paying a lot more for food items that contain certain dairy products. There's no substitute for cheese, there's no substitute for milk or butter," said Penn State's Bailey. "The only consolation if you're a consumer is that dairy farmers had a really rough year last year" and the price increases will help.
So while Americans bemoan rising gas prices, they will have to contend with milk prices that are even higher per gallon. And in much the same way that demand for gasoline has remained consistent despite rising prices, so has the demand for dairy.
The two have something else in common: Despite the swelling demand, production increases have been limited, adding to price pressures.
Rick Kment, dairy expert at agriculture analyst DTN, said Americans will continue buying their pizzas and yogurts and double-mocha lattes as long as they're available, with only casual regard for price.
"There will be some consumer price-sensitivity. Probably mainly in the fluid milk and butter markets is where we'll see it most significantly," Kment said. "Overall as the industry is concerned, I don't think the consumer is typically price-sensitive on dairy products."