Milk prices on the way up

[Mr. Laz]

Posted on Sun, Jun. 24, 2007
http://www.kansascity.com/115/story/163712.html

Milk prices are on the rise

Skyrocketing international demand, higher fuel and animal feed prices drive up the cost, researcher says.

By JONATHAN KEALING
The Kansas City Star

Peggy Huycke has a family of “big boys” who drink lots and lots of milk. In fact, as much as four gallons a week.

All that milk is costing the Huyckes, who live in the Brookside area, more than ever.

Federal figures for this area show that the average gallon of 2 percent milk cost $3.75 in May. Whole milk averaged $3.90.

Those prices broke the previous record set three years ago, though inflation-adjusted prices are still below that ceiling.

“Just hang on, we’re not done yet,” said Scott Brown, a research professor specializing in dairy products at the Food and Agricultural Policy Research Institute at the University of Missouri-Columbia. “We’re likely to see prices go up another 75 cents to a dollar in the next three months.”

The previous record price was set in June 2004, when consumers paid an average of $3.61 for a gallon of 2 percent milk and $3.84 for whole. Adjusted for inflation, prices are still 18 cents below historic highs.

Huycke has noticed the extra cost, she said as she loaded the last of her groceries into her trunk outside a Hen House grocery store in Prairie Village. She had purchased only one gallon of 2 percent milk this time, down from the three gallons she typically buys at that store.

“The higher prices make me more conscious,” she said. “I’m trying to buy milk other places now.”

Not all stores are sending their milk prices up. Some see keeping their milk prices stable as a competitive advantage.

Eric Nedzelskiy, executive assistant manager at the Walgreens store at 75th Street and Metcalf Avenue, said his store was selling all of its milk for $2.99 a gallon.

“It’s selling at what we consider a low price, sure,” he said. “It’s a decision that Walgreens made — that it would be beneficial to us.”

Brown, the MU researcher, attributes most of the price increase to skyrocketing international demand. Other factors, he said, are higher prices for fuel and animal feed. Fuel affects transportation costs, and feed prices are rising because more corn is being used to make ethanol.

“While we have very high feed costs, if the international demand comes down, our prices will come down somewhat,” Brown said.

Much of the strong international demand is coming from Asia, where dry milk products are popular.

The federal government tracks monthly milk prices for 30 metropolitan areas, including Kansas City.

Local shoppers, according to the federal data, paid at least a dollar more a gallon in May than they did five years earlier, when whole milk averaged $2.85 and 2 percent cost $2.72.Using similar methodology to the federal survey, The Kansas City Star reviewed local prices for June — not yet reported by the federal government — and found that prices have gone up about 11 percent since May.

And it’s not just milk. The prices of other dairy products also are approaching record numbers. The price of cheese, ice cream, cream cheese and other products has gone so high it’s started to eat into the profit margins of restaurants that use cheese by the mountain, such as pizza companies.

Block cheddar cheese reached $2.08 a pound Thursday on the Chicago Mercantile Exchange, up from $1.17 a pound a year ago. Cheddar is the benchmark for mozzarella and other cheeses.

Both Pizza Hut and Papa John’s, and other companies, already have raised prices at company stores, while other restaurants including Domino’s, soon will face those choices.

With higher milk prices, the question becomes whether consumers will drink less or just bear it and cut back in other places.

Laurie Kirby, of Leawood, picked up a gallon of milk at a Price Chopper in Leawood recently and said that if it were her choice, her family would cut back on milk purchases. Her husband, though, wouldn’t stand for it.

“He drinks two gallons a week,” she said.That’s the position the industry has historically been in, Brown said.

“We see consumers that typically are not price-responsive with fluid milk,” he said. “The question is, ‘Will high prices like these cause people to abandon milk?’”

Stephanie Meyers, a spokeswoman for the Kansas City-based Dairy Farmers of America cooperative, certainly hopes not.

“Milk is still a great value,” Meyers said. “These higher prices are actually good for farmers.”

In recent years, Meyers said, the industry has been in a low-price cycle in which dairy farmers have made little money.

Now, she said, at industry has entered a high-price cycle.

“Retailers follow suit with those increases, especially when prices are going up,” she said. “Futures prices are running at historic prices for the next 24 months.”

High prices are often reached in June because cattle produce less milk when the weather gets warm. The hot weather in the next couple months is also a contributing factor.

PRICE CHECK
The price of milk has gone up nearly 23 percent since this time last year, according to an informal survey conducted by The Star. Some prices found June 21 at three Johnson County stores:

Wal-Mart Neighborhood Market,

103rd Street and Metcalf Avenue
•Skim milk: $3.17 to $3.47 per gallon
•2 percent milk: $3.48 to $3.94 per gallon
•Whole milk: $3.67 to $4.08 per gallon

Hen House,
83rd Street and Mission Road
•Skim: $3.49 to $3.59
•2 percent: $3.79 to $3.99
•Whole: $3.89 to $4.09

Price Chopper,
95th Street and Mission Road
Skim: $3.19 to $3.39
•2 percent: $3.55 to $3.75
•Whole: $3.79 to $3.89