March 12, 2007

 

Ethanol may push up US dairy prices
 

 

The cost of energy independence may well be higher prices for meat, cheese and milk as the ethanol boom continues to consume corn that had been used to feed cows, chicken and hogs.

 

Ethanol production took 20 percent of America's corn crop last year and is expected to use more than 25 percent this season, according to federal estimates released during a congressional hearing Thursday.

 

That's bad news for the dairy farmers of San Joaquin, California where dairy is the country's top agricultural product worth US$315 million in 2005.

 

Consumers are beginning to feel the crunch. The lowest legal price--actual retail prices tend to be higher--for a gallon of whole milk in Northern California is US$2.45, up 20 cents since the beginning of the year. It is the highest price since May 2005.

 

Prices are expected to rise further next month because the state announced a modest increase in the wholesale prices of milk on March 9.

 

It couldn't come fast enough for dairymen such as John Ferreira, who milks about 300 Holsteins near Stockton. Ferreira says his feed costs have jumped by nearly 70 percent in the past few months; the price for a tonne of the corn kernels for his cows has gone from US$168 to US$245.

 

Add to this soaring fuel costs and debt racked up during last year's historically bad year for the industry and Ferreira says he's just hanging on.

 

Dairyman Hank Van Exel has had similar problems. He says the price increases have paralysed the industry; when prices began rising late last year, everyone held off buying their annual allotment, thinking the increase would be temporary but it wasn't.

 

Farmers looking to the federal government for help get a shock as Agriculture Secretary Mike Johanns stated "tough years ahead" for dairy producers. 

 

US representative Dennis Cardoza said California has the most influence over milk prices in the short term. For the long term, Cardoza said the federal government plans to shift millions in research and development cash from corn-based ethanol--which is now a profitable industry--to ethanol based on other sources.

 

Cardoza says that once non-corn ethanol production catches up, it will relieve pressure on the corn market and lower prices.