May 30, 2011

 

US dairy prices surge drastically

 

 

The US dairy aisle has emerged to be one of the quickest growing aspects of food price inflation.

 

Prices for milk, butter and cheese are cutting sharply into shoppers' grocery budgets, even hitting record levels in some areas.

 

As consumers are battered by the higher prices, grocers and dairymen said the dairy spike is not benefitting them and they are unsure when prices might come back down.

 

"Milk has steadily risen for the last year," said Doyle Kirk, vice president of grocery operations for the Tahlequah-based Reasor's supermarket chain. "Milk changes prices at the beginning of the month, and it has gone up about every month for the last six months, and it goes up again on June 1."

 

And with that come all products that relate to dairy, from yogurt and ice cream to cheese pizza and Alfredo sauce.

 

Fueling the price increases are the growing costs of feeding dairy cattle and the higher price for a gallon of gasoline or diesel fuel.

 

Dairy price inflation does not show any signs of stopping this year, food industry analysts and employees said.

 

Even as all food prices have jumped in recent months, the dairy increase is staggering in comparison.

 

A gallon of whole milk costs US$0.39 more than a year ago, a 12% increase, according to the latest Consumer Price Index. Butter costs nearly US$1 more per pound than in April 2010, an increase of 35% whereas cheddar cheese rose to its highest price ever in April, US$5.20 a pound.

 

That compares to a 3-4% forecast inflation rate for all foods in 2011, according to the USDA.

 

Dairy producers and experts said the price spikes are coming from all levels of the supply process. Commodity prices for crucial cattle feedstock, such as corn, have nearly doubled in the last 12 months.

 

Fuel prices, which affect costs at nearly every stage of the industrial chain, are up sharply from a year ago, and worldwide demand for dairy products has simply increased as the economy recovers from the recession, said a food economist.

 

The USDA recently increased its forecast dairy inflation rate to 5-6% for 2011, coinciding with increases in prices for meat products, which are subject to the same factors.

 

Dairyman David Jones, who runs the cow milking operation at Oklahoma State University in Stillwater, said the dairy is paying twice as much for corn-based feedstock as it did last year.

 

"Yes the price is good, but it is barely offsetting the feed," said Jones, an assistant professor at OSU. "In 2009, dairymen lost a huge amount of money in milk and they are just barely beginning to build back equity."

 

Dairy is a highly volatile market based on a fickle economy, consumer behavior and a very perishable supply.

 

Demand, along with prices, dropped sharply in 2009 and 2010 as the worldwide economy slowed.

 

Before that, milk prices rose to a record high of near US$4 a gallon in late 2007 and 2008.

 

Terry Holden, a spokesman for Oklahoma City-based Braum's Ice Cream and Dairy Stores, said the dairy business is highly competitive between grocers, and therefore profit margins are often razor-thin at every level.

 

"Milk in grocery stores has traditionally been a price leader item," he said, referring to the grocery industry practice of selling some popular items for little or no profit. "And everybody that is in the business that produces milk is affected by the increase in commodities."