Milk prices continue to rise, generating cost
increases for other dairy products.
As June Dairy Month gives
way to National Ice Cream Month in July, the rising cost of milk is
threatening the businesses of ice cream processors this summer.
Just when the idea of rising fuel costs has started
settling in the American brain, the thought of paying more for our favorite
warm-weather treat may be more than the average consumer can handle. The
cost of other dairy food products is being affected as well.
According to Washington, D.C.-based International
Dairy Foods Association (IDFA), milk prices worldwide are rising at the
fastest rate ever due to growing demand in developing countries and
dwindling government supplies — thus creating a competitive dairy
market — while processors struggle to keep prices manageable for the
average consumer. IDFA says the industry has seen additional increases in
farm and wholesale prices in May and June.
On June 1, the government announced a Class I minimum
price mover (the mandated minimum base price that milk companies must pay
to farmers for milk used in packaged beverage milk products) of $17.84 per
hundredweight — 66 percent higher than it was in June 2006. Then, in
late June, USDA announced the Class I minimum price mover for July —
at $20.91, it is the second highest in history. The record of $21.13 per
hundredweight was set in June 2004.
Meanwhile, block cheddar cheese prices at the Chicago
Mercantile Exchange (CME) increased 10 cents in a week to close at $2.10
per pound on June 22, one of the 10 highest wholesale prices ever.
Prices for milk and dairy products have risen recently
due to a number of factors. IDFA says strong international demand for U.S.
dairy ingredients, particularly nonfat dry milk (NFDM), dry whey and
lactose is a major contributor. Due to this international demand and short
supply worldwide, the component prices for U.S. NFDM and dry whey have been
increasing steadily over the past six months. NFDM rose about 30 percent in
early 2007 and the price of dry whey hit a record high — more than
double it ever was before the current run-up in prices.
Another major factor, says IDFA, is the rising cost of
feed for dairy cows, the largest cost dairy farmers incur. Corn prices have
been rising in particular due to an increased demand for ethanol created by
an interest in alternative fuels. Ethanol production diverts corn from the
animal feed supply, as well as land that had been used to grow feed corn.
Corn futures market prices suggest the price of corn will remain relatively
high this year.
Prices have also risen for soybeans, another feed
Meanwhile, IDFA notes the industry is seeing a steady
domestic demand for dairy. Americans continue to enjoy cheese, milk, ice
cream and other dairy products, and value their nutritional benefits.
Finally, the lower farm milk prices of 2006 resulted
in a slowing of the growth of total U.S. milk production (less milk coming
from dairy farms into the supply chain). This, coupled with strong demand
both here and abroad, has led to higher prices.