Milk prices are going up this summer. Actually, they have been going up since April, but “July and August will be when people really see it,” said Chris Hackman, general manager of Central Dairy in Jefferson City.
Milk prices are typically higher in the summer but, “when you look at futures markets today, we are at record or near-record prices for the next couple of months,” said Scott Brown, director of livestock and dairy at MU’s Food and Agricultural Policy Research Institute.
Last Wednesday, a gallon of Central Dairy brand whole milk at Gerbes grocery store was $3.26, which was also the Consumer Price Index’s May national average. However, Brown thinks consumers could be paying $4 to $4.50 a gallon for fluid milk by July and August of this year.
The explanation for this year’s price increase rests somewhere between economics and science — but it’s mostly economics.
“We talk about dairy being one of the most inelastic ag(riculture) markets we have today,” Brown said.
Strong domestic and international demand for U.S. dairy products has been the principal factor keeping prices high, according to Brown. This means that the price of adding milk to your cereal has as much to do with a drought in Australia and how much cheese is eaten in China as it does with the profits of your local supermarket or dairyman.
Essentially, the Department of Agriculture watches the price of cheddar cheese, whey, butter and nonfat dry milk and then determines the least a farmer can receive for his milk. “This ties the price of milk to the manufacturer,” said Gene Danekas, director of agricultural statistics for the Missouri Department of Agriculture. It also ties it to the price you pay for milk at the grocery store. “That’s why you don’t see people selling milk for 99 cents,” said Von Newby, dairy manager of Hy-Vee grocery store in Columbia.
Even though consumers may see higher prices in the store, the increase in revenue is not making Missouri dairymen rich, said Kevin Lenz, who runs the Lenz dairy farm south of Boonville. The Missouri dairy industry has been in a rapid decline since 1975, according to Dave Drennan, executive director of the Missouri Dairy Association. Any increase in the cost of feeding a cow, or running a milk refrigerator, or fueling a milk truck is absorbed by the farmer without affecting the cost a customer pays at the grocery store.
“The current prices are probably essential if we want to stay in business,” said Kenny Lenz, Kevin’s father. “I would like to pass (the dairy farm) on to another generation,” said Kenny Lenz, whose son and nephew, Randy Lenz, now run the dairy farm he and his brother started in 1968.
The “food or fuel” explanation claims that increased ethanol production leads to higher feed costs and therefore higher milk costs. But that doesn’t take into account that a dairyman’s feed cost also includes soy, hay and other grains, too. “It’s all the energy costs,” said Drennan. “I don’t make the connection (between ethanol and milk costs).”
For a scientific explanation, well, cows aren’t machines, they’re cows. And milk goes bad fast. “If you don’t sell it, you smell it,” is the industry motto, said Kenny Lenz. Milk cows typically produce the most milk in the beginning of the year in what is called the “Spring Flush” and less milk during the hot summer months. This means less supply and higher prices.
Newby said he has not seen any decline in demand at his store since prices began to rise in April. And no one expects one either.
“There really isn’t a substitute for drinking a glass of liquid milk,” said Brown.