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Dairy costs

Record high milk prices forecasted

Thursday, February 27, 2014
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Dairy costs


Employee Jim Welnhofer at Stewart's Shop #275 in Glenville on Thursday.
Photographer: Patrick Dodson
Employee Jim Welnhofer at Stewart's Shop #275 in Glenville on Thursday.

— The price of milk has been rising since mid-2013, but analysts are warning it could reach a record high next month.

Local retailers say they’re trying to keep prices stable to spare customers the sticker shock, but that may not be possible for long if demand for U.S. dairy products from countries like China continues at its current pace.

A gallon of milk at your local grocery store could cost 10 percent to 20 percent more in March, according to numerous analysts. Cornell University professor and dairy expert Andrew Novakovic says the price paid to farmers for milk will be 20 cents more a gallon than the previous highs in late 2007 and 2008, when a gallon of milk at the retail level reached $4 in some markets.

“Retailers try to slow down a rapid price rise like this,” he said. “So when prices rise rapidly, they will eat some of that cost but then when prices start to fall, they won’t fall as fast in the grocery store because they’re trying to make up for that last big increase.”

That appears to be the case locally. Depending on the type (skim, whole, 2 percent, etc.), a gallon of milk at your local Stewart’s Shop will cost you anywhere from $3.59 to $3.99 right now. That’s a 50-cent price increase from one year ago when the range was $3.19 to $3.49, said Stewart’s spokeswoman Maria D’Amelia.

“We’re currently holding prices steady in light of the news,” she said. “We try to look at the progression of the market over the long term. There are some months when we decide to eat that higher cost and there are other months when we have to make the call to raise the prices.”

The Malta-based convenience store chain is unique, though, in that it buys milk directly from about 30 dairy farms throughout Saratoga, Washington and Rensselaer counties, and then processes the milk itself at its dairy plant in Greenfield Center. The farm-to-shelf time is just two days, which may explain why the chain frequently wins awards for the quality of its milk.

When Novakovic talks about the farm price of milk, he’s talking about the price that processors like Stewart’s pay dairy farmers. The U.S. Department of Agriculture predicted last week that this price is expected to rise 19 cents over last year to an average $21.20 per hundredweight — 100 pounds, or 11.6 gallons.

A gallon of milk at Price Chopper has seen a similar price increase over the past year, said company spokeswoman Mona Golub. The Schenectady-based grocery store chain sells a wide variety of brands and types of milk, including its own Price Chopper brand.

“Retails are generally based on the cost of getting the goods to market and the competitive landscape,” Golub said via email. “As a promotional merchant, we feature milk at reduced retails in our weekly ad on a regular basis, even when the cost of the product is rising.”

This strategy makes sense to some extent, said Novakovic. Milk is a household staple, meaning the price could determine not just where you decide to buy milk but where you decide to do the rest of your grocery shopping, too.

Interestingly, the surge in milk prices has nothing to do with actual demand for beverage milk, that which is consumed as liquid milk.

“As a matter of fact, the demand for beverage milk has been going down the toilet for the last three to four years,” said Novakovic.

The real demand is for other dairy products, especially powdered milk and cheese. Whenever the prices of these products rise, so does beverage milk’s price. China is the biggest market here, though certainly not alone in its growing appetite for dairy products from the United States and other major dairy producers like Europe, Australia and New Zealand.

“The real story is the demand for dairy products in emerging markets around the planet,” said Novakovic. “China is the poster child, but they’re not the only one. The reality is these countries are ramping up their demand for dairy products faster than producing countries can keep up with it.”

Dairy farmers are expected to ramp up production this year, according to the National Milk Producers Federation, so the record-high milk prices may not last long and could even stabilize by summer.

“Much of what happens to pricing over the near- and intermediate-term hinges on whether China keeps coming back for more,” said Golub.

The strong global demand is good for dairy farmers, at least, who will generate more revenue as long as demand continues to outweigh supply.

 
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