Cheese Prices Go Whiz: Future prices hit record high

April 15, 2004

COLUMBUS, Ohio -- Shoppers filling their carts with milk, butter and cheese probably won't see the full impact of spiking milk prices paid to farmers. Typically at this time of year dairy farmers receive $11.50 to $12 per hundredweight for their milk with $13 considered a high price. But this March, farm prices whipped over $14 per hundredweight and April's are expected to be over $16 per hundredweight. May Class III prices on the Chicago Mercantile Exchange are over $20 per hundredweight, "the highest level ever," said Cameron Thraen, Ohio State University Extension dairy economist. But grocery stores look at dairy products as a way to get customers into their stores. "They are not going to increase milk prices so that a shopper goes to a competitor for cheaper milk and fills their cart with another $150 worth of groceries. They'd rather swallow a loss and sell the rest of the groceries, which have a higher margin to begin with," Thraen said. Consumers might feel the bite at the pizza shop or fast food store, however. As food retailers start paying 80 cents more for a pound of cheese, they will need to pass that increase on to their customers, he said. Watch for pizza prices increasing by up to $1. Six factors came together in the past several months to create the dairy market's version of The Perfect Storm, Thraen said. After two years of rock-bottom prices, the National Milk Producers Federation CWT (Cooperatives Working Together) program removed 33,000 dairy cows from production in 2003, which decreased milk supply. - Last summer, the Western dairy region suffered high heat and humidity that cut milk production. Cows still haven't physically recovered from the stress, which also has decreased the milk supply. - The discovery of Mad Cow in the United States, and the subsequent closing of the Canadian border to the flow of livestock, has eliminated a source of replacement dairy heifers for the U.S. industry. - The U.S. dairy herd has come to rely on BST, a growth hormone that increases milk production. Production difficulties by manufacturer Monsanto caused the company to accept no new customers, and to limit existing customers to 50 percent of their normal quantity from March to December 2004. - The economic recovery has increased demand for dairy products. The increase in demand started at Christmas and continues through today. - While imports from the international market would typically keep a lid on domestic cheese and butter prices, there is little excess product on the international market to help meet increasing U.S. demand.

Author(s): 
Suzanne Steel
Source(s): 
Cameron Thraen