Milk Prices

June 1st, The Oregonian asks Will milk prices become America’s new oil?

Dairy market forecasters are warning that consumers can expect a sharp increase in dairy prices this summer. By June, the milk futures market predicts, the price paid to farmers will have increased 50 percent this year — driven by higher costs of transporting milk to market and increased demand for corn to produce ethanol.

The SacBee today covers the increasing price of milk and tells us how, at least in California, milk prices are determined.

Q: What determines the price of milk?A: Unlike any other food, the base price of milk in California is calculated each month from a formula. State officials plug in the market prices for the four globally traded dairy commodities — butterfat, dry milk powder, whey powder (a byproduct of cheese-making) and cheddar cheese — and churn out the price that bottlers must pay farmers for their milk.

[…]

So the lowest prices in stores are equal to the cost of the milk paid to the dairy farmer, plus the cost of putting it in a carton and getting it onto store shelves — which usually adds up to about $1 a gallon.

The only way farmers can increase their margins is to cut their feed cost by shrinking the size of their herds. Milk prices here in Portland have been going up and may reflect the increased costs of transportation and increased cost of feed, but in California, it appears they are behind the curve. Expect higher prices of milk there as farmers cut their herds. Oregon could feel a ripple effect.
But of course, it is not inflationary, because the government rips out food and energy from the inflation reports and just touts the “core” rate of inflation, which is benign. My, oh my!

Milk Prices


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