Replies to post #106530 on ajtj99's Market Pulse

[sylvester80]

http://edition.cnn.com/2007/US/08/09/milk.prices/?imw=Y&iref=mpstoryemail

What gives? Grocery shoppers in Omaha, Nebraska, may be surprised to know that the blame rests on the other side of the Atlantic -- and the other side of the world. It's all about supply and demand. Decreasing dairy supplies and rising demand for it are forcing prices up.

Supply is down in Australia and Europe, while demand is up in nations with rising standards of living such as China.

"A drought in Australia has reduced their dairy export potential while the European Union has quotas that limit increases in milk production," said professor Michael Hutjens, a dairy industry scholar at the University of Illinois.

Also playing a smaller role in the price spike is higher demand for corn-based ethanol fuel, according to USDA analyst Ephraim Leibtag. Increased demand for corn pushes up costs for cattle feed, which is then added to the price of milk.

Although farmers such as Cagle are getting more money for their milk, they also are forced to pay higher prices to feed their dairy cows. The Southeast has been plagued for the past few years by droughts which have pushed feed corn prices higher.

[GLENO34]

nancy..Yes but you don't use milk do you?? So it doesn't count in the inflation numbers...

[koltusz]

Look at the price of Milk!

2.69 1/2 gal. milk supermarket. 3.00 gal reg gas. 1 pint of
turkey hill butter pecan, on sale for 1.00 but light as a feather, i mean half air light. in NY,NY

[ajtj99]

nancy, the reason for the higher price of milk is the US Government price guarantee (subsidy) increased to around $18.00 per 100-weight of milk from around $13.00. The actual rate they subsidize varies from state to state according to some archaic formula devised to protect farmers in Wisconsin. The further away from Wisconsin you are, the lower the subsidy according to this formula.

The reason the price supports increased was to reimburse farmers for higher costs, including fertilizer, fuel, feed increases due to screwball ethanol policies, higher labor costs including minimum wage increases, and higher land rent costs.

It is reasonable for milk to be more expensive due to these costs. The price was artificially low for quite some time because the government guarantee did not change for over half a decade while costs went up significantly.

If I recall, the guarantee was about $10.50 10-years ago, so that's about a 75% increase over 10-years.