MADISON, WIS. — Milder weather is finally warming the upper Midwest, and that usually means winter-weary residents start heading to the store or ice-cream shop to enjoy a nice cooling cone of rocky road or butter brickle.
That's good news for Paul Thomsen, president of Schoep's ice cream in Madison, Wis., since it means a nice sales boost for his company.
But rather than looking forward to the ice-cream season, Mr. Thomsen is a worried man this April. Wholesale prices for raw dairy products such as butterfat - the key ingredient in full-flavored ice cream - have soared to record levels amid a sharp decline in the nation's milk production.
The recent jump in costs has twice forced Schoep's to raise its prices to retailers, and Thomsen warns that if butter prices keep climbing, his business may be in for real trouble - people will pay only so much for an ice cream cone.
Ice cream isn't the only food that is getting more expensive these days. Milk, butter, cheese, and other dairy products are also climbing in price as wholesale costs filter down to America's dairy cases.
The pizza industry is bracing for a price jump, as cheese is the largest single cost in making pizza, aside from hiring workers to bake it and deliver it. Wholesale prices for 500-pound barrels of Cheddar cheese hit $1.91 late last month on the Chicago Mercantile Exchange, topping the previous all-time high of $1.88 set in August 1999.
"There's not a lot you can do other than keep a close eye on the prices and hope they don't go too high," says Tom Beach, who owns two Pizzeria Uno franchises in this town that's home to the University of Wisconsin. His business has been fortunate so far because it had locked in future cheese deliveries at lower prices.
The issue all comes down to supply and demand, says Chris Galen, spokesman for the National Milk Producers Federation in Washington, D.C. Milk production rose only 0.1 percent in the United States last year, and production is down more than 1 percent for the first three months of this year.
At the same time, demand for dairy products has been strong - in part because of the Atkins diet craze, which emphasizes eating higher-fat foods such as whole milk, cheese, and butter.
"It's Econ 101," says Mr. Galen. "In the dairy industry right now there is more demand than supply."
A variety of factors are contributing to the decline in milk production, not the least of which is the nationwide decline in the number of cows. There are now about 9 million dairy cows producing milk in the US, the lowest number since the late 1990s, Galen says.
He explains that farmers have reduced their herds because dairy farming hasn't proven profitable the past several years. The high cost of feed and low prices paid to farmers for their fluid milk drove many from the business.
But farmers who have stuck it out are now enjoying some of the highest milk prices ever.
Prices have been pushed up as some of the major buyers and wholesalers of cheese and butter are nervous they won't have enough to meet their customers' needs as they move into summer and fall, says Bob Cropp, a University of Wisconsin dairy marketing economist.
"They've been pretty aggressive in bidding up prices," he adds, predicting that grocery store prices for milk and butter will increase substantially.
Even if consumers feel a pinch at the grocery store or ice-cream stand, farmers are badly in need of some price relief, says Galen of the National Milk Producers Federation, who calls the higher prices welcome news.
One concern in the industry is that prices could come crashing down as more farmers move to take advantage of the record high prices and milk production increases. But producing more milk isn't as easy as simply turning on the spigot.
A ban on imports of cattle from Canada after the discovery of mad cow disease has dried up the market for replacement dairy cattle and has pushed up prices of cows in the US. Also, agribusiness giant Monsanto Co. has run into problems with its synthetic growth hormone, Posilac, which is injected into cows to boost milk production by 25 percent or more.
Eventually milk production will improve and demand may soften somewhat, bringing wholesale prices back down. "The big question, of course, is how quickly they come down," Mr. Cropp says.
In the meantime, ice-cream makers, who are watching the prices climb, hope that some stability returns to the market before too much damage is done.
"What happens is that prices go way up and then come crashing down again," Thomsen says. "That hurts everybody. But I've seen this before. We'll get through it."