Why are milk prices surging? Say cheese!

Some shoppers are seeing hikes of 40 cents per gallon this week.

Got Milk?

If not, it may cost you a lot more money than usual to get it over the next couple months. In fact, those innocuous little jugs in the dairy aisle have practically become White Gold as prices in many cities jumped as much as 40 cents a gallon this week. It's one of history's biggest hikes.

What's behind the outrageous leap? Well, many things, actually: everything from this summer's heat waves, which sapped cows' milk output, to Americans' growing penchant for pizza - and the cheese that tops it. With more milk being made into cheese, there's less to drink. And now there's a run on milk.

So people may be harrumphing in the grocery aisles, but folks like Dave and Laurie Kyle are practically dancing in the barnyard.

They're a husband-and-wife team with 110 cows in the roly-poly hills of southern Wisconsin. In a state that lost 7,000 of its 30,000 dairy farms between 1993 and 1998, things are looking up.

"Dairy farmers who buy their feed have made out like bandits," says Gerald Nolte, head of agricultural economics at the University of Wisconsin in River Falls.

The Kyles might take issue with the bandit part, but they do say the past 12 months have been unusually good.

Wearing mud-and-manure-spattered boots and professorial spectacles, Mr. Kyle says it costs him about $12 to produce 100 pounds of milk. For the past few months his dairy co-op has paid him $14 per 100 pounds. He produces about 1,250 pounds per day, and he's pleased with the profits that brings.

Bright futures ahead?

Batting away the nosy advances of a particularly ornery cow named Pumbaa (his kids help name the cows), he says he's not sure if the good fortune will continue. But after years of marginal success, a little extra money sure is nice.

To be sure, not all dairy farmers are rolling in profits. The money being made in milk these days often goes to processors, haulers, or other middle men. But, as economist Dr. Nolte says, buying their feed is a big part of the Kyles' success. And that has to do with the misfortunes of America's other farmers, corn or hay or wheat growers. One bushel of corn now costs the Kyles just $2, the lowest price they've seen since 1995.

And Mrs. Kyle - who smilingly says she's the bookkeeper and "head of human resources" for three part-time employees - confirms that 50 percent of their expenses go to buying food for the cows. So with feed prices low, the profits are bigger.

But if America's milk producers are prospering, why is milk so expensive? Basically, demand is outstripping supply. And one big reason is America's growing love affair with pizza. Last year Americans ate some 3 billion pizzas - about 100 acres of pizza per day and about 350 slices per second, according to the National Association of Pizza Operators.

With more money to spend and less time to cook, Americans are turning to pizza. In fact, in a survey by the American Frozen Food Institute, 56 percent of working moms with kids under 13 said frozen pizza is their kids' favorite food. And the biggest ingredient in pizza? Cheese. Pizza-delivery giant Domino's used 139 million pounds of it last year.

The nation's cheese consumption is skyrocketing. Last year, it was 28.4 pounds per person (see chart). Cheese is expensive, but in this golden economy, folks are willing to pay for a little golden cheddar to top that entree. "We're eating cheeseburgers, Mexican food, Italian food - all with lots of cheese," says Chris Galen, spokesman for the National Milk Producers Federation in Arlington, Va.

The cheese factor

But what does cheese have to do with milk? Well, the federal government's price-setting system for milk is largely based on cheese price. So when cheese is expensive, so is milk. Or there's simple economics: With so much milk being made into cheese, there's less milk to drink. Demand for milk grows, making it cost more. Cheese hit near-record highs in August. Milk is following suit.

But all this is expected to settle down. Production has ramped up - and farmers are starting to learn better inventory techniques - so cheese prices have started falling. Milk will likely follow. The headline-grabbing new federal milk-pricing scheme hasn't affected milk prices, as it was temporarily blocked by a federal judge last week.

The Kyles see a bright future and plan to start a new farm with another local family. They'll have as many as 700 cows. "We're quite optimistic," says Mrs. Kyle, beaming.

(c) Copyright 1999. The Christian Science Publishing Society

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