Hey all, The rapidly approaching train wreck between the booming biofuels industry and food security is already hitting U.S. pocketbooks in milk prices. Expect much much worse to come, because the U.S. Senate just passed an energy bill that will require the use of 36 billion gallons per year of biofuels by 2022, and will require that all cars be able to run on 85% ethanol by 2015... See below or http://news.cincypost.com/apps/pbcs.dll/article?AID=/20070628/BIZ/706280346 Milk prices on way up Impact wide if cost soars By Tom Demeropolis Cincinnati Post staff reporter The price of milk has been rising most of the year and the worst may be yet to come. A combination of high prices for feed corn, high energy costs and increased demand on the world market has hit the dairy industry and milk consumers hard. Prices are certain to surge in July as the government-set minimum price that dairy processors must pay for raw milk will go up 17 percent. The situation has at least one Greater Cincinnati dairy industry expert predicting what now seems unimaginable: $5.99 for a gallon of whole milk. "Retail prices could get in that neighborhood, if things continue on," said Dan Smith, vice president of sales for Newport-based Trauth Dairy. "We may see $6 a gallon before the end of the year." It's the latest price increase to batter consumers already struggling to accommodate price hikes for gasoline, electricity, and water. The biggest factor running up milk prices is the cost of corn. The grain is one of the main components of feed for cattle, but farmers are getting more pop for their kernels by selling it to produce ethanol, a fuel blend that has gained favor since gasoline prices rocketed above $3 a gallon. "Corn is out of control," Smith said. The demand for corn has pushed up the price, and that has been felt among agribusinesses, said Andy Schoenhoft, director of dairy and frozen foods merchandizing for Bigg's, a subsidiary of Minneapolis-based SuperValu. "If the cost of feed goes up, we feel the effect," Schoenhoft said. And the effect is passed on from the dairy farmers to the processors to the retailers to - ultimately - consumers. A gallon of milk at Bigg's, which operates 12 stores in the region, retailed at $2.95 this week. The national average in May was $3.26, up 6.2 percent from $3.07 a year earlier. Schoenhoft said he expects to see milk prices rise for the rest of the summer, with some relief possible right after Labor Day, depending on market conditions. But Smith is not so optimistic. The United States Department of Agriculture sets minimum milk prices that processors have to pay for raw milk. Friday, the agency set the price for July at $20.91 per hundred pounds of milk. That's the second highest level in U.S. history and up more than 17 percent from the June base price. Smith said he expects that retailers will respond in July by hiking their dairy case prices by at least 30 cents a gallon. "Who knows what August is going to bring," he said. Bill Peterson, Mason County extension agent for the University of Kentucky College of Agriculture, said milk for six bucks a gallon probably wouldn't float. "Anything is possible," Peterson said, "but there is still supply and demand. The question is, will the market be able to handle $6 a gallon? I doubt it." Most retailers use a cost formula to determine how much to charge for milk. As the costs of everything that goes into producing a gallon of milk - fuel and raw milk, for example - rise, so does the milk price to consumers. "Everything that goes in affects the pricing," Schoenhoft said. Peterson said the base price for raw milk has to rise to offset farmers' higher costs. Complicating the situation is that there is less milk in the U.S. pipeline because domestic dairy producers are getting better prices in international markets, according to the International Dairy Foods Association, an industry group. Compounding dairy farmers' struggles is that they are facing drought conditions in most of Kentucky and other parts of the south. That has stunted pasture growth, forcing them to use additional grain to supplement their cattle's feed. Peterson said if that continues, the additional cost of feed could amount to $450 to $500 more per cow this year. Some farmers have responded to that crunch by thinning their dairy herds. "A lot of farmers are turning them into hamburger," Smith said. Rising oil costs are also squeezing farmers. They're feeling that not only in the cost of fueling their tractors and other machinery, but in petroleum-based products for fertilizer. The rising cost of milk figures to translate into higher prices for other dairy products. Pizza parlors, dairy bars and even Cincinnati-style chili joints are feeling the impact. "It's hard to find something not affected," Smith said. Graeter's will not be passing its cost increase on to customers this summer, said Bob Graeter, vice president of operations for the company. "Milk and butter are volatile items, their cost goes up and down, but it doesn't change our price," Graeter said. "We look at it from the long-term perspective. It's hard to jump our price all around." He said Graeter's increased its prices slightly earlier in the year, and since the company uses less milk than other ice creams, it is not as pressured by milk's cost. Smith cautioned against expecting a price break for some time. He said it would take lower energy costs and the corn market straightening out for prices to go in the other direction. Schoenhoft said customers may see the increase on price tags, but retailers will bear most of the brunt. "The cost to retail (prices) isn't as dramatic as it is to our margin," he said. Smith said he figures consumers will have to bear the higher costs. "At the end of the day, sales usually don't flux a lot," Smith said. "There is no good replacement for milk. You can't put iced tea on your cereal." ###