ROBERT SIEGEL, host:
You can expect to pay $3 a gallon for it in a lot of places, and the price is going higher as we head into the summer. You might think I'm talking about gasoline but, in fact, we're talking about milk.
For most of this year, prices for milk and butter and cheese have been heading higher not just in the U.S. but around the world.
And here to help us understand why is Dr. Lane Ely, professor of dairy science at the University of Georgia. Welcome to the program, Professor Ely.
Dr. LANE ELY (Professor of Dairy Science, University of Georgia): Thank you.
SIEGEL: I tend to think of dairy as being a pretty local business because a lot of milk products spoil pretty easily. But I understand that this price hike has a lot to do with international market forces, is that right?
Dr. ELY: Well, the simplest thing is that it's a supply and demand activity, and that's going to determine the overall price. So there's an amount of milk that's produced, and then it will then be divided into fluid milk, which we drink; soft products - ice cream, yogurts; the cheeses and then butter and non-fat dry milk. And as overseas demand increases, that means there's more price increase in this country for those products, which will increase overall milk.
SIEGEL: And a big supermarket chain, say, supplying itself with milk, would it always be paying the same price?
Dr. ELY: No, that will vary - partly, due to transportation. One of the things in the U.S., there's a national supply and demand, but we don't produce milk individually in different states where it's actually utilized. So, for example, in the South East, we don't produce enough milk to meet the total demands, so we have to import milk from other parts of the U.S.
SIEGEL: Now, I can pretty well imagine the national market economy for milk, but the global economy is the one that I'm having trouble wrapping my mind around right now.
Dr. ELY: Well, there's been a tremendous increase especially in a lot of the developing countries. As their economies have increased, they've bought more milk products, especially the non-fat dry milk, also, the lactose and the caseins from milk to utilize in their food chain.
SIEGEL: Well, that accounts for some of the increased demand. What about the supply?
Dr. ELY: Well, supply has gotten tighter. Part of the hot, dry weather in many parts of the U.S. has had a negative effect on milk production; and hot-weather cows don't eat as much, so they don't produce as much milk. Also, with the ethanol demand for corn that's driven corn prices up about double of what they were a year ago; and that has had an effect - a positive effect on feed prices, which has made it tighter for farmers to feed their cows.
SIEGEL: And then, of course, the transport of the milk, or for that matter, the feed and other supplies to produce it has gone up with increased fuel and energy cost.
Dr. ELY: Right. That's had a tremendous effect.
SIEGEL: Well, what is the forecast for the coming months for the price of milk?
Dr. ELY: Actually, it looks like we're headed into maybe some record prices. If we had these predictions about two months ago, we are in a - going to decrease prices now, and just the exact opposite has changed.
SIEGEL: Are these pretty good days in the dairy business in the U.S.? Or, are these, bad, hard times? Or, is this the golden age of milk?
Dr. ELY: Oh, this is not really hard times, but it's not far away from hard times. It's not a golden age. It's a not a big profit unless feed prices moderate some or fuel prices, especially in many areas of the country with the weather. It's going to be very tight for many producers.
SIEGEL: Well, Professor Ely, thank you very much for talking with us about it.
Dr. ELY: Thank you.
SIEGEL: That's Dr. Lane Ely, who is professor of dairy science at the University of Georgia, talking with us about the rising price of milk.