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SCOTT SIMON, host:

This is WEEKEND EDITION from NPR News. I'm Scott Simon.

What costs more: a gallon of milk or a gallon of gasoline?

As high as gas prices are, milk is more expensive, and the high prices for both can be traced to the high costs of another commodity: corn.

Sarah McCammon of Nebraska Public Radio explains.

SARAH McCAMMON: Just a year ago, quite a few dairy farmers were calling it quits. The fuel and grain needed to run a dairy were getting more expensive and farmers were getting such low prices for their milk that it was hard to make ends meet. So some cut back their herd sizes or sold off their cows and got out of the business altogether.

What a difference a year makes. Feeding cows still isn't cheap, but this year, milk prices are rising to near record levels and farmers are hoping to see more income.

(Soundbite of people working)

McCAMMON: Higher milk prices mean customers are paying more at Amy Green's ice cream shop in downtown Lincoln. A small cone these days will set you back $3.50 before tax -up from $2.95 just a few months ago. Green says she's now paying an extra $150 a week for the rich butterfat she uses to make old-fashioned, slow-churned ice cream.

Ms. AMY GREEN (Owner, Amy Green's Ice Cream Shop): I've been serving ice cream for 23 years, and it's really hard for me to say that it will be $16 to a family of four for, you know, four cones. It just feels wrong. But I have no choice.

McCAMMON: The retailed price for a gallon of whole milk reached $326 in May. That price continues to rise and experts predict it will soon set a new record. Several factors are creating a sort of perfect storm for milk prices this summer. Americans are drinking more milk and Chinese consumers are demanding more dairy products. Add to that, droughts in major milk-producing countries like Australia.

Chris Galen, a spokesman for the National Milk Producers Federation, says another key factor is the demand for ethanol.

Mr. CHRIS GALEN (Spokesman, National Milk Producers Federation): Everyone is paying more for feed and it's not just corn because, of course, with all the corn plantings this summer in the Corn Belt that means there's less acreage available for soy beans and for alfafa. And so the products that go into cows that make milk are much higher than they typically have been in the past.

McCAMMON: One year ago, it costs about two dollars for a bushel of corn. Now that price has nearly doubled. Galen says when you pile that on top of high fuel prices and last year's low milk prices, it's been hard for the dairy industry to respond to the growing demand.

(Soundbite of noise)

McCAMMON: It's a warm summer afternoon on Lowell Mueller's Dairy Farm, about 75 miles north of Lincoln. Wearing a red and white ball cap and a short-sleeved plaid shirt, Mueller and the farmhand usher a new group of cows - eight a time - into the small barn that holds his milking machines.

Mueller said it takes more of the afternoon to get about 180 cows through the milking parlor each day.

Mr. LOWELL MUELLER (Owner, Dairy Farm): This goes on about every - all seven or eight minutes, then put in another group.

McCAMMON: Mueller considers himself one of the lucky ones, because he grows his corn, soy beans and alfafa. But even he struggled last year to make back what he was spending to produce milk. Mueller says he's hoping things will improve this year.

Mr. MUELLER: Milk prices are a little higher, but unfortunately our costs have gotten up quite a bit higher too. So it's always tough to keep up with all the escalating costs.

McCAMMON: Back at the ice cream shop in Lincoln, customer Phil Snap(ph) says it would take a lot for his buying habits to change and he says milk prices aren't his biggest worry.

Mr. PHIL SNAP (Consumer): Compared to gasoline, you know, with gasoline I spend $30 or $40 a week only when I need it. I don't think it's too expensive.

McCAMMON: For now, though, don't expect the cost of either one to drop too much. Industry leaders predict milk prices could top out this summer at about $4.60 a gallon. And that just might make a gallon of gasoline look like a bargain.

For NPR News, I'm Sarah McCammon in Lincoln, Nebraska.

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