Milk Costs Surge Due to Corn As high as gas prices are, milk is more expensive. And the high prices for both can be traced to the high cost of another commodity — corn. Both the fuel and grain needed to run a dairy come from corn, which is getting more expensive because of increased demand for corn's other use, ethanol.

Milk Costs Surge Due to Corn

Milk Costs Surge Due to Corn

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

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.

Higher milk prices mean customers are paying more at Amy Green's ice cream shop in downtown Lincoln, Neb. A small cone will set you back $3.50 before tax – up from $2.95 just a few months ago.

Green said she's now paying an extra $150 a week for the rich butterfat she uses to make old-fashioned, slow-churned ice cream.

"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," Green said.

The retail price for a gallon of whole milk tops $3, 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. Add to that, droughts in major milk-producing countries like Australia.

But another key factor is the demand for ethanol, according to Chris Galen, a spokesman for the National Milk Producers Federation. Ethanol is increasingly being used as an alternative fuel for gasoline.

"Everyone is paying more for feed; and it's not just corn," he said, noting that the increase in corn plantings means there's less acreage available for soybeans and for alfalfa. "So the products that go into cows that make milk are much higher than they've typically been in the past."

One year ago, it cost about $2 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 has been hard for the dairy industry to respond to the growing demand.

It's a warm summer afternoon on Lowell Mueller's dairy farm about 70 miles north of Lincoln. Wearing a red and white baseball cap and a short-sleeved plaid shirt, Mueller and a farmhand usher a new group of cows — eight at a time — into the small barn that holds his milking machines.

He considers himself one of the lucky ones because he grows his own corn, soybeans and alfalfa. 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.

"Milk prices are a little higher, but unfortunately our costs have gotten a little higher too. So it's always tough to keep up with all the escalating costs," he said.

Industry leaders predict milk prices could top out this summer at about $4.60 a gallon, which just might make a gallon of gasoline look like a bargain.

Sarah McCammon reports for member station Nebraska Public Radio.