The Slaughter Rule
BY David Roeder Staff Reporter
Article from The Chicago Sun-Times
Will consumers have a cow over hikes in dairy prices over the next year or so? The dairy markets at the Chicago Mercantile Exchange are forecasting a more than 50 percent hike in wholesale milk prices by late 2010. Many analysts think prices will double over that time.
However, changes in the futures markets do not extend dollar-for-dollar to grocery shelves. Wholesale milk futures at the Merc are down about 50 percent over the last 12 months, but the Consumer Price Index has seen retail milk fall about 18 percent in that time, said Alan Levitt, an analyst who writes the Daily Dairy Report for the Merc. He said raw milk accounts for about a third of the costs to get the product to the store.
Levitt said a 20 percent retail price hike is possible if futures market forecasts come to pass. “Dairy is the most volatile of all the commodities. It tends to over-correct on the high and low end,” he said.
Current prices are below costs for many farmers, so expectations are that herds will be culled. The National Milk Producers Federation is paying dairies to slaughter 103,000 cows over the next few weeks.
A California-based dairy farmer, John Gailey, told Bloomberg News, “We’re all in survival mode.” He has reduced his herd by 400 head, or 9 percent, since March.