Why are Milk Prices So #%&# High?

According to reports that I have been reading and listening to, there are a number of factors.

1. Demand - Chinese consumption of milk is up. Which means more people are demanding milk. Even in my house, as I try to drink less pop, I have been consuming more milk. Of course I don't live in China.

In China, milk consumption has soared along with rising incomes, a massive expansion of the dairy industry and the increasing familiarity with -- and taste for -- non-native foods among young urbanites. Chains such as McDonald's, Starbucks and Pizza Hut are introducing cheeseburgers, cheese pizza and lattes to a new audience.

- Chicago Sun-Times

2. Supply - With the increased demand, the producers are increasingly having difficulty making the supply meet demand.

The National Milk Producers Federation cited the expectation that supply will not keep up with demand as the main cause of the increased dairy prices. This is due to constraints on production as well as continued strong demand for dairy products domestically and internationally. The milk federation reported that U.S. dairy exports have risen 75 percent between 2003 and 2006.
- Billings Gazette

3. Corn/Feed Prices - Finally a third reason is the cost of corn, the main feed for cattle. Part of the reason corn prices is going up, is again supply as corn is also a key ingredient in Ethanol.

Another factor behind slowing U.S. milk production is the high price of corn, the primary feed for dairy cattle, said Galen of the national federation. Prices are up primarily because of the growth of the ethanol industry. The increase in gas and diesel prices is also affecting dairy farmers, which in turn affects the price of dairy products.
- The Prairie Star

After hitting an average high of $3.80, in July, the National Milk Federation said,

dairy prices are expected to peak in mid-August and then start to slide.
- Billings Gazette