No sales impact seen from rising milk prices yet

As milk prices continue to rise, consumers are feeling the pinch, whether it’s buying milk at upwards of $3 a gallon or paying a dollar more for a cheese pizza. And the outlook isn’t good.

According to state Agriculture Commissioner Steve Taylor, $4-a-gallon milk may not be out of the question before summer’s end, but thus far, the impact on retailers and consumers has not been dramatic enough to affect sales. Prices at supermarkets in southern portions of the state vary from a low of $2.79 for a gallon of store-brand whole milk to $3.65 or higher for a gallon of brand-name whole milk.

“The prices may have crept up a little, but not enough to make a difference in our milk sales,” said Janice Clark, manager of Harvest Market in Bedford. “Milk is just one of those staples you can’t do without.”

For Jennifer LeClair, a mother of four teenagers, milk is a necessity she’s just unwilling to do without. “If worse came to worse I might cut back on some of my other groceries – cookies or treats, that we can live without. And really, if you’re talking 20 cents a gallon that may be a dollar or two a week. It’s not that big of a deal given its importance.”

While rising cost of feed, fuel, power and other variables that go into operating a dairy farm have had a significant impact on the amount of money remaining in the pockets of farmers after selling their milk, it’s actually the U.S. Department of Agriculture that sets dairy prices based on commodities market trading of cheese, butter and milk powder.

“The farmers are the last to be figured in,” said Taylor, a dairy farmer himself. He noted that farmers receive between a quarter and a third of the retail price for their milk.

Currently, farmers are receiving about $20.91 per 100 pounds of milk, or hundredweight, equal to roughly 12 gallons of milk. That number is expected to reach $22.32 by August before it begins to decline, Taylor said.

Last year at this time farmers were earning about $12 a hundredweight. The affect of the low prices that persisted throughout 2006 is in great part responsible for today’s low supply, having driven farmers to sell off a portion of their dairy stock or leave the dairy industry completely, Taylor said.

Increased demand for “table milk” – that purchased by families for home consumption – and increased demands for milk on the global market also have contributed to the current shortage.

“There is a vast array of products made from milk, and overall they’re all reasonably priced,” Taylor said. “For years milk has been a bargain and that hasn’t changed.”

Pizza problems

The story is different for consumers of a milk product – cheese, specifically mozzarella cheese.

Block cheddar cheese – the benchmark for mozzarella and other cheeses – recently topped $2 a pound on the Chicago Mercantile Exchange, up 78 percent from the $1.17-a-pound price of a year ago.

The higher cheese costs are the result of an economic chain reaction. Prices for milk, a key ingredient in cheese, have gone up – a result of higher feed grain costs for dairy cattle herds, Rob Hainer, spokesman for the Atlanta-based Southeast United Dairy Industry Association, told The Associated Press. In particular, corn prices have risen amid growing demand for ethanol fuel, he said. Also fueling higher cheese costs has been strong U.S. and global demand for dairy products, he said.

Some big pizza chains, which use mountains of cheese, already have responded.

Both Pizza Hut and Papa John’s International have raised the price of their cheese-only pizzas to the same amount as one-topping pizzas at company-owned stores.

The higher cheese prices have exacerbated pressure companies already face from higher wages and fuel costs, Chris Sternberg, spokesman for Louisville, Ky.-based Papa John’s, told AP.

Papa John’s uses about 100 million pounds of cheese each year, and the cheese typically makes up 35 percent to 40 percent of the food cost in making a pizza, he said.

And cheese-only pies cost the company more, requiring an extra cup of cheese, he said.

Dallas-based Pizza Hut, part of fast-food giant Yum Brands Inc., which is also headquartered in Louisville, goes through 300 million pounds of cheese each year, spokesman Chris Fuller told AP. The chain’s cheese-only pizza has 50 percent more cheese than a one-topping pie.

For the most part, said Domino’s Pizza Inc., spokeswoman Lynn Liddle, the Ann Arbor, Mich.-based delivery chain has “managed to work around these peaks and valleys.” But if the price of cheese and other items continues to rise, Domino’s will have to boost its prices, she said.

Mom-and-pop shops are feeling the pressure, too. Constantly Pizza, a family-run chain of three shops based in Concord, N.H., has stood pat on pizza prices, but the escalating cost of cheese has changed some routines in the kitchen.

Veteran pizza makers used to casually eyeball the amounts of cheese heaped onto pizzas, but now everyone has to be more meticulous – pouring cheese into measuring cups.

“We’re not cutting back our cheese. We’re just making sure that our employees are being very accurate,” owner Dave Constant told AP.

His shops use up to 2,000 pounds of cheese a week, and the rising price, he said, “bites right into the profit margin.”

Experts see no immediate relief in sight for pizza makers.

A market analyst with Downes-O’Neill, a dairy brokerage firm in Chicago, said continued strong demand, along with a typical summer decline in milk production, could keep cheese prices high for a while.

“There’s some definite room to the upside,” said analyst David Zaslavsky, projecting that block cheddar cheese prices could reach $2.15 to $2.20 a pound in late summer.

He said cheese prices could level off or retreat slightly in the fourth quarter.

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