Butterfat cost to rise, increasing price of dairy foods Supply falls, demand goes up in summer

June 25, 1998|By KNIGHT RIDDER/TRIBUNE

AKRON, Ohio -- We don't care about the federal government's new weight guidelines.

We don't care about our cholesterol levels.

We want taste.

But are we willing to pay for it? Not just in pounds, but in cash?

The price of butterfat, the part of milk that puts the taste in dairy products, will reach an all-time high this summer, experts predict. That will drive up the price of cheese, chocolate and ice cream.

Economists predict that higher butterfat prices will drive the cost of a pound of butter up to $3 at the grocery store by late summer; it has been about $2 for most of the year.

And some ice cream manufacturers, including Ben & Jerry's, have raised or plan to raise their prices in coming weeks. Others, including Smith's Dairy in Orr-ville, Ohio, pooh-pooh the butterfat scare and say they have no plans to raise prices.

Dan Reuwee, director of cooperative communications for the Dairy Farmers of America in Kansas City, Mo., said the price of butterfat typically goes up in the summer as consumers chase ice cream trucks and flood custard stands.

But there are other factors, he said.

Cows, for instance.

Cows pull a work slowdown in the summer, Reuwee said. When it gets hot, they cut production. A cow can usually produce 60 to 100 pounds of milk a day, he said. But not only will production drop significantly in the summer, so will the quality of the milk, making it less than the average 3.5 percent butterfat.

And for the past decade, Reuwee said, farmers have been stocking up on breeds such as Holsteins that produce a lower level of butterfat in their milk. Consumers were demanding low-fat products, so it didn't pay to produce high-butterfat milk that would be used to make cream, butter and cheese. Now, fickle consumer tastes are changing.

Another factor in the rising butterfat price, Reuwee said, is that the government no longer stockpiles huge quantities of butter and cheese. In prior years, when the price of butter and cheese would rise, the government would flood the market with those products, increasing the supply and bringing the price down, Reuwee said.

Add these factors together, Reuwee said, and you have higher prices.

"You can get all the butter you want -- if you want to pay for it," he said.

The high price could hurt butter sales, predicted Jim Heilmeier, president of Tasty Pure Foods Inc. in Akron, maker of Sumner's butter.

Heilmeier doesn't expect price decreases until after September -- after the sweet corn season, when he depends on his product to be lavishly spread on ears of corn.

Cheese consumption too, is way up, Heilmeier said, mainly driven by fast-food restaurants that smack a slice on thousands of burgers a day.

Heilmeier doesn't think people will give up cheese, because there isn't a low-price substitute. But for butter there is an alternative, and its name is margarine.

Higher margarine sales would be fine with Sue Taylor, the director of nutrition communications at the National Association of Margarine Manufacturers in Atlanta.

She said that although margarine has been getting a bad rap lately, health organizations still recommend margarine products, particularly soft margarine products, over butter to reduce the risk of heart disease.

A principal speculator is Peter Vitaliano, vice president of the National Milk Producers Federation in Arlington, Va., whose recent American Butter Institute Market & Situation Outlook report may have sparked the hullabaloo.

Vitaliano agrees that it's all about supply and demand. "The market is working," he said.

"The demand for the nation's butterfat is at its peak this time of year. There's nothing new," he said. "Prices go up when demand increases relative to supply. It's Economics 101."

Still, what used to be a fairly steady and predictable price structure is no longer that way now that the government is out of the mix, he said. And the industry should expect more volatility.

Pub Date: 6/25/98

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