Dairy milk and dairy products like cheese will be the first “food” victims of the drought. We’re likely to see price hikes in this category as quickly as the fall, and by Christmas analysts predict that a gallon of milk could potentially increase 25 cents up from end-of-summer prices. Cows produce less milk when the temperature soars due to heat stress. On top of that, dairies are facing higher feed costs and the additional expenses of fan and sprinkler systems to keep the cows cool day and night. All in all, this was bad news for an industry that was already on the receiving end of very low milk prices. In July, prices were at their lowest for 18 months as the result of an excessive surplus built up over a mild winter and spring.
To solve for the bad situation, dairies have been sending cows to slaughter prematurely, rather than paying to keep them producing, says William Snell, of the Department of Agricultural Economics, University of Kentucky. In its September Livestock, Dairy and Poultry Outlook, the USDA notes an overall milk production reduction for 2012 based on a lower forecast for milk yield per cow. With tighter supplies on the way, prices will rise in the near term and will continue to increase into next year as dairies work to replace the liquidated livestock, adds Snell. According to the latest Consumer Price Index, in 2013 dairy products will jump a significant 3.5% to 4.5% up from 2013. (2.8% is the average and expected rate of food inflation.)
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