Ounce for ounce, the Budweiser that goes into Joe Espitia’s beer ice cream still costs more than the milk, but the milk is catching up.
Families, schools and businesses such as Sweet Dreams Ice Cream Parlor in La Marque are feeling the brunt of high prices.
U.S. wholesale Grade A milk prices more than doubled since 2002, with the sharpest increases this summer, according to the National Agricultural Statistics Service.
Between April and August, milk prices rose 30 percent. A gallon of name-brand milk in local stores ranged between $4 and $6 on Friday. The national average for a gallon of whole milk in August was $3.81. Other dairy products, such as butter, cheese and ice cream, are also more expensive than they were a few months ago.
Espitia created his beer ice cream on a dare. His freezer also contains more traditional flavors, from plain vanilla to banana pudding, all made in the store.
He didn’t raise the price of an ice cream cone this summer, so the 35 to 45 gallons of milk he buys each week are starting to affect his bottom line. He said he doesn’t buy enough to get a price break.
“This is a luxury,” Espitia said from behind the freezer case.
Because customers don’t view ice cream as a necessity, price increases passed on to consumers could dramatically hurt business, he said.
Worldwide Forces
Experts say the causes for high dairy prices literally span the globe.
Drought in Australia, which exports much of the world’s dairy supply, sent production into a tailspin. Domestic demand and cheese exports to Mexico and Asia pushed prices to near record levels, according to the U.S. Department of Agriculture.
In the United States, transportation costs are up, and crops once devoted to cattle feed are increasingly devoted to ethanol production for cleaner fuel.
Rising personal incomes in China have boosted demand for dairy products.
“All these factors came about during this year,” said Boyd Brady, a dairy specialist at Auburn University. “When you boil this down, what you have is your basic economic supply and demand.”
Record prices don’t necessarily translate into record profits for dairy suppliers.
Dean Foods, the nation’s largest dairy producer, scaled back profit forecasts last week, saying high prices are prompting consumers to switch from name brands to cheaper store labels. Shares closed at $27.04 on Friday at the New York Stock Exchange, down from more than $37 in April and a 52-week high of $50.50.
“We’re seeing a lot more reports from grocery stores about their milk sales going down compared to a year ago,” said David Anderson, a professor of agriculture economics at Texas A&M University in College Station.
Debbie Loman of Texas City said she stopped buying fluid milk altogether after watching prices creep up week after week. Now she buys evaporated milk and mixes it with water.
“You learn to economize,” she said.
Officials in the Texas City and Galveston school districts said they’ve taken a hit on food budgets instead of passing the price increase on to students and parents.
“It’s a bite, but it’s so important to the kids at all levels to get their calcium and their milk intake,” said Jennifer Douglas, director of child nutrition for Galveston schools.
Narrowing The Gap
Economists generally agree that milk prices should decline gradually in the coming months as production rises in response to high prices, and dairy yields rise in cooler weather.
But prices are expected to remain well above those of recent years, according to the agriculture department.
As an odd result of market forces, the price of organic milk, usually far more expensive than conventional milk, is now only slightly higher.
Organic milk production surged in 2007 as farmers rushed to convert to organic production before more stringent federal standards take effect in 2008.
But Brady, the dairy specialist at Auburn University, said the price of organic milk could separate from conventional milk again in 2008 as production slows. Also, it takes time for the increased cost of organic feed to affect retail prices, because organic feed is in such short supply that dairy farmers order it a year or more ahead of time.
Struggling
Conventional milk prices are so high that government price controls, aimed at supporting farmers when prices fall too low, now look like something of the distant past. The support price is $10 per 100 pounds of milk. When prices drop below that, the government will buy cheese, butter and nonfat dry milk, and store it to drive prices up, Anderson said.
But in August, the free market was paying U.S. farmers an average of $21.60 per 100 pounds.
It’s a pinch that families and ice cream parlors will continue to feel in their pocketbooks, on top of higher energy costs.
Espitia used to work for an electricity company. He opened Sweet Dreams in 2004 in Santa Fe, then moved to a building close to the Wal-Mart Supercenter on Interstate 45 in La Marque. Rent there is three times higher.
It was an agreement to sell his product at Star Drug Store in Galveston that he says kept the business afloat.
“I wouldn’t say we’re doing all right,” he said. “We’re struggling like everybody else.”
