and milk-derivative products have long been
commodities famous for low market prices
and a balance of power that strongly favored
buyers. Now, they have joined the growing
mix of agricultural products that are seeing
astonishing gains in market prices across
trend, which many now refer to as “Agflation,”
has been manifested as prices for farm products
such as corn, corn syrup, and wheat reached
record levels in 2007 (See Commodity
Buyers under Pressure on Many Fronts, as
Economy now Confronts “Agflation”)
Now, you can
add milk to the list. In the past 12 months,
prices for milk and related products, such
as powdered whey, have also soared in the
U.S. and Europe. On the Chicago Mercantile
Exchange, the price for milk futures has
soared about 70 percent in the last 12 months.
Prices for milk and related products in
most of Europe are up almost 50% in 2007.
There is an old joke about a “mountain
of extra butter” in Europe that no
one talks about now.
result has been significant pressure on
food manufacturers, for which these agricultural
commodities represent a substantial portion
of total cost and which have either been
slow or unable to pass on the full cost
increases to consumers. In the U.S.,
for example, Papa Johns Pizza was just the
latest to warn that rising prices for cheese
may hurt its profits.
happening? In part, it’s a globalization
of the food supply market. While in many
product areas, the opening of supply markets
to global sources reduces buyers costs,
in agricultural commodities in many cases,
it has freed producers from restrictive
selling models that limited true market
the price for these agricultural commodities
is increasingly driven by global futures
markets, where, as noted, milk and other
prices are rising substantially, at times
perhaps in ways that don’t perfectly
reflect the true supply-demand balance.
Traders are betting that supply will be
tight in the future, creating price increases
on the spot market.
as with oil prices, the upward spike in
milk prices is linked in part to growing
demand from China.
Imports of dairy-related products have surged,
as per capita consumption has more than
doubled since 2000, a level of increase
that Chinese domestic production has not
been able to match.