Soaring Milk Prices Hurt Business Owners

May 12, 2004 -- At the Long Grove Confectionery Co. in Buffalo Grove, Ill., the aroma of milk chocolate is overwhelming. The plant produces a million pounds of specialized chocolates every year. And I can attest — the chocolate is very, very good.

But as we watched swirls of creamy delights being molded into various shapes this week, John Mangel, the man in charge, expressed his concerns about how much all of this is costing him.

"It's not been something that we quite honestly expected," he said. "It has been a very quick and very severe increase in prices."

Mangel is talking about milk prices. They are at record high levels now and are not expected to go back down until much later this year. At Long Grove Confectionery, butter costs twice what it did last year. Whipping cream prices are up 50 percent in just the last three months.

"That increase has just been horrendous," said Mangel, who added that he is worried the price spike may force layoffs at his plant that employs 100 people.

Businesses Hit Hard

But Mangel knows he's not alone. "The cheese guy will be every bit as much affected by the increases in the milk prices as we are," he said.

As a definite "cheese guy," Harry Isensee agreed.

He and his wife, Colleen, run a cheese store in the Wisconsin Dells, Wis., they said they are worried about the price hikes they are being forced to pass along to the consumer.

"People aren't going to buy five to 10 pounds when they come here now," he said ruefully. "They'll probably buy two to three pounds."

Colleen added: "Milk is going up. Cheese is going up. Butter is going up. Ice cream is going up."

Indeed, at some major supermarkets, a gallon of milk is approaching $4. And that's amazing because for the last few years, the price of milk had been at a record low level.

"Dairy farmers went through about 18 months of very miserable milk prices, starting in December of 2001" and lasting until the summer of 2003, said University of Wisconsin professor Ed Jesse.

Prices were so low that many farmers — mindful of the high-protein diet craze — were selling off their livestock because they could get a better price for their meat than their milk. Within no time, there was a milk deficit.

A Perfect Storm

Traditionally, when supplies run short, the American farmer imports Canadian cattle. But that option is closed now because of concerns over mad cow disease. Add to that the fact that supplies of a specific growth hormone that enables cows to give more milk has run out, and you have a worsening situation. In fact, the combination of factors is referred to by market experts as "a perfect storm."

In Madison, Wis., pizza parlor entrepreneur Wayne Mosley said the milk price is killing him. The prices for cheese, he said, are so high "you couldn't pass them along because people wouldn't buy them."

"Any price increase you make has to fit what the market will bear," he said. Mosley has been selling more salads lately and prays for the few folks who don't like cheese on their pizzas.

"We have people who order cheese-less pizzas, and I bless them," he said. "They're lactose intolerant."

But Mosley's misfortune is a blessing for Tom Sarbacker of Paoli, Wis. He is a dairy farmer. And he thinks the price he's getting now for his milk is just right. He said he is using his increasing income to help pay off the bills that accumulated during the lean years.

"It makes things a lot easier for us," Sarbacker said, "being able to continually pay bills as they come in and not put them off for 30 to 60 days."

No, he insisted, farmers are not price gouging.

"It's the kind of price we need to continue to be able to provide you with this food," he said.

Still, milk prices are too high to ignore. And an increasing number of farmers are getting back into the dairy business big time to reap the profits. But that's where supply and demand meet.

Because the more milk that's produced, the more likely the price will eventually go down. And the experts expect it to happen sometime later this year.