If you routinely trundle off to your local Safeway (NYSE:SWY), Kroger (NYSE:KR), or Wal-Mart (NYSE:WMT) to buy gallons of milk to accompany your Lucky Charms cereal, be prepared to begin paying a lot more for the creamy white stuff. A perfect storm has gathered over the dairy industry, and milk prices are expected to rise at least $0.50 per gallon. The price of milk hit a 25-year low only last year and may hit a record high later this year.
Here are some of the factors contributing to this storm:
- Cattle feed prices have increased, as have beef prices. As these prices rise, killing a cow becomes somewhat more attractive than milking it.
- Bad press surrounding growth hormones often fed cows has led to a drop in bovine hormone usage.
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Monsanto (NYSE:MON), which makes the milk-stimulating hormone BST, ran into some problems recently and decreased supplies to existing customers by 50%.
- Mad cow disease has not exactly led to a plentiful supply of cows.
- Recent low prices of milk persuaded some dairy farmers to quit the business, reducing the number of suppliers and the supply of available milk. (Also playing a part was a campaign by the National Milk Producers Federation to curb the milk supply by paying farmers to cut back their production or reduce their herd size.)
More than milk will be affected. The price of cheese is rising, as is the price of ice cream. The National Ice Cream Retailers Association predicts a 20% to 30% jump in ice cream prices by this summer.
Fools can react to these developments by seeking out other taste treats, raising their own dairy cows, or saving extra pennies for dairy treats. Alternatively, take a long-term view and simply wait for this perfect storm to pass. There's a good chance that prices will stabilize or even fall in the near future.
Meanwhile, if you find yourself suddenly alarmed by these rising prices and could use some ideas of ways to get by spending less, drop by our Living Below Your Means discussion board. Those who wish the price of milk would go up more can visit our Living Beyond Your Means discussion board. Try our entire discussion board community free for 30 days now!
L ongtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.
