Got Milk? Drought Threatens to Push Up Dairy Prices

Drought-fueled increase in corn prices puts the squeeze on dairy farmers

In this May 16, 2012, photo, veterinarian Sara Gilbertson performs a chiropractic adjustment on a dairy cow in Cleveland, Wis. There's no sound scientific data to back up the claims, but dairy farmers say they believe contented cows give more milk. Farmers are turning to creative tactics to keep the cows comfortable, including waterbeds to rest on, classical music in the barn and occasional chiropractic care.
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Time to start really relishing those Oreos everyone, because soon milk could be a delicacy too expensive to pair with the bicolored cookie.

Milk prices are on track to jump as much as 15 percent in the beginning of 2013, an industry group said Wednesday, thanks in large part to the worst drought since 1956, which has sent animal feed prices soaring.

Searing temperatures and sparse rain in the nation's corn-producing regions have led to the biggest drop in corn output in 17 years, which has in turn put a premium on livestock feed, a big component of which, of course, is corn.

[RELATED: USDA Slashes Crop Yield Projections]

Corn prices are up 47 percent since mid-June, forcing some California dairy farms into bankruptcy and others to cut herds to limit losses, according to Bloomberg. As a result, milk futures have surged to a 13-month high.

"The effect on retail prices is enormous," Dairy Management Chief Executive Officer Tom Gallagher told Bloomberg.

Americans spend almost 11 percent of their grocery budget on dairy products according to some estimates, and a big hike in milk prices could be big trouble when it comes to consumer budgets already strained by rising energy costs.

[SEE ALSO: U.S. Drought a Boon for Foreign Farmers]

The consumer price index for all items increased by 0.6 percent in September, according to the Labor Department, driven largely by a bump in gas prices, which surged 7 percent from the month before.

The specter of skyrocketing milk prices has been used in recent weeks to push for passage of the Farm Bill in Congress, currently in limbo thanks to partisan discord. If Congress doesn't pass the bill by the end of the year, milk prices could spike to $6 a gallon in some parts of the country, New York Democratic Sen. Chuck Schumer told reporters in late September.

"They say you shouldn't cry over spilled milk, but it seems perfectly reasonable to cry over a 100 percent increase in the price," ENJOY: The U.S. News Collection of Economy Cartoons]

Low-income families and people in developing nations would feel the brunt of the price hikes, according to experts.

But there's a small silver lining. After the increases expected early next year, milk prices are expected to cool down as demand falls and producers ratchet up output. According to Gallagher, demand falls about 4 percent for every 10 percent increase in price.

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Meg Handley is a reporter for U.S. News & World Report. You can reach her at mhandley@usnews.com and follow her on Twitter at @mmhandley.