EconomicOutlook
ECONOMIC OUTLOOK
Milk Production Is Up Despite Inflation BY GARY LATTA
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omething on a lot of people’s minds right now is soaring energy prices. The effect of rising fuel prices is being felt not just in the U.S. but around the world. No doubt, most of you have felt the effect at the pump, but energy prices impact nearly everything in our daily lives — running our cars, heating our homes, food we consume and most goods we buy. Nearly all input costs on a dairy farm, processing plant and in distribution are impacted by energy expenses in many ways. Gasoline prices are now at a seven-year high and at a national average of about $3.08 a gallon, according to AAA reports. It was just a year ago that pump gas was averaging $1.97 a gallon. New York’s statewide average per gallon price for regular grade gas right now is $3.14 according to AAA. The numbers, of course, vary slightly across states and location. Massachusetts is at $2.97. Pennsylvania is $3.18. Vermont is $2.98, and Maine is at $3.06 per gallon. And, you can tack on an additional 10 to 20 cents per gallon for diesel. Some economists believe these fuel hikes are a temporary consequence of the pandemic. Others feel high energy costs to be the fallout from increased government spending driven primarily by the new administration in D.C. U.S. Federal Reserve Chair Jerome Powell indicated in testimony on June 21 that U.S. inflation has increased notably 12 • Northeast Dairy Foods Association, Inc.
in recent months as the economy continues to reopen. Higher rates of inflation reduce purchasing power as time goes on, unless wages and rates of return adjust along with inflation. The Consumer Price Index for all items rose 5% in May and was the largest 12-month jump since 2008. Food at home rose less than 1%, and food away from home was up 4% in May. The CPI change for gasoline and fuel oil has risen about 55% over the last 12 months. The Heritage Foundation, a D.C. think tank, reports the recent rise in the CPI is stoking fears of 1970s-style high inflation and stagflation. Stagflation is when an economy exhibits both high unemployment and inflation. For dairy producers, adding to the woes of energy costs are rising feed prices. Corn is now around $5.30 a bushel, which is about $2 a bushel more than this time last year. Soybeans are $5.60 a bushel more than last year, and alfalfa hay is $7 per ton more than last year.
DESPITE HIGH COSTS, MILK PRODUCTION IS UP
If anyone thought high input costs would slow U.S. dairy producers down, then you have not yet seen the latest Milk Production Report released June 21. May milk production was up 4% above May of last year among the 24 major producing states according to the USDA report. For all U.S. states
