MILK, BUTTER, CHEESE: Prices Set to Skyrocket Next Year!

PRODUCERS SQUEEZED! CONSUMERS TO BE MILKED!

June 22 (Bloomberg) -- Dino Giacomazzi, whose great- grandfather started the Giacomazzi Dairy in Hanford, California, in 1893, said he had no choice in February but to slaughter 100 cows, or 11 percent of his herd. Rising feed prices and a world surplus meant it cost as much as $17 to produce $10 of milk.

“Producers are in an absolute state of panic,” said Giacomazzi, 40. “To spend 100 years building a dairy business and see much of that equity disappear in a year is very troubling.”

Farmers plan to shift the pain to consumers. The National Milk Producers Federation in Arlington, Virginia, will pay dairies to slaughter 103,000 U.S. cows in coming months. Milk futures prices will double next year to a record $23 per 100 pounds (43.5 kilograms) as the herd shrinks by 171,000 head, the most since 1989, said Michael Swanson, a senior economist at Wells Fargo & Co., the largest lender to U.S. farmers.

The cuts will lead to the first two-year drop in output in four decades and higher prices in 2010 for butter, cheese, milk and the non-fat dry powder that’s a benchmark for global exports, according to U.S. Department of Agriculture forecasts. Futures for delivery in September 2010 trade 56 percent above today’s prices on the Chicago Mercantile Exchange.

Retail butter prices may rise above the record of $3.937 a pound and cheddar cheese may top $5.097 a pound, according to Jerry Dryer, 65, the editor of the industry newsletter Dairy & Food Market Analyst in Delray Beach, Florida.