Monday Business : Preview : Cost of Milk Expected to Rise

California’s retail milk prices are likely to rise after Oct. 1, perhaps to $3 or more a gallon in some stores, when the state issues its next set of orders governing the prices dairy farmers get for their milk.

The closely regulated price that farmers receive is scheduled to rise to $1.68 a gallon--a 41-cent increase that is expected to be passed on in full to consumers. California milk prices fell dramatically earlier this year but have been increasing this summer.

The latest round of price increases is being driven in part by a severe drought in other areas of the country that has greatly reduced milk production, state Agriculture Department Director William Lyons said in a recent letter sent to dairy industry officials. A heat wave in the East has coincided with a drop in milk production.

The federal government sets milk prices monthly at the farm level for all other states, but California has its own, complex formula and adjusts prices every other month.

Both systems are affected by prices for dairy products such as cheese and butter set on national commodity exchanges.

Managers at local grocery stores said Friday they had not yet heard about the impending price increases and did not know how it would affect their pricing.