Ice cream prices are heating up

CHICAGO (CNN) -- Americans screaming for ice cream will have to dip even deeper into their wallets this summer.

Supplies of butterfat, the ingredient that gives ice cream, chocolate, cheese, pastries and other rich foods that yummy taste, are melting away because of low inventory, rising demand and exports.

That's leading to higher prices for such treats, and the people who sell them fear profits could dry up if prices drive away customers.

But butterfat consumption is up this year as food makers have been quietly adding more fat to their products and Americans have been lapping it up after years of low-fat and no-fat diets.

"When you're hot, you're hot, and butter is a very hot commodity right now. We're at a hot time of the year, there is a strong demand for things that use butterfat, like cheese for the grill and of course ice cream, so that demand is driving the price up," said Chris Galen of the American Butter Institute.

'Nobody wants to sell the stuff'

Meanwhile, the commodities markets are churning.

Grade AA butter is now at $1.95 a pound on the Chicago Mercantile Exchange for only the second time in history. That price is 73 percent higher than a year ago.

"Nobody wants the sell the stuff. There's fears of a real, genuine shortage," said Joseph Gressel, a dairy trader at the Chicago Mercantile Exchange.

Higher commodities prices could translate into supermarket butter prices rising to $3 a pound by late summer. Prices have been about $2 a pound for most of the year.

Butter on the production line

Dreyer's Grand Ice Cream, Ben & Jerry's and other ice cream manufacturers also have raised or plan to raise their prices in coming weeks. Ice cream prices already have climbed at least 25 cents a half gallon.

The International Dairy Foods Association says prices are rising in part because of low inventory and production levels.

Subsidized butter exports also continued late last year, skimming off even more butterfat supplies.

"Last year, we exported twice as much as we usually do. ... Obviously that was not good for the market, and we're paying for it now," said Susan Ruland of the International Dairy Foods Association.

Cows can't make more

But the bovine production line can't be tuned up. Cows are still producing the same 3.6 pounds of butterfat for every 100 pounds of milk. So all the businesses that use butterfat will be competing intensely for the creamy ingredient.

Butterfat is the fatty part of milk that is processed out to make butter and is also added to foods. Butter is about 80 percent butterfat.

"The cream, quite literally, is rising to the top for anybody who's willing to pay for it," said dairy consultant Mary Ledman of Libertyville, Illinois.

And like seemingly every other news story this year, the roots of the butterfat shortage can be partially traced back to -- yes -- El Nino.

California is the nation's No. 1 dairy producing state, and the flooding caused by El Nino disrupted milk production.

The federal government also is no longer in the business of supporting butter prices. In the past, when prices threatened to drop below 65 cents a pound, the U.S. Department of Agriculture stepped in to buy supplies from producers and kept millions of pounds in cold storage. The USDA would then sell the butter when prices rose again. But that inventory is all but gone.

At the same time, high tariffs are keeping butter imports down.

"One thing the government could do would be to increase the amount of butter that could be imported without tariff, and that would provide ice cream producers and other users some additional supplies of butter," said the USDA's Keith Collins.

Shazia Akhtar, a manager of a Baskin Robbins store, said so far, she hasn't had to raise prices.

"We can change the size of the scoop -- we've done that before," she said. "But customers don't like that."

Correspondent Ceci Rodgers, Reporter Kathleen Koch and The Associated Press contributed to this report.

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