UI's Hutjens: Milk Price Increase Squeezing Kraft

Kraft Foods Inc., already losing business to grocery store-branded cheese, has a new problem: soaring milk prices.

Reduced supply, increased demand and higher production costs are jacking up the cost of cheese's primary ingredient. Milk prices, up more than 30% this year, are expected to rise even higher in the next month. That's bad news for the maker of Velveeta: Kraft counted on cheese for 19% of its $34 billion in sales last year.

"It's going to squeeze companies like Kraft pretty bad," says Mike Hutjens, a University of Illinois at Urbana-Champaign dairy specialist. Candymaker Hershey Co. and dairy-products company Dean Foods Co. both said last month that they expect earnings to suffer amid rising milk costs.

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