April 1, 2004

 

 

US Milk Prices Reach New High

 

Prices of milk in the United States reached record-breaking highs following a reduction in milk production, an increase in demand for cheese, and a ban on replacement calves from Canada.

 

"This is welcome news," said Randy Thompson, a UW-Extension dairy expert. "And the outlook is respectable, too. Producers have little control over the market, but at least for the time being, things look good."

 

For consumers, it means a gallon of milk could cost $3 and a pound of butter might increase to $2.15.

 

Last year in April, Thompson said farmers were receiving a dismal price of $9.41 per hundredweight, which is roughly 12 gallons. As of Tuesday, the April price had climbed to $18.62 on the Chicago Board of Trade.

 

That figure breaks the previous record price of $17 set in December 1998, shattering a two-year trend of low milk prices at a time of year when prices generally are weakest, dairy economists said. With premiums for quality, some farmers could receive more than $20 per hundredweight.

 

Rising prices also could boost the state economy. Wisconsin produces about 22 billion pounds of raw milk annually. If farmers receive an average of $3 more per hundredweight for the year, it would add $660 million to the state's farm income, economists said.

 

But Ed Jesse, a UW dairy economist, warned that milk prices now at "stratospheric prices" might not last. He said they may be driven by an industry suffering a "temporary scare situation" about future supplies.

 

"When you get market-driven prices, they tend to be more volatile. ... I tend to think we are going to see these prices come down," Jesse said.

 

Thompson said efforts by some dairy groups to reduce the size of herds was paying off. In addition, he said Monsanto has been unable to produce enough synthetic growth hormone to meet demand. He said the drug can increase milk production per cow by as much as 10 percent.

 

Herds are also smaller because producers can no longer buy replacement calves from Canada because of concerns over the spread of mad cow disease. Another factor is the increasing cost of feed, which has caused some dairymen to cut back.

 

Thompson said production costs for producers have risen by more than 5 percent. But that is more than offset by April prices that farmers will receive, he said.

 

"How long this lasts is anybody's guess," he said. "It could turn around depending on weather and crop conditions. If we have a hot, dry summer in the West and Midwest, these prices could hold.

 

"The last two years have been bad, though," he said. "So this recovery is needed."

 

Dairyman Steve Broege said rising prices means he will be able to replace worn-out equipment and reduce some of his debt. He milks 300 cows south of Janesville with his brothers Paul and Garit.

 

"Things are on the upswing because of rising demand for cheese and the falling use of growth hormones," he said. "I just hope they don't find a lot of cheese somewhere. With these prices, we'll have a little better life on the farm, especially compared to the past two years. I just hope things don't turn around next month."

 

Chris Galen, a spokesman for the National Milk Producers Federation, said dairy farmers nationwide are reaping the higher prices. Milk production rose only 0.1 percent in the United States last year, and production is down more than 1 percent for the first three months of this year, he said.

 

"Prices reflect supply and demand," Galen said. "In the dairy industry right now, there is just not enough supply."

 

The higher prices are welcome news, "like a warm rain at the end of the drought," he said. "Hopefully, this will be a year they can pay off a lot of the debt they have been piling up over the last two years.