May 24, 2004

 

 

US Dairy Prices Hard To Digest

 

This month the Pennsylvania Milk Marketing Board set a record price for milk, putting more money into the pockets of dairy farmers who have long sought a better return for their labor and taking more out of the wallets of consumers and businesses who had grown accustomed to the low prices.

 

The retail price in the state for a gallon of whole milk will average $3.53, up from an average of $2.95 last month, according to the board. Farmers will receive an average of $25.16 per 100 pounds of Class I drinking milk, a 38 percent increase from the April price of $18.19.

 

A combination of factors contributed to the increase, according to the board.

 

Faced with a poor return for their labor, dairy farmers culled their herds for slaughter. They found a seller's market for their milk cows, with consumers trying low-carb, high-protein diets and beef imports from Canada banned because of Mad Cow disease.

 

The ban also eliminated Canada as a source for replacement cows. Additionally, there has been a shortage of the growth hormone some farmers used to increase dairy production.

 

Dairy farmers faced historic low prices for milk in 2002 and 2003, said Jerry Dryer, who publishes Dairy & Food Market Analyst weekly online. At the same time, beef prices went through the ceiling. The end result has been 150,000 fewer dairy cows.

 

Dryer does not blame the farmers. "They didn't hurt themselves, they took the economically correct action," he said.

 

The milk marketing board noted milk production was down 5.4 percent between March 2003 and March 2004 and there were approximately 9,000 dairy farms in the state at the end of last year, 200 less than the previous year-end tally.

 

Less milk on the market meant not only less to drink, but less to be made into butter and cheese and other dairy products.

 

As a result, the prices increased for cheese and butter set on the Chicago Mercantile Exchange, where the commodities are traded. Cheese is up 40 percent since March and butter has risen 16 percent. Stepping back to January of this year, the price of butter is up 71 percent, according to the milk marketing board.