October 17, 2007

US milk farmers enjoying dairy price hikes

Though higher milk prices seem bad news for consumers, the price hikes are music to the American dairy farmers' ears as they have lost money last year when prices bottomed out.

Retail milk prices were up 18 percent since the start of the year despite higher productions costs and increased demand. The related wholesale price spike has given dairy farmers a bit of financial breathing room as some farmers some farmers use the increased margins to dig out of the debt they racked up last year. Mark Stephenson of Cornell University's programme on dairy markets and policy calls this a "recovery year" for dairy producers. He said the price increase has "bailed the farmers out across the country."

The US Department of Agriculture (USDA) says farmers in New York last month received an average of US$22.80 per 100 pounds for their milk, far above the US$13.20 average paid out a year earlier. On the average, wholesale prices jumped on average from US$13 to US$21.80 in the same period, says USDA.

Milk prices had been on the downward trend since late 2004, hurting dairy farmers who operate on thin margins in the best of times. Farmers last year complained the prices weren't covering the cost of doing business and from 300 to 500 farms in New York folded, said Peter Gregg of the New York Farm Bureau.

Milk prices have climbed along with fuel and feed costs. Corn, in particular, has become more expensive as the burgeoning ethanol business created a demand spike. However, dairy analysts say growing global demand for processed milk products _ especially skim milk powder _ has also sent prices up.

According to Joe Morse of the USDA's National Agricultural Statistics Service, there is a lot greater demand for all milk products in general, especially in emerging markets in Asia.

China's peaking appetite for milk and surging demand from Saudi Arabia and Mexico has stepped up US milk exports, according to Stephenson. The relatively weak US dollar also has helped fuel the export increase, he said.

Stephenson expects milk prices will be moderate as dairy farmers will increase output in reaction to higher prices. But he still expected US dairy farmers to have "a few pretty good years."