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Cost of fuel, corn could push milk prices up 9% by fall
Published 30 March 2007 by AP (original article)

Costs have surged for fuel and for the corn used to feed dairy cows, a side effect of increases in the production of ethanol.

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Published 30 March 2007 by AP,

See also
- Corn planting plans are up; soybeans, cotton, rice down, AP, 30 March 2007
- A Taste For Corn, Forbes, 30 March 2007

By Genaro C. Armas, Associated Press

STATE COLLEGE, Pa. — Dairy economists predict the retail price of milk could rise as much as 30 cents a gallon — a 9% jump — by fall. The reasons include rising fuel and feed costs for farmers and increasing global demand for milk products.

The average retail price of whole milk could rise to $3.35 a gallon by October, from $3.07 in January, says Ken Bailey, an agricultural economist at Penn State University who specializes in the dairy industry.

A U.S. Department of Agriculture forecast also predicts an increase in the price that processors pay farmers for raw milk. That is typically an indicator that the retail price will rise.

Yet seesawing milk prices seem to have little effect on the buying habits of consumers like Celesta Powell.

Powell buys four gallons of milk every week for her four children, and even with milk prices expected to rise, she says she has no plans to cut back.

"You can't look at cutting your kids back on milk," she said after loading several bottles from a Meyer Dairy store into her minivan recently. "What are you going to give them, soda?"

When the average price of milk rose 19% in spring 2004, milk purchases fell less than 4%, says Stephanie Smith, a Denver-based nutritionist and spokeswoman with the National Dairy Council.

Habit and nutritional concerns loom large, Smith says. USDA nutritional guidelines recommend that most Americans drink 3 cups of skim or low-fat milk a day, or eat the equivalent amount of cheese.

The price of milk swings by classic supply-and-demand economics, says Douglas Eberly, counsel for the Pennsylvania Milk Marketing Board.

If demand remains constant, but the supply of milk goes down, prices tend to rise. That may allow farmers to ramp up production, which increases supply and in turn likely lowers the retail cost of milk.

Logan Bower, president of the Professional Dairy Managers of Pennsylvania, says costs for farmers have risen so much recently that he is unsure whether even the predicted price increases will help.

Costs have surged for fuel and for the corn used to feed dairy cows, a side effect of increases in the production of ethanol to help replace some gasoline.

Bower says he now pays about $180 a ton to feed his 500 dairy cows, up from $115 a ton a year ago, an increase of more than 50%.

There is also a growing demand for products like skim milk powder, dry whey and whey protein concentrates, which are exported for feeding programs in the Middle East, Asia and Cuba, Bailey said. Whey powder is used in animal livestock feed.

"The result is that domestic supplies of these milk protein products are limited and global market prices are rising," he said. "That feeds back to the farm price of milk."

Federal legislators recently have drawn up bills seeking relief.

Sen. Bob Casey, D-Pa., earlier this week introduced an amendment that would pay Pennsylvania dairy farmers a subsidy for milk produced the past six months.

Casey said the amendment would provide about $125 million to help dairy farmers deal with higher energy, feed and other production costs.

"Without relief, more dairy farms may join the 250 to 350 dairy farms that go out of business every year in Pennsylvania," he said.

But Phoebe Bitler, vice president of Pennsylvania Dairy Stakeholders, an industry group that includes farmers, producers and grocery stores, said the price of milk should not be so dependent on subsidies for farmers so consumers get an accurate gauge of costs.

"We've made it so that the farmer has to produce it cheaper and cheaper all the time," said Bitler. "The real price needs to be paid for the product, rather than a subsidy price."


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