Experts: Milk prices will increase

One dairy official said farmers' costs have risen a lot lately.
STATE COLLEGE, Pa. (AP) -- Celesta Powell buys four gallons of milk every week for her four children. The oldest is just 6, so Powell said she isn't going to cut back on her kids' daily dose of calcium -- even if it means paying more to keep the refrigerator stocked.
"You can't look at cutting your kids back on milk," she said after loading two half-gallon bottles of 2 percent milk and a bottle each of chocolate and strawberry milk into her minivan at the Meyer Dairy store in State College.
"What are you going to give them, soda?"
Dairy economists predict the retail price of milk could rise as much as 30 cents per gallon, a 9-percent increase, by fall. The rising prices will be spurred in large part by increasing fuel and feed costs incurred by dairy farmers and a growing global demand for milk products, the economists say.
The average retail price of whole milk could rise to 3.35 per gallon by October, up from 3.07 in January, said 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 to farmers for raw milk. That is typically an indicator that the retail price of milk also will rise.
Little effect on buying habits
Yet seesawing milk prices seem to have little affect on consumer buying habits.
For instance, while the average price of milk rose 19 percent in the spring of 2004, milk purchases declined less than 4 percent, said Stephanie Smith, a Denver-based nutritionist and spokeswoman with the National Dairy Council.
In parts of Pennsylvania, the price for a gallon of milk shot up to roughly 3.70 in May 2004.
Habit and nutritional concerns appear to loom large, Smith said. USDA nutritional guidelines, for instance, recommend that most Americans drink 3 cups of skim or low-fat milk a day, or the equivalent amount of cheese.
The price of milk swings by classic supply-and-demand economics, said Douglas Eberly, counsel for the Pennsylvania Milk Marketing Board. When prices dip, it makes it harder and more expensive for farmers to make milk.
If demand remains constant, but the supply of milk goes down, prices tend to increase.
That may allow farmers to ramp up milk production again, which increases supply, which in turn would likely lower the retail cost of milk.
Logan Bower, president of the Professional Dairy Managers of Pennsylvania, said costs for farmers have risen so much recently that he is unsure whether even the predicted price increases will help.
What's gone up
Costs have surged for fuel and petroleum-based products. So too has the corn used to feed dairy cows, a side effect of the interest in ramping up production of ethanol.
Bower said 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 percent.
There's also a growing demand for products such as skim milk powder, dry whey and whey protein concentrates, which are exported for feeding programs in areas including the Middle East, Asia and Cuba, Bailey said. For instance, 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," the Penn State researcher said. "That feeds back to the farm price of milk."
Federal legislators recently have drawn up bills seeking relief.
Sen. Bob Casey, D-Pa., last week introduced an amendment that would pay Pennsylvania dairy farmers a subsidy for milk produced over the past six months. Casey said the amendment would provide about 125 million of aid to help state 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," Casey said in a statement.
Roy Tressler, 85, of State College said he was willing to pay more because farmers aren't making ends meet.
"It won't bother me a bit," Tressler said while walking to his car with a half-gallon of milk last week. "Farmers are taking it on the chin."

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