Economists predict milk prices can rise 30% per gallon


Economists predict milk prices could increase by as much as 30 cents per gallon a 9 percent jump by fall. Some say its increasing demand for milk products around the globe and rising fuel and feed costs for farmers and increasing demand for milk products around the globe. Others say it is government manipulation of the milk business.

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.

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 of milk from Meyer Dairy store into her minivan recently. "What are you going to give them, soda?"

When 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.

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.

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.

A study done by the USDA acknowledged that "dairy programs raise the retail price of milk." According to Citizens Against Government Waste, a watchdog group, it is estimated that these programs cost U.S. consumers at least $1.5 billion a year.

"Rather than allowing commerce between dairy farmers and dairy manufacturers to flow freely, the milk marketing orders devise and administer a raft of intricate regulations to govern the overall price of milk. The regulations undermine the most basic free market concept of negotiating contractual agreements between buyers and sellers," says Tom Schatz, President of Citizens Against Government Waste.

Costs have surged for fuel and petroleum-based products and for the corn used to feed dairy cows, a side effect of increases in the 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 is also a growing demand for products like 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. Whey powder is used in animal livestock feed.

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."