By Sharon Omahen
University of Georgia

Fewer Georgia dairy farmers, extended drought and rising fuel prices have driven the cost of a gallon of milk higher than a gallon of gasoline, says a University of Georgia economist.

In January, milk cost $3.29 per gallon in most stores. It now costs $3.99. That’s a 20 percent increase, said Tommie Shepherd, an economist with the UGA College of Agricultural and Environmental Sciences.

The price increase comes in part from a seasonal reduction in the milk supply, he said. Dairy cows produce less milk during hot summer months. But, this year’s natural slow-down coupled with sharp increases in production costs resulted in steep prices at the dairy counter.

They will likely go even higher.

Drought withers grazing grub

Drought conditions contributed to rising milk production costs here and around the region. “Cattle that normally would be eating grass are being fed as if it were winter,” said Tom Thompson, a Georgia dairyman and president of the Georgia Milk Producers.

The invigorated ethanol industry also contributed to higher milk prices, he said. Feed is the major cost of milk production. And corn is a primary feed ingredient.

“Our nation’s drive for energy independence has resulted in a tremendous expansion of corn-based ethanol plants,” Thompson said. “This has raised the price of corn, and other feed ingredients, by a minimum of 50 percent.”

Raising fuel costs have also affected dairymen’s transportation costs.

“The farmer pays the cost to deliver the milk to the processing plant,” Thompson said. “He also pays some of the costs to import milk the plants need that he’s not able to provide.”

Fluid milk prices set record

On the positive side for farmers, the price they get for fluid milk is up.

“Fluid milk prices are tied to milk production and commodity prices for products that are made from milk, like cheese, butter, powder and whey,” Shepherd said. “USDA surveys those prices and determines a minimum milk price for farmers.”

Last month, fluid milk prices were a record-high $21 per hundred pounds. (A gallon of milk weights 8.6 pounds.) Next month, Shepherd predicts fluid milk prices close to $25 per hundred pounds.

Milk, cheese, butter costs more

“If history is any guide, wholesale milk prices will continue to go up,” he said. “Consumers can expect prices in the mid $4 range for store brands, and up to $7 a gallon for premium brands, by September.”

Milk product prices are also on the rise. Cheese is averaging $2 per pound and butter is at $1.50 per pound, he said.

Another critical factor in the high price of milk is fewer dairy farmers staying in business. They either can’t make a living or retire with no one to take over the dairy.

In 2000, Georgia had 408 dairy farmers. Today, only 273 remain. Thompson estimates if the trend continues at this rate, “virtually no dairies will exist in the Southeast in 10 years.”

Population up, production down

“We lose about 5 percent a year,” Shepherd said. “The ones that stay in business tend to grow larger, but we still lose 2 percent of our production a year.”

USDA reports Southeast milk production declined by 3.6 percent per year over the past six years.

Thompson says that while the Southeast’s population is among the fastest growing nationally, milk production isn’t keeping up. In fact, “milk production is decreasing at one of the highest rates in the country and is now deficit year round,” he said.

About half of Georgia’s milk production is shipped to Florida. It’s replaced by milk shipped here from Texas, Oklahoma, New Mexico and Indiana. Georgia imports more than 1,000 tankers of milk monthly, Thompson said.

Farmers pay the freight costs to their farms and from their farms. “No wonder many dairymen have decided it’s just not worth it,” he said.