Published on 03/17/99

Good News for Shoppers: Milk Prices Headed Way Down

If you like falling prices, check out the dairy case at your favorite grocer, says a University of Georgia economist.

Lower milk prices coming

"Lower milk prices are coming in April," said Bill Thomas, an agricultural economist with the UGA College of Agricultural and Environmental Sciences.

"The nation's milk producers cranked up production late last year when prices were high and feed costs were low," he explained. The higher supplies are driving the prices down.

Actually, wholesale milk prices are already dropping. But don't expect to see prices dip in the dairy case for another month or two.

Why the two month delay?

In February, wholesale milk prices plummeted, Thomas said. "Dairy farmers will receive $1.30 per gallon for the milk Georgia shoppers buy," he said. "This was a drop of 52 cents per gallon in one month."

Because of a complex federal dairy pricing system, he said, "it will be April before consumers see lower supermarket milk prices."

Prices lowest in eight years

Wholesale milk prices are already the lowest since 1991, Thomas said. But the huge price drop hasn't shown up in the prices shoppers see because retailers don't like to change milk prices every month.

"They didn't pass along all of the milk price increases they had late in 1998," he said. "And they probably won't pass along all of the decrease, either."

Eventually, milk prices will drop much lower, he said. And the lower prices could last for the rest of 1999. That's great news for shoppers.

News not good for dairies

Unfortunately, the news isn't great for everybody. The price drop will pinch dairy farmers hard, Thomas said.

"Dairies expanded their production when milk prices were high last year," he said. U.S. dairies produced 157.4 billion pounds of milk last year and are projected to produce 160.4 billion in 1999. In 1990, production was 146.3 billion pounds.

Much of the 1998 increase came late in the year when farmers responded to high wholesale milk prices. The key factor in the very high 1998 prices was demand, not production.

"It was the extraordinary strength of the economy," Thomas said. "Not only did consumers have the income, but they spent it, too. That kept prices high at the time."

Dan Rahn is a news editor with the University of Georgia College of Agricultural and Environmental Sciences.