Published on 04/22/96

Farmers Need Expected Rise in Milk Prices

Georgians usually don't think much about milk beyond whether they need it or if part of a gallon is still in the 'fridge.

But they may soon think more about it, especially the price.

"We expect to see grocery prices go up by 15 cents to 20 cents a gallon by June," said Bill Thomas, an economist with the University of Georgia Extension Service.

"Consumers will eventually have to help pay for the spiraling cost to produce milk," he said.

Farmers' costs are almost more than they get for their milk. A recent survey found that farmers earn about 3 cents per hundredweight of milk. At just over 11 gallons per hundred pounds, that's only two-tenths of a cent per gallon.

That has to cover non-cash costs like equipment depreciation, Thomas said. After that's accounted for, any money left is profit.

Such low profits forced 53 Georgia dairy farms to close in 1995. Thomas expects more to close this year as feed costs keep rising -- by 15 percent to 19 percent through the end of the year.

"Prices farmers get for milk hasn't kept up with their rapidly rising costs," Thomas said. "You can't expect farmers to keep losing money and stay in business."

Georgia isn't alone. Dairy farmers across the Southeast lose ground daily while trying to meet ever-rising consumer demand.

Fluid milk wholesalers have kept milk prices artificially low for the past few years. They ask a retail price that remains the same even when the milk supply and processing costs change.

In turn, while farmers' costs and production levels vary, the price they get for their milk stays the same.

"Dairy farmers today are getting about the same price for their milk that they were in the early '80s," Thomas said. "At the same time, their costs have gone up significantly."

In 1995, hot, dry weather created a shortage of quality feed grains, he said, that drove prices up to nearly double what they were in early '95. Some farmers choose to give their cows lower-quality hay and feed, but then the cows give less milk.

As production drops, the Southeast milk shortage becomes more dire. Dairy cooperatives can truck milk to the Southeast from other areas, but that raises their costs even more. Local dairy farmers have to pay to truck milk in to meet their contracts.

"It costs up to 34 cents more per gallon to truck milk in than it does to produce it locally," Thomas said. "Farmers have to absorb that cost, too."

This problem keeps making itself worse, he said. Low prices and high costs decrease production. Low production forces dairy cooperatives to bring milk into the region to meet demand, but that adds to their costs. As costs rise, farmers close their dairies, and production drops more.

Eventually, retail prices must go up.

Dairy farmers can't buy modern equipment they need on such low profits, either.

"Some farmers choose to retire rather than lay out $200,000 for those changes when they are fairly certain they probably cannot earn profits," Thomas said.

The high cost of starting a dairy, with little chance of profits, keeps new farmers out, too.

The Extension Service helps dairy farmers learn how to produce milk more efficiently and manage their farms better, Thomas said. But even the tightest management can't help if prices won't support the farm.

"Without increased prices, there won't be enough milk in the stores," Thomas said. "Then we know prices will go up much more than the 15- to 20-cent increase we're facing this summer."