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Dairy producers feel effects of rising milk prices

Charlie Homan, owner of Farm Fresh Milk Store, provides a rare product - milk in a bottle fresh from the farm. But as of late, Homan's customers, like millions more across the country, have had to pay an increased price.

The price of milk has inflated over the past couple of months, increasing an average of 75 cents to $1 per gallon more than last year's cost.

According to Jeff Squibb, a spokesman for the Illinois Department of Agriculture, increased milk prices are the result of several factors, including a decrease in the number of dairy farms, the closing of the U.S. border into Canada and a decrease in the availability of bovine somatotropin, also known as bST, a hormone used to boost milk production in cows.

Homan, whose Murphysboro store has been in operation since 1969, said although he has not had a price increase in the past seven or eight years, he believes the 80-cent hike implemented at his store pales in comparison to the all-around price increases in consumer products.

"[Milk] hasn't increased here in seven or eight years," Homan said. "One increase in seven or eight years, the way everything else is going up, is not bad at all."

Sold on a 100-pound basis, the price of milk hit a historic high in May, costing milk processors and manufactures $20.45 per 100 pounds. Every 100 pounds produces about 12 gallons of milk.

Mike Hujens, extension dairy specialist at the University of Illinois, said dairy farmers have been operating at below break-even prices of $11 per 100 pounds of milk for the past 18 months, which caused many farmers to exit the business. The years of 2002 and 2003 marked record lows in dairy prices compared to the cost of production.

Hujens said this, in addition to the loss of about 80, 000 cows transported into the U.S. from Canada due to a case of mad cow disease, has depleted the number of cows available to produce milk.

With the supply down and demand rising, experts said the only way out was to increase the price for consumers.

"It is truly a supply-and-demand issue," Fischer said. "The supply was going down and the demand was still high, and therefore, the price went up."

With producers taking in 40 percent of the profits from increased consumer costs and processors and retailers taking in the other 60 percent, Fischer said the increase is a sigh of relief for farmers.

"The price that dairy producers are receiving now is a very welcoming relief," he said. "Dairy producers are able to make a profit this year, and they need this for the next couple of years just to pay off the debt they weren't able to pay the last couple of years."

However, with increased feed and energy costs, Squibb said the profit dairy farmers are making from the increase is turning over to other hands.

"Although prices have been up, that money has not gone straight to the bottom line of milk producers," Squibb said. "Although farmers are receiving higher prices, they're also paying higher costs."

According to Hujens, dairy prices are on the decline and consumers should see a 25-cent decrease in August with normal prices returning by November or December.

Fischer said if prices fall too low too soon, dairy farmers would be in the same economic bind as in previous years.

He said $14 to $15 per 100 pounds of milk is a profitable price, enough to maintain adequate profits and keep the industry strong for dairy farmers.

"It's very important that the dairy industry can remain viable, profitability wise," Fischer said. "There is no substitute for milk."