News Column

Consumers see milk prices jump

June 22, 2014

By Jim Offner, Waterloo-Cedar Falls Courier, Iowa

June 22--OELWEIN -- Export markets and the after-effects of last winter are driving up the price for milk, according to area dairy farmers and industry experts.

Milk futures were over $21 for 100 pounds last week, and they were expected to stay over $20 through November, according to the derivatives firm CME Group.

That compares to $12-13 dairy farmers were getting through the 1990s, said Matthew Stewart, a dairy farmer in Oelwein.

There are several factors at work in the higher costs, Stewart said.

"First off, probably the most immediate, is it is a dairy farm is what I call a secondary processor of commodities because we use corn in particular -- everything is based off price of corn and soybeans," he said. "It's actually a reaction to the ethanol mandate that has raised the price of commodities in general."

Tighter grain supplies means higher prices consumers pay not only for milk, but also meat, Stewart said.

"The feed costs doubled with the ethanol mandate," Stewart said. "In a capitalistic society, eventually that trickles down. It is the number one reason why all these commodity groups also oppose mandating more ethanol because it all does trickle down into higher food costs."

Government notes price increases

According to the U.S. Bureau of Labor Statistics, retail milk prices were averaging $3.687 per gallon in April, compared to $3.552 in January and $3.458 in June 2013. The price was $3.297 in June 2010. The last time the average retail price dipped below $3 was September 2009, when it was $2.981.

Things have changed, Stewart said.

"Through the 1980s and '90s, we'd average about 12-13 cents per pound that we'd get for milk; that a pretty good year's average, and that didn't change from 1980 to about 2000," he said. "I think that range now will be18-20 cents per pound. I think that will be the average, 18-21 cents per pound, with a low of 15 and a high of 25."

Farmers recently were getting 22 cents per pound, which they "had never seen" before, he said.

Export markets are competing for U.S. milk, too, which is a brace for prices, said Ron Lenth, Iowa State University's Bremer County Extension coordinator.

"One thing that has had an effect is the growth of our export market has increased considerably," Lenth said. "Our world market has changed so much. The percentage of our dairy products that are exported is certainly having an effect, and so is the demand for additional products, particularly yogurt.

Production has gone down "slightly" across the region after a harsh winter, while demand has increased on a global scale, said Sue Ann Claudon, executive director of the Iowa State Dairy Association and director of industry relations with the Midwest Dairy Association in Ankeny.

"Some of the increase is basic supply and demand," she said. "The demand has increased over the last couple of years, especially in the export market, so we're filling that demand to export countries."

Feed quality an issue

Feed quality was down, which led to lower production, Claudon said.

"We didn't get high quality silages and forages over the last winter," she said.

The number of cows in Iowa is up slightly, she said.

"We predict production is going to be back up; cows have to go through one lactation cycle and the numbers going back up," she said.

Production because of quality of forages and cold weather affected them and all of us also.

The inventory of animals has been stable, but Iowa has fewer dairy farms now than it had just a few years ago -- about 1,400 today, compared to 1,600 about three years ago, Claudon said.

Most of the dairy operations are in the northeastern and northwestern corners of the state, she said.

"At that time, say 2009-10, it was a very high cost to operate, with high feed costs and so forth, so our dairy farmers, the price they're being paid right now has improved, but they're still recovering from the last few years of high costs," she said.

Jay Hansen, owner of Hansen's Farm Fresh Dairy in Hudson, said exports were accounting for about 17 percent of production across the U.S. industry.

He said the $17.80 per pound he was getting for milk in June 2013 had gone up to $23.50 in May 2014.

"In other words, they're willing to pay more than people in the United States are, so we're going to sell it to them," he said, referring to general industry sentiment. "China is one of the big players in the export market. They're buying milk products."

But a hot export market is only one component in the price dynamic, Hansen said.

"We have some other issues," he said.

California drought plays role

A drought in California -- the largest dairy-producing state -- was one factor, he said.

"That has to affect production," he said.

The feed-quality issue, closer to home, also is playing a role, Hansen noted.

"As near as what producers I hear from are saying, the feed quality isn't what it was, so cows aren't making that much milk," he said.

A hot summer could exacerbate the problem, he said.

"Heat waves adversely affect production; cold, not so much if the cows are fed correctly," he said. "So far, we haven't had any heat, but heat and humidity are animals' worst enemies."

Cheese production tends to slacken during the summer, so that should ease pressure on the milk supply somewhat, Hansen said.

The dairy industry typically sees "ups and downs" in the milk price, Hansen noted.

"The peaks are usually very short in duration and the valleys are long," he said. "This has to be one of the longest peak milk prices the dairy industry has experienced in recent years."

Hansen was asked if consumer had seen the last of $3-a-gallon milk at their grocery store.

He hesitated.

"A lot of milks are $4 now; I think we're going to be over $3 for some time to come in the future," he said.


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Source: Waterloo-Cedar Falls Courier (IA)

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