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The Honolulu Advertiser
Posted on: Tuesday, April 27, 2004

Milk prices could hit record highs

By Ira Dreyfuss
Associated Press

With the Agriculture Department raising the minimum price paid to farmers for a gallon of milk to $1.69, a 50-cent increase, milk prices are expected to reach record highs — which translates to bad news for Hawai'i consumers.

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WASHINGTON — Consumers are likely to see milk prices rise, probably to record levels, because the U.S. Agriculture Department is raising the minimum price paid to farmers to a record high, dairy experts say.

The department announced Friday it is raising the new minimum price for farmers to $1.69 per gallon, a 50-cent increase. The previous record was $1.40 per gallon in February 1999. Because Hawai'i milk prices are based on Northern California milk, local prices also will rise, said Randy Kamiya, state milk control specialist.

"It will affect us," he said. "The Northern California price affects the Honolulu price and it's already gone up."

Under a state formula the minimum price of 100 pounds of raw local milk sold to processors on O'ahu is the price of 100 pounds of raw milk in Northern California, plus $12.20. That price now is about $28, but is likely to rise to around $33 next month because of rising California prices, Kamiya said.

"It's a formula designed to make local milk competitive to California," he said.

Larry Salathe, a senior economist for the Agriculture Department said the new federal minimum takes effect on May 1.

Prices can vary from the national average based on the region where the milk is produced and the type of milk sold, such as skim or whole. The Pennsylvania Milk Marketing Board raised its milk prices by an average of 58 cents on Friday, taking into account the effect of the USDA action on the state. Prices will vary within the state.

In Mechanicsburg, Pa., shopper Debby Murphy had just bought milk for her husband and three kids, paying $3.06 for a gallon. It will cost her $3.70 in May. She was disappointed with the increase, but it won't deter her. "I'm going to buy it regardless," she said.

The Agriculture Department's authority to set minimum milk prices dates to the Depression. The policy is aimed at helping dairy farmers maintain their income when prices hit bottom. By tamping down wild swings in the potentially volatile milk market, the department also tries to keep a steady milk supply for consumers.

Milk prices have swung sharply. The latest spike is bouncing off a 25-year low set last year when the nation had a surplus of dairy cows and farmers were flooding the market with milk.

With milk prices low and beef prices high, farmers began sending their cows to slaughter, reducing the number of dairy cows that give milk and setting the stage for milk prices to swing up. Compounding the reduction in herd size was a cut in the supply of a Monsanto growth hormone that prompts cows to give milk.

Farmers also were seeing added costs because of higher prices for soybeans, which are processed and fed to their animals.

Plus, the Agriculture Department's ban on imports of cattle from Canada, instituted after Canada reported a case of mad cow disease in May 2003, kept U.S. farmers from buying more cows from their historic Canadian suppliers.

High milk prices may linger through the summer, but may retreat in the fall — unless there is a dry, hot summer, Salathe said. Heat reduces cows' milk production, and dry weather makes the grass that they feed on less nutritious. If the summer is bad for milk production, prices won't ease until later, he said.

Americans may have to pay more for milk, but they've also been drinking less. Consumers drank an average of 22 gallons of milk for the year in 2001, including everything from whole milk to fat-free, down one-half gallon from 2000.