CAMP HILL (Cumberland
Co.) — Dairy prices have fallen
sharply since January, 1990. The
PA Dept, of Agriculture’s Ag Sta
tistics Service reports the whole
sale milk price paid by
who buy directly from farmers fell
from $16.80/cwt. for 3.74% milk
in January to $14.70 in October
for milk with an average 3.67%
butterfat. This is roughly equiva
lent to a drop of about $lO per cwt.
for steers or nearly $3 per cwt. for
fresh use apples.
Meanwhile, the Minnesota-
Wisconsin price, which is used to
determine all federal order prices,
took a record plunge in October
and fell some more in November
for a total decline from
$12.50/cwt. to $10.25/cwt. for
3.5% milk. This means even lower
milk prices are on the way. PFA’s
Dairy Situations report states the
full effect of the most recent M-W
price drops will be felt in January,
1991 when milk checks will prob
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ably fall below $l2/cwt.
The reason for price declines is
because milk supplies are higher
nationwide. Production was 4%
higher in November than a year
ago in 21 major dairy states. In
Pennsylvania, milk output was 5%
higher than a year earlier even
though cow numbers are down
from 694,000 last year to 687,000
now. Per cow production is up
from 1,125 lbs. per month to 1,195
lbs.
To make matters worse, pro
duction costs are increasing. Pet
roleum costs have gone up since
the Persian Gulf crisis affecting
prices for fertilizers, heating oil,
rubber products, farm chemicals,
transportation and other inputs.
Increasing costs and falling milk
prices have forced the milk feed
price ratio down from 1:63 in Oct.
1989 to 1:50 last October.
The Future
How long will the supply/
demand imbalance last? No one
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really knows. USDA predicts milk
and dairy product prices will fall
sharply in 1991. Significant surp
luses of cream and skim milk are
expected. Milk production is
expected to increase by 1% to 2%
during the year. Farm milk prices
are expected to drop by $2 to $3
from a $l4/cwt. average. If the
economy continues to grow, com
mercial use will probably increase
by 1-3%, aided in part by lower
milk prices. However, commer
cial use could struggle if the eco
nomy slides into recession. In
other words, it might get worse.
The demand for cheese, which
was one of the driving forces in
raising milk prices a year ago, has
now fallen below the level of sup
plies. On Nov. 8, CCC made its
first surplus cheese purchases
since May, 1989. Total CCC
purchases, since Oct. 1, 1990 are
60% ahead of last year’s pace.
Almost 2 million lbs. of cheese
have been purchased.
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The 1991 Farm Bill
The 1990 Farm Bill will pro
vide some relief in the face of con
tinuing surpluses. For one thing it
holds the price support floor at the
current level of $lO.lO/cwt. for
3.67% milk for the life of the five
year law and prevents it from
dropping further. It also requires
CCC purchases to be calculated
on a total solids basis milk equiva
lent instead of a milkfat basis.
This would have lowered the CCC
milk equivalent from a 7.8 billion
lbs. surplus to under 3 billion lbs.
for the marketing year which
ended Sept 30.
The new farm bill requires the
Secretary of Agriculture to come
up with a Milk- Marketing Inven
tory Management Plan for Con
gress to consider by August, 1991
to keep surplus purchases at or
below 6 billion lbs. The plan may
not include herd buyouts or sup
port price cuts. Target prices and
deficiency payments or a world
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market price for excess milk are
options that will be considered. If
Congress fails to adopt a plan by
Jan. 1, 1992, assessments can be
levied if surplus purchases are
predicted to exceed 7 billion lbs.
(total solids basis). According to
Ken Olson of American Farm
Bureau assessments are possible
during the life of the five year
farm bill.
Budget Cuts
A more immediate impact on
dairymen will come from the
budget deficit legislation, the
Omnibus Budget Reconciliation
Act of 1990 (OMBRA). It will
impose a 5 cents per cwt. service
charge on milk marketed starling
Jan. 1, 1991 and will increase the
assessment to 11.25 cents/cwt. for
the following four years. Dairy
men who reduce their milk mark
etings will be able to get a refund.
But those refunds will be offset by
a higher assessment rate on other
dairymen. In addition, the OMB
RA doubled the excise lax on fuel
by adding another 5 cents to the
price per gallon for gasoline and
diesel fuel. While farmers arc still
exempt from the tax for off-road
use, they will feel the impact
through higher transportation
costs, including, most likely milk
hauling.
Options
Fortunately in Pennsylvania we
have the Pennsylvania Milk Mark
eting Board (PMMB) to help sta
bilize prices for dairymen. Since
Sept., 1988, the PMMB has
responded to petitions by PFA and
others to offset cost of production
increases due to weather, manage
ment and equity costs, and higher
fuel costs. The results will put an
additional $155 million in dairy
men’s pockets by the time the
over-order prices are scheduled to
end on June 30, 1991. It’s impor
tant to understand that these
monies to dairymen were justified
because the PMMB action assured
the consumers of an adequate
supply of dairy products. While
the PMMB has been helpful in
times of increasing costs, the
question is: What can it do during
periods of over supply?
There are several over-order
bargaining agencies for producers
operating in Pennsylvania. These
include Middle Atlantic Coopera
tive Marketing Agency (MAG
MA) in Federal Order 4 and the
Regional Cooperative Marketing
Agency (RCMA) in Federal Order
2 which has been relatively inac
tive for the past year but recently
announced plans to negotiate with
handlers in the northeast for over
order premiums in 1991. RCMA
distributed $7O million in pre
miums for Class I milk to dairy
men in 11 northeastern states from
1987 through 1989. However, pre
miums were suspended in Sept.
1989 when RCMA was unable to
collect from Class II handlers
causing Class I handlers to balk.
(Turn to Page Al 9)