Low Milk Prices Spark Frustration
Among Pennsylvania Dairy Farmners
UNIVERSITY PARK
(Centre Co.) - Dairy farmers
across the state are struggling
with record low prices for their
milk, and some are blaming the
nation’s milk pricing system.
But an expert from Penn State’s
College of Agricultural Sciences
says the expanded milk produc
tion in Western states, not a new
price system, is the reason for
low prices. “Farmers received
very high milk prices in 1998
and 1999,” says Kenneth Bailey,
associate professor of agricul
tural economics. “They re
sponded by expanding milk
production -- especially in West
ern states. Some states, such as
California, New Mexico and
Idaho, saw growth rates of 10 to
15 percent. But in Pennsylvania,
milk production grew less than
one percent in 1999.”
“ Milk prices, which started
this year at record lows, could
stay depressed for four or five
months,” Bailey says. “In many
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cases, prices will be below the
cost of production for Pennsyl
vania dairy farmers. Unfortu
nately, prices are declining just
as a new method of national
milk pricing is coming in, and
some dairy farmers may see the
new system as the reason for
their problems.”
Effective Jan. 1, 2000, the
U.S. Department of Agriculture
instituted a major overhaul of
the 60-year old federal milk
marketing order program. The
overhaul will streamline and im
prove the nation’s wholesale
milk pricing system by tying
prices more closely to commod
ity prices for butter, cheese and
powdered milk. Unfortunately,
Bailey explains, the new order
reforms coincide with record
low wholesale prices for cheese
and butter. Beleaguered dairy
farmers from Pennsylvania and
other states recently protested
outside the Maryland State
house for fairness in milk pric-
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“But milk prices would be low
whether or not we had order
reform,” Bailey explains. “The
cause of these low milk prices is
basically supply and demand.
All of that excess milk produc
tion had to go somewhere; it
went into cheese vats. Cheese
production in 1999 grew 6 per
cent over a year ago. In the
West, cheese production grew 12
percent. Demand, however, has
been relatively steady. As a
result, cheese stocks in public
warehouses were up 10 percent
at the end of December, and are
growing.”
Inflated cheese stocks will
keep milk prices low, Bailey
says, until the milk glut passes
through the nation’s system.
Dairy farmers have no choice
but to wait out the low prices.
“Farmers I’ve talked with are
frustrated with these low prices,
especially when everyone else is
benefiting from a strong na-
tional economy,” Bailey says.
“Expansion in Western states
should slow down this year. In
the meantime, Pennsylvania
dairy farmers will have to try to
ride out the storm. Milk prices
■will be better in the spring.”
Bailey suggests that farmers
consider ‘forward contracting’
on milk prices with dairy coop
eratives if they can lock in a fair
price. Right now those opportu
nities are limited. Farmers also
should budget their monthly
income and expenses for the
year. That’s especially import
ant when prices are low. Farm
ers also can try to lock in other
costs, such as feed concentrates,
interest rates and fuel costs, if
they are reasonable.
Dairy farmers can find useful
financial planning strategies,
up-to-date forecasts and a bud
geting model for projecting the
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Lancaster Fanning, Saturday, February 5, 2000-C3
year’s income at Penn State’s
Dairy Outlook site on the World
Wide Web at http:Avww.aer
s.psu.eduairyOutlook .. “We’re
coming up with new things for
the Web site - new tools that I
think will help dairy farmers,”
Bailey says. “We’re going to be
training cooperative extension
agents with a spreadsheet that
helps farmers to budget their
income. We also have projec
tions on what milk prices will be
for six marketing areas in Penn
sylvania for 2000.
“It’s very important that
Pennsylvania farmers under
stand what causes their milk
prices to fluctuate each month.
With these tools, farmers will be
able to sit down with their Penn
State cooperative extension
agent and plan out their cash
flow.”
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