Milk price help praised

Dairyman: Support means 'we won't be hemorrhaging as badly'

By CECILIA PARSONS
and CAROL RYAN DUMAS
Capital Press

August milk checks should stretch a little farther for dairy producers who are struggling to stay in business.

For the next three months, the USDA's Dairy Product Price Support Program will increase the amount paid to milk producers. Estimates by the USDA show revenues nationwide would increase by $243 million.

"Anything that gives us a little sustainability is a positive," said Fresno, Calif., dairy producer Doug Maddox on Friday, July 31.

The price per hundredweight of milk has been below the cost of production for months and the move by USDA may not push the price above that, but it may come close, Maddox said. The size of the jump depends on how the Chicago Mercantile Exchange reacts to the USDA move, he said.

The announcement of the program on Friday, July 31, will increase the all-milk price received by producers. The price paid for nonfat dry milk will go from 80 cents a pound to 92 cents; the price for cheddar blocks will go from $1.13 per pound to $1.31 and the price of cheddar barrels will go from $1.10 per pound to $1.29 per pound.

Bill Schiek, an economist with the Dairy Institute of California in Sacramento, said Friday, July 31, that California dairy producers might benefit more than producers in other parts of the nation due to the amount of dry milk powder produced in the state.

Schiek said the short duration of the program would prevent a surge in imported dairy products which would be expected as the price support will boost U.S. prices above world prices.

"The price support was larger than expected, but they made it limited in duration," Schiek said.

University of California dairy economist Leslie Butler noted that for every 10-cent increase in the price of cheese, there is a $1 increase in the price of milk.

"Even 25 to 50 cents is better than nothing," Butler said. "It may get a few of these producers over the hump."

The move could also have a ripple effect as the dairy producers use the money to pay bills. More money won't entice producers to increase milk supply, Butler said.

Maddox said the USDA assistance will give producers some breathing room and allow them some time to work on a long-term solution to the roller coaster prices that have plagued the industry.

Markets immediately responded to the announcement, with the cash price for cheese moving up 6 cents and 7 cents per pound, and nonfat dry milk powder rising 2 cents and 21/2 cents per pound.

"That positive response directly corresponded with the announcement," said Bob Naerebout, executive director of the Idaho Dairymen's Association.

"The CME jumped huge (July 31), within spitting difference of the government price," said Chris Galen, National Milk Producers Federation senior vice president of communications.

Butter prices didn't move at all, he said, adding that butter wasn't included in USDA's price support increases.

The Daily Dairy Report states milk futures rallied sharply after the USDA's announcement, but faded from the morning highs with only September and October futures closing significantly higher, 55 cents and 59 cents respectively.

Jerry Kozak, the federation's president and CEO, said USDA's action comes just five weeks after the NMPF asked for additional economic assistance for struggling dairy farmers.

"This step by USDA to raise farm-level milk prices comes at a critical time, and is yet another important effort the agency has made to help dairy farmers survive the worst recession in their lifetimes," he said.

Galen said the increase in support prices is expected to raise producers' milk checks.

"Is it enough to make up the discrepancy ... between the cost of production and the milk check? No, but everything helps," Galen said.

Michael Marsh, CEO of Western United Dairymen in Modesto, Calif., said the price increases will help the industry.

"It's not going to stop the bleeding, but we won't be hemorrhaging as badly," he said. "It's still not where we need to be, but it's very welcome news."

Naerebout said while the Idaho Dairymen's Association is excited about the support price increases as an opportunity to improve producers' profitability, it is only a short-term fix.

"A long-term solution is needed," he said. "Our feeling and belief is that the current government policies, including support prices, have brought us to our current economic condition, and the industry and national dairy policies obviously need a major overhaul."

That overhaul should involve less government involvement in agriculture and provide greater opportunity for the markets to work, he said.

The price paid by dairy processors to farmers is set by the U.S. Department of Agriculture based on commodity markets that rise and fall with global demand. Dairies increased production when demand for U.S. milk exports soared last year, but once the global recession accelerated last fall, demand dropped and farmers were left with too much milk and too many cows. Wholesale prices crashed.

The Agriculture Department has otherwise tried to buoy wholesale prices recently by releasing 200 million pounds of excess powdered milk to schools, food banks and developing countries to reduce U.S. supply and by accelerating payments to farmers.

The Associated Press contributed to this story.