Dairy Farm Milk Prices on Record Setting Pace, New Records Expected in 2007

NO. SYRACUSE, NY (04/30/2007)(readMedia)-- Prices paid to dairy farmers in New York State have been increasing since August 2006 and momentum has dramatically increased during the first quarter of 2007. Economic indicators, both domestic and international combined with U.S. dairy price futures markets are signaling 2007 could be a record year for the average blend price paid to dairy farmers located in the Northeast Federal Milk Market Order. The last year dairy farmers received a record blend price was in 2004. This news comes on the heels of average prices paid to dairy farmers while costs such as corn fed to cows and energy doubled in the past 15 months.

Dairy farmers are paid in units of hundredweights, or 100 pounds of milk. One hundred pounds of milk (cwt.) equals 11.63 gallons. In 2004, the average blend price paid to dairy farmers in Boston Massachusetts was $16.49/cwt. or $1.42/gallon. David C. Arms Sr., Dairy Economist for Berkshire Dairy & Food Products and Economic Consultant to New York State Dairy Foods, Inc, who is located in Burlington, VT, estimates the average price to farmers in 2007 may exceed $17.60 per cwt. in Boston, MA and $16.85 in Syracuse, NY. This would be an increase of 30% over last year, which averaged only $13.53 per cwt. at Boston.

The increase in dairy farm milk prices means the cost of processing not only fluid milk, but other products made from milk, such as yogurt, sour cream, ice cream and cheeses will increase as well. Dairy farmers are paid an average price based on the use of their milk for different "Classes" of dairy products. For example, fluid milk is a Class 1 product; whereas products such as ice cream, yogurt and cottage cheese are Class 2 products. Cheeses are considered Class 3 while milk powders and butter are Class 4 products. All Class prices are increasing dramatically. For example, the price for milk used in Class 2 products in 2007 is estimated to be 32% higher than the comparable 2006 Class 2 price.

David Arms Sr. says, "The recent raw milk price increases are not typical for this time of year. Usually we see prices decrease in the Spring and increase later in the year."

Higher dairy farm milk prices are due to two main factors, according to Ken Bailey, an Associate Professor of Agriculture Economics at Penn State University, who specializes in dairy policy and price analysis. He cites a combination of global milk markets and the growing demand for ethanol as the catalyst for the increase. Bailey says, "International demand for milk protein is very high, global supplies are limited and strong export demand for U.S. dry proteins are leaving very low inventories for nonfat dry milk and dry whey." Bailey continues, "Dairy cow feed costs -- particularly corn and soybean meal prices -- are rising rapidly as a result of increasing demand for these feed stocks for ethanol production." The corn used to feed cows is competing with ethanol production, and less corn fed to cows means reduced production of milk. Bruce W. Krupke, Executive Vice President of New York State Dairy Foods, Inc., a trade association for dairy product processors and manufacturers, says, "The value of the U.S. dollar is lower making our exported dairy products less costly for overseas buyers. It is helping to increase the price our dairy farmers receive for their milk, and the increased dairy exports help reduce the U.S. trade deficit. Higher farm milk prices directly benefit our domestic farmer and will help offset the higher feed and energy costs experienced last year by dairy farmers. These economic trends will likely continue into 2008."

(New York State Dairy Foods, Inc. is a full service trade association representing milk processors and distributors, cheese and ice cream manufacturers in New York State since 1928.)

Other Dairy Economists and Industry Contact Information

David Arms Sr., Dairy Economist 802-985-5554

Dr. Mark Stephenson, Cornell Univ. 607-255-0324

Dr. Ken Bailey, Penn State Univ. 814-863-8649

Mary Ledman, Dairy Economist/Consultant 847-680-9693

Jessica Chittenden, Dir. of Communications NY State Dept. of Agriculture and Markets 800-554-4501

Eric Rasmussen, USDA Federal Milk Market Order Administrator 617-737-7199

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