Drop in milk prices

Good for consumers, but bad for dairy farmers.

Published on: Feb 2, 2009

On Feb. 1, the official minimum price of fluid milk paid to California dairy farmers will drop 50 cents per gallon, which should result in significantly lower prices for milk and other dairy products at the grocery store.

"While this is terrible news for our state's dairy farmers, it is at least good news for our
customers," said William C. Van Dam, CEO of the Alliance of Western Milk Producers.
"For products like fresh milk, families should begin to start seeing lower prices at the
store within a few days."
Van Dam said that for other products such as yogurt, cheese and ice cream, it could take slightly longer, up to several weeks for lower prices to kick in. Consumers should see about a fifty-cent drop in the cost of a gallon of milk, on average. The price of cheese is also expected to drop about 50 cents per pound in coming days and weeks, as lower wholesale prices begin to work into the retail outlets.

The minimum price determination is made on a monthly basis by the California Department of Food and Agriculture, which bases its decision on market factors and price surveys. The Feb.1 price is one of the single-largest monthly drops in recent years, falling from $1.50 per gallon paid to dairy producers as of Jan. 1 to just 97 cents paid to the producer beginning on Feb. 1.

Typical retail prices for milk are twice to three times the price paid to farmers, with the remaining costs attributed to processing, packaging, transportation and retail marketing. Of course, prices fluctuate greatly between retail outlets.

"While this is certainly good news for our customers, it is going to cause severe pain for many, many dairy families," Van Dam said. "Conservative estimates show that many will be losing 30 cents for every gallon they produce, some even more. This could mean losses of tens of thousands of dollars per month for many dairies."

The price of milk is near historic lows, Van Dam said, but a big part of the economic pain for dairy families is that production costs have risen sharply at the same time milk prices have dropped. For example, the cost of feed today is at historic highs, with corn prices at $4 per bushel, or nearly double the price of corn during previous periods of low milk prices.

"It's a near-perfect storm and dairy families will be hard-pressed to weather it," Van Dam said. He predicted that prices will eventually recover as production adjusts, but that it is likely many dairies could face going out of business if they are unable to survive the tough economic climate."

Added Van Dam: "We encourage consumers to enjoy this bounty of low prices by purchasing plenty of nutritious, high-quality California dairy products."