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Milk prices expectd to drop to normal Original Source Link: (May no longer be active)
http://www.rhinelanderdailynews.com/articles/2004/05/19/news/local_news/news1.txthttp://www.rhinelanderdailynews.com/articles/2004/05/19/news/local_news/news1.txt
Local News
Milk prices expected to drop
by Daryl Youngstrum
Daily News staff
Milk prices at the supermarket may have hit their peak and begun to come down, Federal Milk Marketing Administrator Vic Halverson said Tuesday. But it has been a bumpy ride.
Halverson says that the surge in milk prices that has taken a gallon of 2 percent from $1.99 to $3.05 in the last month is a product of good old economics. "It's supply and demand," he said.
"A lot of factors contribute to the price of milk, and all those factors are moving in the same direction," Halverson said. "The outcome is that the price of milk kept going up. If everything that goes into milk production didn't go up at the same time, the prices wouldn't have spiked."
Halverson said that the price hikes this year are coming off two years of historically low milk prices. "The low prices have not encouraged farmers to increase their production and so supply is low," he said.
Coupled with low supply numbers and the amount of time that it takes to increase milk production, farmers are facing other economic challenges.
"Let me tick them off for you," Halverson said. "Feed prices are high; cow prices are high, which means you get more for selling your cow than keeping it in milk production; and new cows are expensive. Additionally, the border with Canada is closed for the sale of cows because of the Mad Cow Disease scare."
"Additionally, Monsanto Corp., which produces POSILAC, has had some problems with their product that stimulates milk production in cows so that source of milk is not available."
Businesses that rely on milk saw the price of milk rising and purchased large quantities of milk products, a process that created record high prices at the wholesale level. Now that the buying frenzy is over, wholesale buyers are willing to wait for a lower price before buying more milk.
"The ice cream producer, for example, has the option of buying a large quantity of milk, making ice cream, and then storing the product frozen. Now that producer is more cautious and more likely to buy only the amount of product he needs to meet his short-term goals. So we are seeing prices backing down at the wholesale level," he said.
The impact of milk prices on everyday products has caused significant hikes in the price of items not found in the dairy case. "One of the industries hit by higher milk prices is the pizza industry," Halverson said.
"Half of the cheese production in this country goes to producing mozzarella, the key ingredient in pizza. When the price of mozzarella goes up, that increase has to be passed on to the consumer. In the first four months of this year, we have seen the price of cheese go up 30 cents a pound and butter up 35 cents a pound."
School District of Rhinelander Nutritionist Kathy Ehlers says that the price of a half pint of milk has gone up three cents since school began in September. "Next year we may have to look at possibly increasing our milk prices and maybe our milk prices, but at this time of the year it is not likely that we will do that."
"We will be able to absorb the increase this year because, while the price to milk is going up, we are serving fewer students because of declining enrollment."
Ehlers noted that the school district goes through 30 cases of pizza each week in the lunch program.
The price of a gallon of whole milk in Rhinelander Tuesday ranged from $2.69 a gallon to $3.69; while two-percent ranged from $2.29 to $3.29 per gallon.
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