Souring Milk Prices Affecting Dairy Producers Worldwide

CHICAGO—Milk prices have dropped 35 percent in the past two months, causing the more than 60,000 U.S. dairy farms to cut costs, sell off cows or leave the industry due to escalated high feed and fuel costs, reported FLEXNEWS.

"Given the suddenness and severity of the plunge in farm-level milk prices, a significant number of farmers won't survive the winter," said Jerry Kozak, president and chief executive of National Milk Producers Federation.

The U.S. Agriculture Department (USDA) forecast the Class III price to average $10.60 to $11.40 in 2009, down from a $17.44 average last year. Industry analysts say the reason for the steep drop in milk prices is too much supply and not enough demand.

The cost of milk at the supermarket has declined only slightly as retailers have been slow to adjust their prices. Based on a USDA survey of retailers in 30 U.S. cities, the average price of a gallon of whole milk was $3.67 in December, down 25 cents from its summer peak.

Dairy product exports are also down. Importing nations are buying less amid global economic woes and a firmer dollar, which makes dollar-denominated commodities like milk more expensive for buyers holding other currencies.

U.S. dairy producers are not alone in their dilemma, the Dairy Farmers of Britain (DFB) announced it would be cutting its purchase price by 1.1 pence per liter immediately effect. The move prompted an instant response from the National Farmers’ Union that said the latest reduction meant the company had sliced 3.1 pence per liter off its prices in a the last three months.

NFU Dairy Board Chairman Gwyn Jones said: “Our members are telling us that they are deeply concerned by this latest price cut, which was unexpected and which has been hastily imposed. DFB must be very clear and open with its members about the reasons behind these cuts and reassure farmers about the future strategy of the company.”

According to FLEXNEWS, a DFB spokesman said: “This is not a decision taken lightly nor was it hastily imposed. Milk prices have been falling in recent months—and this announcement reflects what is happening in the dairy market. I think this is also reflected in the fact that the vast majority of other dairy companies have also dropped their prices.