MISSISSIPPI STATE -- A poor economy and a national oversupply of milk created the worst milk prices in 25 years, and Mississippi dairy producers find themselves losing money.

Bill Herndon, dairy economist with Mississippi State University's Extension Service, said producers are getting less than $12 per hundredweight for milk.

"The cost of production in our state is between $13 and $14 per hundredweight," Herndon said. "Dairy farmers are in dire financial stress."

He said the 2002 Farm Bill's Milk Income Loss Contract payments are helping, but producers are still hurting financially. While some of the price problems are related to the national economy, most are due to increased milk production and sluggish demand.

"Typically we have about a 1 to 1.5 percent increase in consumption each year and a similar increase in production," Herndon said. "In 2002, we only saw a 0.5 percent increase in consumption, but we had a 2.7 percent increase in production."

In an effort to support milk prices, the government has bought a lot of dairy production, including cheese, milk powder and butter. However, price has continued to fall and is at its lowest point since 1978.

Herndon said milk production is beginning to fall, and most economists predict the economy will grow again during the last half of 2003. This should lead to a recovery in milk prices to about $15 per hundredweight by late fall.

The number of dairy farms in Mississippi continues to decline. According to the U.S. Department of Agriculture, there were 289 dairy herds in the state in early 2003, down from 302 in 2002 and more than 600 at the end of 1995.

Wesley Farmer, Extension dairy specialist serving south Mississippi, said dairy farmers are very good business managers capable of weathering typical price fluctuations of six to eight months. The current downtrend has lasted about 18 months.

"They're spending up accumulated money set aside to upgrade and replace equipment," Farmer said. "It's costing them money to stay in the business, but if they sold out, who would they sell to? There's not a big market for somebody to buy your property and operation."

Farmer said production across the state has been good this year as the weather has been favorable for milk production. Feed prices have been up a bit from previous years, compounding the problems caused by low milk prices.