Information Possibly Outdated
The information presented on this page was originally released on June 7, 2002. It may not be outdated, but please search our site for more current information. If you plan to quote or reference this information in a publication, please check with the Extension specialist or author before proceeding.
Price is no cause for celebration
MISSISSIPPI STATE -- With prices about 25 percent lower than they were last year, dairy farmers are having a difficult time making a profit, but they will soon get government assistance.
Bill Herndon, agricultural economist with Mississippi State University's Extension Service, said prices are as bad now as they were in 2000, which was a very tough year for the dairy industry.
"Some good managers have a debt load such that they can still make a profit at these prices, but the majority of dairy farmers are experiencing losses this summer," Herndon said. "I expect we'll lose some dairies in Mississippi again this year."
Herndon said the drop in price was caused by a strong surge in milk production at the end of last year caused by "very high" milk prices in 2001.
"Farmers geared up to increase production because they were receiving higher prices, but the pendulum has swung the other way," Herndon said.
Milk production increased 3 to 4 percent in the first half of 2002. Because milk is a perishable commodity and cows must be milked regardless of market factors, this increase has upset the critical balance between supply and demand and caused prices to plummet.
Herndon said last year's terrorist attacks contributed to a reduced demand for dairy products.
"With 9/11, people stopped eating out as much as before, and we don't eat as much dairy products at home as we do when we eat out," Herndon said. "Restaurants are responsible for about one-third of all the cheese consumed in the United States.
"When they saw a downturn in the number of people coming in and eating in their restaurants, they stopped buying as much dairy products. The reduced demand wasn't replaced by people eating more dairy products at home," Herndon said.
But the good news is that dairy farmers will be receiving support payments to help them through the low prices. The new Farm Bill, which President George Bush signed in May, established the first ever counter-cyclical payment program for the dairy industry.
"Dairy farmers are going to get a support payment when the Class 1 (bottled) milk price in Boston falls below $16.94 per hundredweight," Herndon said. "It's going to help farmers in tough times, and especially in 2002."
While the payments will not keep dairies in business in the long run, it will be a short-term help. Herndon said the sign-up period for this program likely will be in July, with the first checks arriving in September or October.