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Milk prices plummet as dairy farmers debate voluntarily reducing supply

(Tuesday, July 8, 2003 -- CropChoice news) -- Tom Daykin, Milwaukee Journal-Sentinel, via The Agribusiness Examiner: An unprecedented proposal to reduce the nation's milk supply in order to raise prices has faltered amid strong opposition from small dairy farmers in Wisconsin and other Midwestern states.

The National Milk Producers Federation, which represents a majority of the nation's dairy farmers, delayed an expected decision [June 30] on whether its members should voluntarily reduce the nation's milk supply. The federation proposed the program after milk prices dropped to their lowest point in 25 years.

The federation's board met for two hours before voting to reconvene [June 30], spokeswoman Susan Mora said. The board was considering changes to the proposal, she said, but declined to provide details.

The original program would have cut the U.S. milk supply by buying and slaughtering dairy cattle and by making payments to dairy farmers in return for not producing milk. Federation President and Chief Executive Officer Jerry Kozak said the proposal needed support from 80% of the nation's milk producers before the program could proceed.

By the end of last week, it became clear that the program would fall short of that goal, dairy economist Mary Keough Ledman said.

Much of the opposition has come from smaller dairy farmers in Wisconsin, the nation's second-largest milk producer after California, as well as farmers in Minnesota, Illinois and Iowa, said Ledman of Keough Ledman Associates Inc. in Libertyville, Illinois.

Those farmers say they cannot afford to pay the program's charge: 18 cents per 100 pounds of milk for dairy farmers who participate. In turn, the federation estimated that its program would raise the average national price by $1.30 per 100 pounds.

The national average price for milk in April reached $11 per 100 pounds - the lowest since 1978, according to the U.S. Department of Agriculture. Many Wisconsin farmers need at least $13 to $15 per 100 pounds to break even.

In response to the opposition, the federation scaled back its program and reduced the proposed charge to ten cents per 100 pounds, Ledman said. The goal for support was reduced to 70%, she said. But even that more modest program ran into heavy opposition during Monday's federation board meeting, Ledman said.

The proposed program might be reduced further, to a charge of five cents, to try to gain enough support at a [July 1] reconvened meeting.

With a five cent charge, the program would raise $68 million if 80% of the nation's milk producers took part, Ledman said. That could significantly reduce the milk supply and raise the prices that dairy farmers receive, she said.

It also could raise dairy product prices for consumers, Ledman said. But retail prices often are held in check because of competition among supermarkets.

Opposition to the program runs high among small farmers because they are more dependent on federal subsidies than are large dairy farms, Ledman said. Those subsidies are made available only when the milk price falls below a certain level.

In Wisconsin, which has 16,500 dairy farmers, the average herd size is 73 cows. Dairy farmers in California, Idaho and other Western states typically have herd sizes of at least 500 cows.

The federation's program also is having trouble gaining support because milk prices are starting to rise from their rock bottom April level, Ledman said.

The national average price for milk in June was up to $11.10. The September future price for milk was trading around $13 during Monday's [June 30] session on the Chicago Mercantile Exchange.

Prices dropped in 2002 as national production increased 2.6% while demand for milk and other dairy products fell. The cooling demand has been blamed on a lackluster economy that has fewer people eating out at pizzerias and other restaurants, along with a long-term decline in milk consumption among teens and young adults.

The federation's program to raise prices would be the first time the dairy industry has tried to cut the national milk supply without government funding.