Dairy farmers enjoy high prices

Walk into Jerry Jennisson's dairy barn, and the heat and humidity of a central Minnesota day are washed away. As 140 dairy cows quietly munch their hay, three fans 20 feet across spin on the barn's ceiling.

"They're moving something like 237,000 cubic feet of air per minute. Cows are very sensitive to heat, so we try to do everything can to keep them cool and comfortable," Jennisson says.

Comfortable cows are productive cows. That's what Jennisson wants, because the milk from these cows is worth a lot more this summer than last year. It's Class III milk, the most common kind in Minnesota and the type used for cheese. A year ago, 100 pounds of Class III milk fetched only about $11.

"This month we'll get a little over $22, so it's really close to exactly double," Jennisson says.

The reason for the increase in milk prices is based on global economics, according to Bob Lafebvre, the executive director of the Minnesota Milk Producers Association.

"What's happening in other parts of the world has an impact on the dairy industry right here in Minnesota," Lafebvre says.

The supply of milk around the world is tight because of a long-standing drought in Australia. Also, the European Union has decreased subsidies to farmers, so Europe isn't producing as much milk.

Add to that high demand for milk products and milk protein in fast-growing nations like China, and U.S. farmers are seeing premium prices for their product.

Those same supply and demand issues mean higher prices for milk products at the store. A gallon of milk costs around $4, and is expected to go even higher in the next few months.

But like others in the dairy industry, Lafebvre says consumers grumbling in grocery aisle should remember that only 30 percent of what they pay actually goes to the farmer.

"That other 70 percent is made up by processors, bottlers, transportation costs -- their margins that they want to take -- whatever regional differences they have, however much the retailers think they can get in the marketplace. So there's a lot of other factors that play into it," Lafebvre says.

Lafebvre has also heard a lot of blame placed on ethanol for the high price of milk. The theory widely reported in the media goes like this: Ethanol plants are gobbling up corn and that's raised its price. And since farmers feed corn to their dairy cattle, the cost is passed on to consumers.

Lafebvre says it's not that simple. While the high price of corn has increased feed costs by about 30 percent over last year, dairy farmers can't pass their costs on to consumers. Farmers don't set the price of milk. The Chicago Mercantile Exchange does.

Some experts think those prices will change soon. Bob Cropp, a dairy analyst at the University of Wisconsin-Madison, says the market could soften.

"These prices may have peaked here in July and we see them coming down some, but not a collapse like a year ago. Farmers in 2006 received very low prices with high feed costs. It wasn't a very good year for farmers, they need some recovery here," Cropp says.

In addition, Cropp says high dairy prices means farmers can pay for improvements they put off while prices where low.

That's exactly what Stearns County farmer Jerry Jennisson plans to do. Jennisson is taking advantage of higher prices by repairing and upgrading some of his milking equipment.

But he knows while prices are good now, in the volatile dairy business that's no guarantee for the future.

"We've been in it long enough to know that low prices bring high prices, and high prices generally bring low prices," Jennisson says.

And while dairy farmers aren't getting too excited about the prospect of high prices over a long period of time, some dairy experts say these prices could be more than just a spike. They say it will take some time, maybe even years, before the supply of milk increases to meet worldwide demand.

Gallery

Fullscreen SlideshowPrevious Slide

1 of 1

Next Slide