Released Aug. 15, 2007

URBANA, Ill. -- Consumer and dairy managers continue to wonder when and if the price of milk and dairy products will decline, said a University of Illinois Extension dairy specialist.

"In June 2007, a gallon of milk was 43 cents higher in price than in June 2006 and butter was up 18 cents per pound over the same period, according to the USDA," said Michael Hutjens. "However, prices can vary greatly among regions and within states."

Several factors will impact consumer prices for milk and dairy products in the future, he added.

"With school starting, milk consumption can increase along with more emphasis on low-fat milk and nutritionally desirable beverages," he said. "A weak U.S. dollar makes exporting U.S. dairy products cheaper and milk production quotas in Canada and the European Union limit additional production in those areas.

"Finally, Chinese demand for dairy products continues to expand."

For the dairy farmer, milk prices have increased from $14.50 per 100 pounds in January 2007 to $21.70 in July.

"While the farm-gate milk prices are expected to drop, fall prices may reach $18 per hundredweight--higher than earlier estimates," he said.

Among the factors impacting milk production this fall are:

--heat stress in the late summer which can reduce milk and crop yields; --the availability of more replacement heifers to begin milking (42.6 heifers per 100 cows in July 2007 compared to 41.5 heifers per 100 cows in July 2006); --replacement heifer prices have increased $200 per head in one month, reaching $1,950 per animal, which can reduce the sale of heifers; --a milk-to-feed ratio of 3.19. When the ratio is over 3, it signals dairy managers to increase milk production as feed is relatively less expensive compared to milk prices.

Consumers have been choosing more milk and dairy products. Dairy product consumption in 2006 averaged 606 pounds of milk equivalent, the highest figure since 1987. Cheese led the way with an average of 31.2 pounds per person and fluid milk consumption was up three pounds, reversing a downward historical trend.

The rising milk price has put pressure on other segments of the dairy industry.

"Pizza prices are increasing," said Hutjens. "Hershey and Dean's milk report lower profits, and Starbucks has increased their milk/coffee beverage price by nine cents.

"Consumers may be able to look ahead to lower milk prices, but they may see a drop of 50 cents a gallon near the holiday season."

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http://www.aces.uiuc.edu/news/stories/news4104.html

Contacts: Michael Hutjens, (217) 333-2928

Bob Sampson, (217) 244-0225, rsampson@uiuc.edu