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Milk Prices Make Mild Increase As Farmers Dump Cows Graphic

September 22, 1991

WAUSAU, Wis. (AP) _ Farmers in America’s Dairyland have slaughtered thousands of cows because of a glut of milk that left profits at a 13-year low. The market has responded with a much-sought increase in the prices farmers get for their milk. Observers say the recovery, though modest, is significant because the farmers used free-market tactics to force a price increase. The government had refused to raise the support prices that have stabilized the industry for decades.

″What is unique about this production cutback is it is motivated completely by market-oriented conditions. The market is telling (farmers) to dump cows and they are responding,″ said Edward Jesse, chairman of the agriculture economics department at the University of Wisconsin in Madison.

The price for raw milk has risen about 15 percent over the last five months as production dropped, easing the fears of hundreds of farmers who thought they’d be forced out of business by autumn.

But economists warn the increases will be short-lived and prices are likely to dip once again next spring to levels that will put farmers back in the red. That’s because farmers can’t afford to cut production much more than they already have without eliminating their profit margin altogether.

″(Prices) are not that high and they are not going to stay that high for very long,″ said Jeannine Kenney, an economist and lobbyist with the National Milk Producers Federation in Arlington, Va., which represent 41 dairy cooperatives that produce about 60 percent of the nation’s milk.

Nonetheless, the recent price increase has prompted experts to revise downward their predictions that as many as 4 percent of the nation’s 150,000 dairy farmers would be forced out of business this year.

In Wisconsin, the nation’s top-producing dairy state, experts now predict between 2,000 and 2,500 dairy farms will close this year, down from earlier projections of 3,000 to 5,000, Jesse said.

The mood among farmers is ″absolutely better than a few months ago,″ said Pete Knigge, an Omro dairy farmer and former chairman of the National Commission on Agriculture Policy that advised Congress on the 1990 farm bill.

″The supply and demand system is helping regulate the industry. It is nothing the government has done,″ he said.

Short supplies helped raise the price for raw milk in Wisconsin and Minnesota to a record $15 per hundred pounds, or 12 gallons, by late 1989. But the higher prices encouraged overproduction that led to a steep price drop over the next year.

By March, the price had fallen to just over $10 per hundredweight, the lowest since 1978.

That price was about $2 per hundredweight below what it costs a farmer to produce 12 gallons of milk. Some Wisconsin counties declared states of emergency because of the financial stress. Farmers pleaded for an emergency increase in government support payments but Congress declined.

Since then, milk production nationwide has dropped about 1 percent per month, ending the glut and boosting the Minnesota-Wisconsin price to $11.50 per hundred pounds in August.

Part of the reason is a drop of about 120,000 dairy cows in the top 21 milk-producing states compared with a year ago. That’s reduced the herd to 8.37 million cows, Ms. Kenney said.

″They sold them for slaughter. They would have been sold for hamburger,″ said Bob Cropp, a Wisconsin dairy economist.

Another factor is that farmers began feeding their cows lower-concentrate grain diets in order to slow the production per animal, Cropp said.

The tactics are different from those in the past, when farmers simply relied on the government to purchase their surplus milk.

Jesse said milk prices will likely increase through the end of the year, taking ″a lot of heat off″ politicians to raise the government support price.

But Jesse warned that economists expect production to level off by next year, forcing the price for raw milk to return to between $10.50 and $11 per hundred pounds or about $1 below what it costs a farmer to produce the milk.

Meanwhile, the price dip earlier this year has left scars. Knigge said about a dozen of his neighbors within a 20-mile radius quit farming in recent months because of the financial squeeze.

″It just absolutely stunned the neighborhood when some of them hung it up,″ he said. ″There were a few retirements. I would say a majority were due to financial problems.″

Knigge said farmers were also angry that the price of milk at the store did not drop nearly as much as their profits.

″That means somebody was making money off us and that makes me damn mad,″ he said. ″Our price dropped 30 percent and how much did it go down in the store? I bet consumers didn’t see a 10 percent drop. Where were all these consumer advocates?″

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