RETAIL MILK PRICE CUT: HOW DEEP?

JOANNA RAMEY

WASHINGTON (FNS) -- The expected 20% drop in milk prices at U.S. dairies should trickle down to the retail level by July, according to milk analysts, who say it's impossible to say how much prices will drop in supermarkets.

"The consumers will hopefully reap the benefits of lower prices. But how much depends on what happens to costs and other factors in the production cycle and how much retailers want to bring prices down," said Sara Short, a milk analyst for the Agriculture Department.

"Over time, competition will dictate if the price drop is passed along to the consumer," said Ed Coughlin, director of regulatory affairs at the National Milk Producers Federation. "If Shoppers Food Warehouse lowers the price of milk, then a Safeway or Giant will follow. Milk builds volume in a supermarket. So stores may be forced to lower prices."

Tight milk supplies and higher prices experienced in the first quarter of the year are essentially now being reversed. Better weather, availability of quality hay for feeding and an increase in herd sizes in the Southwest, where a lot of dairy production has shifted, are among the factors creating a milk glut and decreasing prices, Short said.

Since this trend isn't expected to change in coming months, the milk lobby has asked Secretary of Agriculture Mike Espy to intervene by speeding up government purchases of surplus dry milk, butter and cheese to be used in lunch programs and export to needy countries. Such sales are part of an ongoing program to siphon off excess milk supply and stabilize prices.

"It is extremely important that you take these actions at this time to strengthen dairy markets, counteract the current collapse in dairy market prices and stabilize dairy producer income in the coming months," wrote James C. Barr, chief executive officer of the National Milk Producers Federation, Arlington, Va., in a May 16 letter to Espy. In addition, the Certified Milk Producers Association of America, Chino, Calif., made a similar request.

Agriculture officials are still weighing the request, a USDA spokeswoman said.

Regardless, any government action -- which wouldn't be unprecedented -- would come too late to affect late summer and early fall milk prices at retail. Since milk consumption in the United States doesn't fluctuate much -- in 1992 there were 55 billion pounds of beverage milk sales compared with 53 billion in 1970 -- milk is a commodity whose price is immediately affected by oversupply.

The most recent downturn in prices began in April, with the first signs of price fluctuation being felt in cheese. Cheese futures are traded on the Wisconsin Cheese Exchange, whose activity sets the tone for many other dairy products. The milk surplus comes at a time when dairy farmers are starting to treat their herds with the synthetic hormone Bovine Somatotropin, designed to increase milk production. The hormone has only been in use since March and it's hard to tell what effect it is having on the oversupply situation, said Richard Fallert, a USDA economist.

"We don't know what the sales of BST have been," Fallert said.