SURPLUS PUSHES DOWN WHOLESALE MILK PRICES

LAURA KLEPACKI

ARLINGTON, Va. -- A surplus of milk triggered a wholesale price drop of more than 11% beginning last week, with a further reduction expected in August.

The current price decline should translate to a drop of 10 cents to 15 cents per gallon at retail, according to Thom Wilborn, director of communications for the National Milk Producers Federation here.

And some retailers have already begun to pass on the savings to consumers, although a boost in sales is not expected.

"Prices did come down and we did reduce prices accordingly," said John Rider, president of retail operations for Basics/ Metro Food Markets, Randallstown, Md.

"However, the [sales] volume of milk is not going to increase because traditionally in the summer months in Maryland milk sales decline due to the extreme hot weather," said Rider. "We have been running temperatures from 85 degrees Fahrenheit to 100 all summer."

But the slowdown, Rider said, is only temporary, and he anticipates milk sales will go back up when school reopens in the fall.

Milk, which is priced by the "hundred weight," or 100 pounds of milk -- about 12 gallons -- fell $1.48 to $11.51 effective July 1. The U.S. Department of Agriculture was expected to announce another decline late last week of approximately 50 cents per hundred weight, which would push the retail price down about another 5 cents and go into effect in August, said Wilborn.

Wilborn said the increased milk production can be attributed to three factors.

Cows produced more milk this spring because of good weather conditions that produced good pastures and improved their feed.

Prices were higher earlier

this spring and as a result farmers enlarged their herds and subsequently increased milk production.

The use of the newly approved synthetic hormone Bovine Somatotropin, or BST, by some farmers also increased production slightly, according to the National Milk Producers Federation.

Looking into the future, he said, "we expect prices to stabilize and see some recovery in the fall. That is a normal seasonal trend, when kids are back in school demand for milk increases." Jim Reagan, dairy buyer, for Brookshire Bros., Lufkin, Texas, said his company also has passed on the lower milk prices to consumers.

But he said he expects in the short term to see sales pick up a little bit. "Anytime you put a low retail on something it will affect sales of it," he said.

Reagan, as with other retailers polled, said he doesn't expect to see their milk profits fall despite the drop in retail prices.