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October 28, 2001

Wholesale Butter And Cheese Prices Collapse

Region's Dairy Farm Income to Follow

Methuen, Mass. - In the past six weeks, wholesale butter and cheese prices have plummeted at the Chicago Mercantile Exchange, the primary price gauge effecting dairy commodity markets. Those wholesale butter and cheese prices are used by USDA and milk buyers to determine how much dairy farmers are paid for the milk they produce. When the price of those dairy products fall, farm milk prices will always follow within a month or two. According to Agri-Mark dairy economist and Sr. Vice President, Robert Wellington, wholesale butter prices peaked at over $2.20 per pound in early September and wholesale cheese prices exceeded $1.70 per pound during the same period. Since then, butter prices have fallen nearly $1.00 per pound or more than 40 percent, while cheese prices have fallen more than $.50 per pound or about a 30 percent decline. These lower product prices will reduce prices for raw farm milk. These declines will be felt by the region's dairy farm families beginning in November, as USDA's pricing formulas automatically reduce minimum farm milk prices when wholesale cheese and butter prices fall. Wellington further reports that American dairy farmers were hurt by dramatically lower farm milk prices last year, but their prices then recovered this past spring when national milk production fell as more farmers went out of business. National milk production remains depressed, but consumption of butter and cheese at restaurants and other food service providers have fallen as consumers have eaten out and traveled less since the events of September 11. Uncertainty about when consumer demand will return to more normal levels has kept prices depressed. The economic slowdown, as well as recent USDA cheese inventory adjustments, have also played roles in the price weakness. The dairy economist forecasts that milk prices received by American dairy farmers will likely fall by 20 percent or more in the next two months. The average dairy farm milking about 80 cows in New England and throughout the Northeast will see its milk income fall upwards of $4,000 per month. This creates a severe situation for farm families as that income decline is targeted almost exclusively to family living expenses since the costs of feeding, housing and caring for cows is the same regardless of the price of their milk. For most farm families, the price they will be receiving for their milk will fall below their costs of producing the milk! When farm milk prices were low throughout the year 2000, at least the farm families providing milk for New England consumers had the Northeast Dairy Compact in place to provide a much-needed income safety net. That safety net provided more than $1,500 per month to the average farm when prices were at their lowest levels, according to Wellington. However, the Dairy Compact expired on September 30 and that crucial safety net is now gone unless Congress acts to restore it. A total of 25 states throughout the nation, including all New England and Northeast states, have approved dairy compacts and asked Congress to ratify their decision, but Congress has failed to do so. Now dairy farm families will face the consequences of that congressional failure. Supporters of the Compact are still working hard to get Congress to move on this issue. -30 -

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