IE 11 is not supported. For an optimal experience visit our site on another browser.

Got milk? Can you afford it?

/ Source: The Denver Business Journal

The price to fill your glass of milk has skyrocketed in the past month. The price of raw milk, which is announced every month by the federal government, has been rising throughout the summer and soared 21 percent from August to September, raising milk prices from 30-year historic lows, according to the nation’s largest milk cooperative.

The increase is rolling through the manufacturing chain, leading Royal Crest Dairy, a large milk processor and home delivery company along the Front Range, to raise prices 36 cents per gallon. It is the company’s first price increase in two years, said spokeswoman Jan Rigg.

“As is typical in any manufacturing operation, the price of the raw material goes up and the customer ends up paying for it,” said Robert Vander Linden, assistant milk marketing administrator for the federal government’s central region, based in Kansas City, Mo. That office governs the central U.S. region that includes Colorado.

“It depends on which side of the coin you’re on. The producers are happy. The customers are not so happy,” he said.

But families are not likely to curb their milk habits. Because milk is considered such a staple in the diet, families will continue buying milk despite price increases or decreases.

The average retail price of a gallon of whole milk in Denver was $2.99 in July, according to the U.S. Department of Agriculture.

With their August bills delivered the first week of September, Royal Crest customers received a note telling them the price of milk was rising, due to the rise in the federal price of raw milk.

Government sets the price
A gallon of Royal Crest skim milk that cost $3.89 per gallon in August costs $4.29 per gallon in September, Rigg said. Royal Crest buys all its raw milk from Dairy Farmers of America and pays an additional premium to ensure that it comes from cows not treated with the bovine growth hormone designed to boost milk production, she said.

A check of King Soopers brand milk on Sept. 9 in the southwestern suburbs found a gallon of milk — skim, whole, 1 percent or 2 percent — cost $3.69 per gallon.

Spokespeople for King Soopers, Albertsons and Safeway grocery stores did not return calls requesting comment.

In August, the federal price for raw, Class I milk for drinking was $12.97 per hundred pounds in the nation’s central region, said Vander Linden.

As of Sept. 1, the federal price jumped to $15.71 per hundred pounds, he said, a 21 percent increase.

Federal prices for Denver jumped to $16.26 per hundred pounds as of Sept. 1, up from $13.52 per hundred pounds in August, Vander Linden said.

The price for milk in eastern Colorado that’s bought from the Dairy Farmers of America cooperative, a price that’s based on the federal price plus the cooperative’s administrative and transportation costs, is even higher. Most of the 181 dairy farms in Colorado belong to the cooperative, according to the state Department of Agriculture.

In August, the cooperative’s price of Class I drinkable milk in eastern Colorado was $15.87 per hundred pounds. In September, the price jumped to $18.61 per hundred pounds.

The cause of the price spike for raw milk is hazy.

Experts point to a price jump in the cheese market on the Chicago Board of Trade during June and July, a market that’s part of the federal formula for setting milk prices.

Schools are opening their fall session, increasing the demand for milk to supply to their students. With holidays around the corner, cheese manufacturers and butter manufacturers are revving up for the season.

And supply traditionally drops in the fall and winter as cows settle into the cold season and produce less milk.

Dairy farmers see reversal in fortune
But there’s no question the price of milk has shot up dramatically from equally dramatic lows.

The current price is a bit on the high side, Vander Linden said, and far above the less than $12 per hundred pounds seen earlier in the year.

“Dairy farmers are now coming out of a two-year period when prices were at 30-year lows,” said Agnes Schafer, vice president of communications for Dairy Farmers of America, based in Kansas City, Mo.

The cooperative has about 24,000 members and supplies 30 percent of the nation’s milk, about 47 billion pounds a year.

Nationwide, dairy farmers in 2001 received an average $14.27 per hundred pounds of milk during the year, according to the Dairy Farmers of America.

In 2002, the average price dropped 23 percent — $3.26 per hundred pounds — to $11.01 per hundred pounds.

During the first nine months of 2003, the national price has averaged $10.46 per hundred pounds, according to the cooperative.

“We’re hoping to hit an average of $12 per hundred pounds by the end of the year,” Schafer said.

Colorado ranks 20th in the nation in milk production, said Greg Yando, Colorado’s deputy commissioner of agriculture.

“After two years of extremely low prices to dairy farmers, the swing is coming the other way,” Yando said.

The steepness of the rise in raw milk prices was a surprise to Royal Crest, company spokeswoman Rigg said.

Monthly price swings vary widely
Typically the monthly swings in federal prices amount to just a penny or two per gallon, she said.

“Since July 1 it’s been as much as 25 cents per gallon,” she said. “Everyone has raised their price. We didn’t do it until Sept. 1.”

Rumors of a possible price increase in milk were floating earlier this summer, when school districts typically issue bid requests for milk supplies for the upcoming school year, said Shirley Brooke, food service director for the Jefferson County School District, the state’s largest district with almost 88,000 students.

Districts typically request bids with variable- and fixed-price features, then choose between the two, Brooke said.

During the last few years, the district chose variable-priced contracts, she said.

But this year, based on the early-summer rumors, “we thought it was a good idea to stay with a fixed contract,” she said.

This year the contract is just a few pennies per half-pint above last year’s price, she said.

The district typically buys about 275,000 gallons of milk a year, spending slightly more than $1 million, she said.

“We are a self-supporting division, we operate as a business. To have the price of one item increase 20 percent would be devastating,” Brooke said.

But it’s not only the raw milk price that’s driving Royal Crest’s increase, Rigg said. The higher price of gasoline, as well as higher insurance prices, also is hitting the company, she said.

Customers complaining
The company has received calls from customers about the price increase and has trained its customer service staff to explain how the price of raw milk factors into the price of delivered, processed milk, she said.

“We haven’t seen anything yet” in terms of customers quitting, she said. “We’ve warned our customers.”

Royal Crest tries to stay competitive with milk prices in local grocery stores, but strives for lower prices on the 25 other items its trucks deliver to homes, Rigg said.

While farmers are pleased prices are climbing up from 30-year lows, they’re frustrated at being blamed for increases at the retail level, said Schafer, spokeswoman for Dairy Farmers of America.

The USDA reported earlier this summer that while raw milk prices dropped by one-third following September 2001, the retail price of milk only dipped by 9 percent, she said. Cheddar cheese prices dropped 8 percent and the price of ice cream hardly budged, Schafer said.

“Farmers do not establish the retail milk price. The producers of the raw product never establish the retail price,” Schafer said.

Dairy farmers typically receive 30 cents of every dollar consumers spend on milk products, Schafer said.

After the last few years, when low prices had dairy farmers cutting their herds and dropping out of the business, producers are welcoming the federal price increase, she said.

In 1992, Colorado had 376 commercial dairy farms. Ten years later, the number had dropped to 181, she said.

“We’re hoping for better times so farmers can start paying their bills,” Schafer said. “We’re looking to a price increase for our farmers this year, East Coast and West Coast — at the farm gate. The increases at the retail level the farmer has no control over.”