
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: FRIDAY, June 3, 1994                   TAG: 9406030106
SECTION: BUSINESS                    PAGE: B-4   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

MILK PRICES ABOUT TO FALL, BUT NOT, ALAS, FOR SIPPERS

An early jump this year in milk prices is turning to a rapid tumble, the nation's milk producers say. But shoppers probably won't know the difference.

Prices paid to farmers are falling, in part because they had risen unexpectedly earlier this year. And more cows are producing more milk.

Midwestern farmers didn't cut back on their herds as much as expected. Nice spring weather made cows more contented, and more productive, than usual.

Then there's a little extra push from a genetically engineered hormone, recombinant bovine somatotropin, that came on the market in February.

But a smaller milk check for the producer won't mean a markdown at the supermarket or convenience store. Retailers simply don't pass their lower milk costs on to consumers as quickly as they do price increases, the Agriculture Department said.

``It's far more typical for a retailer in a period of declining wholesale prices to just hold the retail price steady, or maybe to run a special,'' said Andrew Novakovic, chairman of the department of agricultural research and managerial economics at Cornell University.

As a whole, dairy prices have been rising at about half the rate of other food prices in the past 10 years.

Besides, farmer prices account for about a third of what consumers pay for dairy products, the Agriculture Department says. For milk, the farmers' share is slightly higher - about 42 cents out of each dollar the shopper spends.

But the milk industry says another consumer cost may come sooner: The government may be buying more surplus milk, because wholesale prices are getting so low.

The industry and its congressional supporters want the Agriculture Department to make advance purchases of dairy food for schools and nutrition programs, step up export subsidies and use more dairy products in foreign aid.

Members of the National Milk Producers Federation, which represents dairy cooperatives, plan to make their case soon to Agriculture Secretary Mike Espy.

Economists such as Novakovic at Cornell say government intervention would help for a while, but ``those kinds of activities are not large enough to completely forestall some kind of drop in price.''

``I think the basic fundamentals of the marketplace as we look out over the next few years suggest we're in a period where prices are going to be at best stable and more likely trend downward, which is what they've been doing since the early 1980s,'' he said.

Simply put, there aren't enough milk drinkers, butter spreaders and pizza munchers to keep up with what dairy farmers in this country can produce. And global competition is so fierce that trade pacts offer little help.

Producers will know a lot more about prices when today's report on May prices paid by cheese-makers in Minnesota and Wisconsin is released. The price is to milk what the prime rate is to interest: a benchmark for the industry.

by CNB