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Dairy farmers dreading cut to milk prices

California dairy farmers, already reeling from rising feed and fuel prices, will take another hit Sept. 1 when the price they're paid for whole milk will be cut.

Farmers will be getting $19.23 per hundredweight, down 56 cents from the price they're being paid in August. That's $3.60 less than they made in September 2007.

"Dairy producers' margins are really getting squeezed," said Michael Marsh, chief executive of Western United Dairymen. The Modesto-based group represents about 60 percent of the dairy producers in California.

"While milk prices are coming down, fuel, labor and feed prices just keep going up," Marsh said.

Prices that growers get for their milk is set by the California Department of Food and Agriculture. Steve Lyle, spokesman for the department, said prices are set monthly by national commodity prices at the Chicago Mercantile Exchange.

"We look at the prices of butter, cheddar cheese, nonfat dry milk and dry whey," Lyle said. When the demands goes up, the price goes up.

But although demand for butter and nonfat milk has risen, cheddar cheese has seen a big drop in demand. On July 30, cheese prices fell nearly 15 percent, one of the largest drops ever on the exchange. The price that day was $1.65 per pound for cheese in 500-pound barrels.

The price for cheese has fallen $31.75 cents since June, Marsh said.

In Merced County, milk is the No. 1 ag commodity, worth more than $621 million in 2006. The second-biggest commodity is chickens, at $286 million.

Marsh noted that demand for whole milk is still strong, and the inventories are not out of hand.

"It's kind of confounding why the prices fell as far and as quickly as they did," he said. One of the reasons may be that consumers fear that the recession could deepen, he added.

But there's some good news about milk for dairy producers. Consumers are buying high-quality dairy items, Marsh said, and consumers outside of California want California milk.

"We are even seeing Nevada consumers demanding California milk," Marsh said. There are about 30 dairies in Nevada, he said.

Overseas markets for California dairy products are also widening. Japanese and Chinese consumers are demanding "California sunshine," Marsh said. "They believe ‘if it comes from California, it's the best,'" Marsh said.

Marsh believes milk prices will correct themselves, but he's not sure how long that will take. In the meantime, producers face rising prices for hay, grain and fuel.

"The ethanol demand has driven the price of corn so high that other feeds are seeing higher prices too," Marsh said. "Unfortunately, the price for milk is still soft."

Reporter Carol Reiter can be reached at (209) 385-2486 or