Higher milk prices on tap Good news seen for both producers and retailers Dave Wilkins Capital Press Staff Writer Strong global demand for milk protein, coupled with the U.S. ethanol boom, will drive milk prices higher over the next few months, experts predict. The increase is expected to occur at both the retail and farm level, providing some relief to dairy producers struggling with higher feed and energy costs. Ken Bailey, an agricultural economist with Penn State University, expects the average retail price for whole milk to increase to $3.35 per gallon in October from January's $3.07 per gallon. "International demand for milk protein is very high, and global supplies are limited," Bailey said in a PSU news release last week. Strong export demand for dry proteins - skim milk powder, dry whey and whey protein concentrates - is leaving very low inventories for nonfat dry milk and dry whey, Bailey said. "The result is that domestic supplies of these milk protein products are limited, and global market prices are rising," he said. "That feeds back to the farm price of milk." U.S. dairy farmers can expect an increase in farm-gate milk prices over the next few months, according to industry projections. Economists with the National Milk Producers Federation estimate that the all-milk price for March will rise to $15.80 per hundredweight, an increase of $3.20 from a year ago. The NMPF predicts that farm milk prices will jump again in April to about $16.50, an increase of $4.40 from April 2006. Based on futures prices, the average all-milk price for all of 2007 is expected to be $16.40. That would represent a jump of $3.50 from the average all-milk price last year. Farm level prices were trending upward even prior to this spring. According to the U.S. Department of Agriculture, February's all-milk price should come in at $14.70 per hundredweight, up 20 cents from January's revised figure and up $1.20 from a year ago. U.S. milk production has been running slightly ahead of last year, but industry officials said there's some evidence that producers are beginning to back off because of higher input costs. The industry's supply management effort, called "Cooperatives Working Together," is expected to reduce domestic milk supplies this year by the equivalent of 1.4 billion pounds using herd retirement and export assistance programs. "That will help provide the price relief that dairy farmers need," NMPF officials said in their weekly newsletter. Feeding costs - particularly corn and soybean meal prices - are rising rapidly as a result of increasing demand for those feedstocks for ethanol production, Bailey said. "Since feed represents half the cost of producing milk, farmers are getting squeezed financially, even though milk prices are rising," he said. There was already some evidence in January and February that farmers cut back on milk production, Bailey said. "Less milk means higher prices in the grocery store," he said.