Waterloo Cedar Falls Courier, IA
08-05-07
High milk prices benefit local milk producer
By MATTHEW WILDE, Courier Staff Writer
HUDSON --- The shoe is on the other hoof.
Hansen's Farm Fresh Dairy used to sell the most expensive milk on the local
market. Now, in some cases, Jay and Jeanne Hansen and family are the lowcost suppliers in the Cedar Valley.
Supply and demand and other economic factors have caused most brands of
milk to escalate by as much as a $1 per gallon in stores the last few months. The
Hudson dairy farmers and bottlers on the other hand, have kept their prices
steady.
When the Hansens first started selling their own milk more that two years ago, it
was 80 cents to $1 more per gallon than the competition. Now its competitively
priced or less expensive. In some cases, especially when it comes to higherpriced whole milk, about 40 cents cheaper.
The turnabout has resulted in record sales. Cost-conscious consumers that once
shied away from picking up the locally-produced milk are now putting it in their
shopping carts.
"It's a break for the little guy. You have to take advantage of opportunities when
they arise, said Brent Hansen, one of four Hansen brothers that joined the family
business. He's in charge of delivery and marketing.
"We're doing the same thing since 2004, offering a quality product at a
reasonable price," he added. "The opportunity came along to sell more milk. We
could have raised our price, but that's not our goal ... our goal is to sell milk and
it's working for us."
The 145 fresh Holsteins (those being milked) at the Hansen's farm can produce
1,200 gallons of milk a day. Sales are nearing 900, up from 600 prior to the retail
price run-up. They also make ice cream and cheese curds.
Milk not processed on the farm is sold to AMPI. Last week they used every drop
of milk just to get ahead and insure supply, Brent said.
"In the beginning we wanted to sell half our production. Now that's shifted, why
not sell all of it," he said.
The Hansens invested hundreds of thousands of dollars to build a creamery so
the family could work and earn a living together, which wasn't possible by just
selling bulk milk. The farmer portion of a gallon of milk dwindled to about $1 per
gallon in 2003, the family said, which wasn't acceptable.
By direct marketing, they get it all. Originally they calculated they needed $3 per
gallon selling directly to the public --- slightly less wholesale to local stores --- to
make it work. Stores mark up the milk to satisfy their own profit margin. At
Fareway, for example, Hansen's cost $3.29 no matter if its skim, 1 percent or
whole.
Robert Tigner, Iowa State University Extension dairy specialist based in
New Hampton, said dairy farmers are earning about $21 per hundred weight for
milk, up $10 since last September. Tigner said several factors contributed to the
price spike:
--- Demand. Consumer demand for dairy product increased 2.9 percent from
January to May, according to government statistics.
--- Supply. U.S. milk production only rose 1.1 percent in the second quarter.
--- High corn prices. Buyers bid up milk on the futures market to lock up supply
expecting dairy farmers to cut back on production and cows due to high-priced
feed.
--- Strong exports and weak dollar. Drought in Australia and production problems
in New Zealand --- two large dairy exporting countries --- and cheap prices are
making American dairy products attractive to foreign buyers.
All retail dairy prices, like cheese and butter, have gone up. But milk is the most
noticeable.
"Here we have basic supply and demand economics," Tigner said. "When raw
(milk) changes in price, you do have a larger impact for the consumer. Unlike
bread, cereal and Doritos, where farm products (like corn and wheat) play a
small role in the store price."
Kim Peter, marketing director for Anderson Erickson in Des Moines, one of the
country's largest independent dairies, said retail milk prices have increased about
75 percent in the past year. She said AE 2 percent milk costs about $3.50 per
gallon now, on average. Whole milk costs a little more, while 1 percent and skim
are little cheaper.
Peter said the government regulates what dairy farmers get for milk. And with
increased feed costs, the price spiked.
Still, she believes milk is a good buy. Given consumption figures, the public
agrees.
"It's still a good value nutritionally. With nine essential nutrients for brain and
muscle development, young people really need to drink more," Peter said.
The recent run-up in bulk and retail dairy prices is actually a blessing in disguise
for the Hansens.
Unlike other processors, like AE that buys all their milk, the Hansens have their
own supply. They also raise much of their own feed, the largest expense for a
dairy. While the family has had to endure hikes in labor and transportation costs
like other processors, they've been able to absorb it.
This has allowed them to keep their prices stable, much to the chagrin of the
competition, Brent Hansen said.
"Some don't think it's fair. If we're a $1 higher that's OK, if $1 lower, that's not fair.
It's not our fault we have our own pool of milk," Brent said.
At the Hy-Vee near Crossroads Center, Dairy Department manager Cory
Stephens said customers occasionally ask about the price increases, but it
doesn't stop them from buying. However, he said the price is creating more of a
buzz around the shelf space allotted for the Hansens.
"We've seen Hansen's milk sales go up. Now people ask, what's this Hansen's
milk?" Stephens said.
With corn prices coming down and a record crop expected, Tigner believes bulk
milk prices have peaked and will average $17 per hundred weight the rest of the
year. There's about a two-month lag between farm and retail prices, and Tigner
expects consumers will catch a break soon.
The Hansens know the dairy price roller coaster will work against them again.
They just hope enough people will get hooked on the fresh taste of their milk that
paying a little more in the future won't matter.
"I know price makes a difference," Brent said. "The real test will come when the
price comes down. Will people continue to support local farmers or go back to
the cheapest they can?"
Contact Matthew Wilde at (319) 291-1579 or matt.wilde@wcfcourier.com.