Tracking Nevada milk prices

Wednesday, April 21, 1999 | 10:13 a.m.

For consumers who have been told how "milk does a body good" by white-mustachioed celebrities, dairy regulators have some good news.

The price of milk may come down some more.

After more than a year of steadily increasing prices peaking in March, a glut of milk caused the wholesale price of milk to fall a record 37 percent this month.

The drop was so significant that the Nevada Dairy Commission, under new executive director Stacy Jennings, issued a press release calling attention to it, gently nudging grocery stores to follow suit.

Retail prices for a gallon of milk fell 40 cents to about $2.70.

Typically, dairy production hits a peak in the summer months, giving regulators optimism that the price will stay low for a few more months until new U.S. Department of Agriculture regulations take effect. It's unclear what those rules will do to local milk prices.

A 1996 farm bill ordered that the 31 federal "milk pricing order areas" be reduced to between 10 and 14. A proposed order that will be voted on by dairy farmers this summer would create 11 areas. Instead of being grouped with farms in Utah and Idaho, Clark County's dairies would be administered with those in Arizona.

Regardless of whether the new milk order affects local prices, they could be pushed higher by rising petroleum prices.

Dairy farmers, like all food producers, are beginning to evaluate just how much they're going to have to raise prices to compensate for higher fuel costs. All the savings the Dairy Commission and other regulators have been trumpeting could evaporate because the cost of transporting the product from the cow to the grocery store shelf has climbed so rapidly.

Eric Goedhart, general manager of three Southern Nevada dairy farms that supply milk to the area's only processor -- Anderson Dairy -- is keeping a close watch on transportation costs. In addition to moving milk in tanker trucks from the farm to the processor, the dairies pay for the delivery of feed for the cows and the transportation of cows.

Setting the rules

The Agricultural Marketing Agreement Act of 1937 sets the rules for how milk is priced in the United States. Under the law, there are 31 geographic areas in the United States under which milk is produced and marketed.

The law spells out the rules under which milk is produced, including the establishment of "milk orders" -- legal documents that are voluntarily initiated and are approved by two-thirds of the producers in a given area.

Milk orders classify three basic categories of products. Class I is fluid milk, the most expensive level; Class II is milk used to produce soft products, like ice cream and cottage cheese; Class III is for the production of hard products like butter, cheese and nonfat dry milk. Some market areas have a fourth classification specifically for nonfat dry milk only.

Milk orders also set a minimum price for the three categories of products and specify rules for distributing milk proceeds to all producers who supply the marketing order area. That guarantees that all producers get the same amount of money for their product and no single farm, no matter how large, can manipulate prices through predatory practices.

When the marketing agreement law was passed in post-Depression America, it assured that some of the large dairies could not enter a market, reduce prices to command market share, then raise them to exorbitant levels if competition was eliminated.

Minimum prices are established within a marketing order area to guarantee dairy farmers a fair return for their product and to develop incentives for producers in areas where there are milk surpluses to offer products to areas that have greater demand.

While the federal government dictates minimum prices that milk processors pay dairy farmers, there's no maximum. Supply and demand drives the marketplace.

Nevada is a part of two different milk order areas so prices could be influenced by different factors in the eastern part of the state compared with the west. Las Vegas is part of the Great Basin Marketing Order, which includes Southern Nevada and portions of Utah and southeastern Idaho.

Producer prices fell $7.07 per hundredweight of milk earlier this month, dropping from $19.24 to $12.17. In western Nevada, which is influenced by California's pricing structure, it dropped the same amount, but from $18.94 to $11.87.

Hundredweight, the standard of volume measure used by the industry, is 100 pounds of fluid milk -- a little over 11 1/2 gallons.

In Southern Nevada

So how does Southern Nevada's dairy industry fit into the federal government pricing equation?

There are four dairy farms in Southern Nevada. The Bunker farm in Mesquite supplies milk to the Mountain Division of the Dairy Farmers of America cooperative. Most of the farm's milk is shipped to processing plants in Cedar City and Salt Lake City, Utah.

The other three farms are affiliated with the Security Milk Cooperative based in Ontario, Calif.

Although each dairy farm -- Pahrump Dairy, Moapa Dairy and Ponderosa Dairy in Amargosa -- is owned individually, they each use Goedhart as their general manager.

The Moapa Dairy, opened in the 1920s, has 3,200 dairy cows. The Pahrump Dairy, which opened in 1989, has 2,300 head and the Ponderosa Dairy, opened in 1994, has 5,000.

Although the three farms are associated with the co-op, milk from their cows is trucked directly to processors. Goedhart said some of Ponderosa's cows are certified organic, so much of that milk goes to the processor that supplies the Trader Joe's franchise. The rest goes to Anderson Dairy and other processors.

Cows are milked twice a day and the average cow produces 65 pounds of milk each day -- about 7 1/2 gallons. That means the three regional dairy farms can fill between 12 and 13 55,000-pound milk tankers between them every day. Anderson Dairy usually processes about seven tankers full of milk for various products each day.

Goedhart describes the life of the rural dairy farmer as a hard existence.

"Dairying in Southern Nevada is like a pioneer experience," Goedhart said. "It's hard work."

In addition to milking twice a day, farmers are responsible for keeping the cows fed and managing the herd. About half of the farm's expenses are in feed.

Cows are nourished on hay, alfalfa, corn, almond hulls and cottonseed. Most of the hay and alfalfa is grown in Nevada while cottonseed comes from farms in Arizona. Almond hulls are imported from California while the corn is bought from farmers in California and Utah.

Goedhart said the dairies buy as much as they can from Nevada farms, to reduce shipping costs as well as to keep agricultural business in the state.

Because of a number of variables in agriculture, from fuel costs to weather, prices move up and down from season to season. Goedhart said feed costs today are less than they were two years ago, but costs are cyclical as farms adjust to supply-and-demand needs.

Because of the guaranteed minimum prices farmers get, it's economically feasible to operate in the small agricultural outposts around Southern Nevada, even though competitors are shipping milk to local stores from as far away as Salt Lake City.

But Goedhart says: "Farming in Southern Nevada is a dying profession. There's not a large farming infrastructure in the state and it takes a rugged frontiersman to live in some of the places where the farms are."

The Moapa facility, for example, is about 45 miles from Las Vegas near Hidden Valley. Pahrump, where the dairies grow their own hay, has grown in the past few years to a community of about 30,000, but Amargosa is extremely rural.

Herd management also is extremely important to the dairy farm.

Goedhart explained that farm employees monitor the life cycles of each dairy cow. About 800 to 900 calves are produced on the farms each month. Those that survive are shipped to California for fattening when they reach about 300 pounds. (California has a less expensive food supply for the calves).

Cows are impregnated and returned to the dairy farm at about 1,250 pounds. After a cow delivers a calf, it becomes a milk producer and the cycle begins anew with the cow being impregnated. After about seven months, a cow isn't milked until it calves.

Goedhart said a milk cow goes through two or three cycles of giving birth before it can no longer produce enough milk to be a part of the dairy herd. At that point, it is shipped to a slaughterhouse.

Keeping the cows comfortable -- and good milk producers -- is a challenge in the summer months.

"We want to keep them as cool as we can in the summer," Goedhart said. "There's really no perfect place for cows. In Nevada, it's hot in the summer, but it's mild in the winter. At least we don't have to fight the winters."

Anderson Dairy

Of the 12 tankers full of milk the local farms produce for the Security Cooperative, about seven wind up at Anderson Dairy in Las Vegas.

The processing facility at 801 Searles Ave. is a few blocks north of downtown and is the only dairy processor in Southern Nevada.

In the last two years Anderson has expanded and become an educational showcase. Although the processing facility tour is not open to the public, classes and Scout groups schedule trips to the plant to see Anderson prepare the approximately 1,000 different dairy products the company offers.

Bob Beahmer, Anderson's controller, said reconciling production costs with revenue is a constant challenge because there are so many variables involved. He said processors and distributors are squeezed at both ends by a system in which the supermarkets call the shots on how much product they will sell and farmers that are guaranteed a minimum price for raw materials.

Supermarket brands

Every supermarket chain that operates in the Las Vegas Valley has its own dairy supplier to produce a store brand. That means that Anderson Dairy may have competing products on shelves that are a few cents higher than those with the store's label.

Anne Alenskis, a spokeswoman for Boise, Idaho-based Albertson's, said most supermarkets carefully watch what their competitors do when setting dairy food prices.

Generally, stores will use the cost to them plus 10 percent as a base from which to start, then monitor the competition.

Los Angeles-based Swiss Dairy provides the Albertson's brand milk products. Other grocery store companies in the valley -- Lucky, Smith's and Vons -- have their own creameries outside of Nevada that provide competition to Anderson. Since they provide products in Nevada, the state's Dairy Commission monitors them.

Jennings of the Dairy Commission emphasized that the grocery stores set their own prices on milk products -- and they can vary by as much as $1 a gallon at the checkout stand.

But when producer prices fell dramatically this month, Jennings suggested that stores allow consumers to share the savings. Reasoning that a $5.81 drop per hundred pounds of milk would translate to a 50-cent reduction in off-the-shelf prices, Jennings urged the supermarkets to pass on savings to Nevada residents.

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