By Teresa F. Lindeman
Pittsburgh Post-Gazette The price of milk may be at near-record highs but Ed Brunton, of Brunton Dairy in Beaver County, figures he was making more money four years ago.

There's the high fuel rates, the cost of milk bottles and don't even mention the price of filling 104 hungry bovine mouths. "Feed has gone through the roof," he said.

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The story in the milk aisle lately -- and at the ice cream shop and most places using dairy products -- has been one of global economic forces at work. "It's called supply and demand," said Ken Bailey, associate professor of dairy markets and policy at Penn State University.

Droughts in the milk-producing countries of Australia and New Zealand, a growing appetite in China for dairy products, not to mention Americans' love affair with cheese, fed the increased demand for U.S. dairy products. At the same time, producing milk became more expensive as grains used to feed cattle shifted to use in biofuels.

It's all factored into the minimum fees that state and federal agencies allow dairy farmers to charge for their products, pushing those rates to unusually high levels.

A gallon of whole milk in Pittsburgh averaged $3.38 in May, according to a federal check of three stores, when just a year ago at the same time it would have run $2.94.

As summer stretches on, it hasn't gotten any better. A gallon of Giant Eagle whole milk last week was priced at $3.78 at the McIntyre Square store, with the same price being offered at the Kuhn's store further down McKnight Road. The Giant Eagle also offered whole milk from Dean's Foods for $3.98.

Paying more for milk: Retail prices in Pittsburgh Click image for full version.

So far consumers haven't bolted, said Chuck Turner Jr., of Turner Dairy Farms in Penn Hills. "I've actually been pleasantly surprised that sales have stayed strong," he said.

That hasn't always been true in the past, especially when milk prices seemed to be one of the few things going up, he said. This time around, some of the same factors hitting the dairy industry are affecting other items as well. Prices for many things at the grocery store have been inching up, not to mention the unrelenting pain found at the gas pump.

Now the question is how much longer the situation will continue and whether that will benefit dairy farmers.

This year's bull market for milk follows a rough patch for the cyclical industry. Prices dipped to 20-year lows in 2006, said Mark O'Neill, media relations director for the Pennsylvania Farm Bureau. "It was one of the worst years in Pennsylvania history," he said.

Many farms went out of business while others took on heavy debt to try to keep things going, he said. Farmers told him they lost money just walking out to milk the cows.

After that, a decent stretch of strong prices comes as welcome relief. "It takes a long time to recover from losses," said Mr. O'Neill.

If demand had increased without costs going up, it might have been better for farmers. Instead, they need to try to hang on to any profits they can by being as efficient as possible, said Dr. Bailey at Penn State. For example, he said he was just reviewing a way to save money by eliminating unnecessary material from cattle feed.

Still, he predicted, "This year farmers are going to make a lot of money."

If they don't have debts to pay, they may use some of that to invest in equipment or improving operations. "They're competing in a world market," noted Mr. O'Neill.

That market is, even now, adjusting to take advantage of the higher milk prices. Which means prices are likely to start falling next year as more fields are devoted to corn or the size of dairy herds grows.

Futures prices on t he Chicago Mercantile Exchange, which the government watches closely, indicate traders are expecting lower rates later this year or early next. "I don't think anyone's counting on these prices staying that high for a long period of time," said Mr. O'Neill.

In the meantime, companies that buy milk are feeling the pinch.

Dean Foods Co., a Dallas milk distributor that operates plants in Sharpsville and Erie, warned last month that its earnings this year would be lower than originally expected, in part because of the challenging milk situation. "It has become increasingly likely that conventional raw milk prices will reach all-time highs by the third quarter," Chairman Greg Engles said in an announcement.

Bruster's, the ice cream franchise chain founded in Bridgewater, Beaver County, has been closely tracking the situation, even if it doesn't have any cows. Seventy-five percent of the company's products are made with milk, said Kim Piper, vice president of marketing. Individual franchises set their own prices, she said, but the company is trying to help them identify ways to cut expenses. "We're doing our best not to pass that increased cost along to the consumer," she said.

In the competitive grocery business, consumers tend to be aware that the Pennsylvania Milk Marketing Board sets minimum prices. While stores may find it hard to charge more, customers generally don't blame those that stick to that level for the rise in costs. There are some who complain to the board or to their legislators but they tend to cool down after hearing what is causing the rate increase, said Tim Moyer, spokesman for the board.

At Turner Dairy, Mr. Turner can't begrudge the farmers the higher prices. More than 50 family farms supply the milk that Turner processes and distributes.

But, as the guy in the middle, he sees the constant tug and pull of the industry's shifting fortunes: "It seems like it's either too high for the consumer or too low for the farmer."

So far, dairy farmer Ed Brunton hasn't lost customers despite raising the price of a gallon of home-delivered milk to $4.80. When one complained, he said, her neighbor chimed in to say it was a pretty good price in light of how much other costs were rising.

Brunton Dairy also makes ice cream, but hasn't changed the price to reflect the higher costs -- although that may be coming. "We haven't done that yet," he said. "We need to."