Jeff Fischer, who milks cows in the heart of America's Dairyland, flinched as he reviewed his farm balance sheets and projected that his income will decline by nearly a third this year.

Raw milk prices nationwide have fallen to their lowest levels in 13 years and threaten to force 4 percent of the nation's farmers out of business this year.The sharp decline in milk prices - from about $15 per 100 pounds in December 1989 to $10.16 per hundredweight last month - comes just two years after farmers began reducing debt and recovering from the mid-1980s farm crisis and droughts in 1987 and 1988. A hundredweight is about 12 gallons.

"You get disgusted. That's about all you can do," said Fischer, 29, who survived the mid-1980s crisis but now estimates his $79,000 annual income will decline by up to $25,000 this year.

"I am watching expenses real close," he said. "We had a good year of crops. With a drought, I think I would be out of business."

The flip side of the farmers' plight, of course, is cheaper milk in the grocery store. And a survey of stores in 20 states found the average price of a gallon of milk fell last month to $2.38, from $2.52 in January 1990, said the International Association of Milk Control Agencies.

Some believe not enough savings are being passed on. Sen. Patrick Leahy, D-Vt., asked the General Accounting Office to investigate whether retailers have gouged the public.

"What's happening is the supermarkets are increasing their margins," said Woodson Moffett, director of the Division of Dairy Industry for the New Jersey Agriculture Department.

Economists blame the steep decline in prices on overproduction.

The nation's farms produced 148.6 billion pounds of milk last year, up 16 percent from 128.4 billion pounds in 1980.

During much of the 1980s, raw milk prices fluctuated between $11 and $12 per hundredweight. But prices in 1989 were driven to record levels just shy of $15 per hundredweight on fears that the farm crisis and drought would cause a shortage.

Jim Miller, an economist for the U.S. Agriculture Department in Washington, said the fears were exaggerated and by early 1990 the market price needed to drop substantially.

Ed Coughlin, director of regulatory affairs for the Virginia-based National Milk Producers Federation, said prices also fell because of increased supplies in Europe. He said Eastern European farmers in particular began exporting milk once their nations were exposed to world markets in late 1989.

Prices dropped steadily in late 1990 and in one month last fall plunged a record $2 per hundredweight in the United States. The January price of $10.16 per hundredweight is the lowest farmers have received since September 1978.

The price decline has slowed the past few months.

Perhaps 4 percent, or 6,000, of America's 150,000 commercial dairy farms could fold - double the annual attrition rate, Coughlin said.


(Additional information)

Milk Price, Production

Price farmers get for the milk that's used to make butter, cheese and other dairy products.

Yearly averages per 100 pounds of milk


U.S. Milk production (in millions of pounds)


Source: U.S. Department of Agriculture

National Milk Producers Federation