The Associated Press

MITCHELL - Increased demand - even in places like new Zealand and Australia - is driving up the price of milk, now approaching $4 a gallon in grocery stores.

Observers say the price will probably start going the other way early next year.

"We are reaching the point where we have more cows and milk production is still going up," said Alvaro Garcia, an associate professor of dairy science at South Dakota State University.

"It will get to a point where it will be an equilibrium first and then supply will probably exceed demand.

When that happens, the price will start to go down," he said.

At least part of the reason for higher milk prices is increased demand for milk powder, according to Darwin Kurtenbach, dairy administrator in the state Department of Agriculture.

The powder, used by bakeries and candy producers, is being heavily exported to countries such as New Zealand, the world's third largest milk powder producer, and Australia. Both countries are in severe drought.

"(The price of) powder is almost four times higher than it was a year ago," Kurtenbach said.

"There's a tremendous demand (and) that's helped."

Dimock dairy farmer Jim Neugebauer said the higher prices are offsetting last year's low prices.

Prices paid to producers for some types of milk are nearly double those of a year ago.

The price for Class III milk, used to produce cream cheese and hard manufactured cheese, was $21.38 per hundred pounds earlier this month. The price a year ago was $10.92.

The price for Class IV milk, used to produce butter and any milk in dried form, set a record recently at $21.64 per cwt. That is $11.43 higher than a year ago.

Neugebauer, who began dairy farming in 1981, said it's his experience that milk prices fluctuate about every two years.