MISSISSIPPI STATE -- Dairy prices remain strong after a banner year in 2004, but most producers will need to channel much of that income to pay off large amounts of debt accumulated in previous years.

Bill Herndon, agricultural economist with Mississippi State University's Extension Service, said milk prices exceeded the once-considered unreachable level of $20 per hundredweight in 2004, which was significantly higher than the previous record.

"These prices resulted in an average milk price received by dairy farmers of $16.80 per hundredweight in 2004, compared to only $13.10 in 2003," he said. "Current farm-level milk prices are remaining robust and are expected to be about $15.50 per hundredweight for 2005."

Still, there is not much room to celebrate.

"Most farmers have used these additional revenues to pay off debts accumulated during 2002 and 2003 when they suffered and endured the lowest milk prices since 1978," Herndon said. "Feed costs continue to be reasonable this year as they have been in recent years, compared to the high feed prices in 1997 and 1998. Availability of labor is probably the biggest challenge facing dairy farmers. It's very difficult to get good, trained, reliable labor."

Angelica Chapa, Extension dairy specialist, said Environmental Protection Agency regulations are influencing the future of Mississippi dairies.

"Producers are in the process of upgrading lagoons to meet mandatory standards that will be in effect in about two years," Chapa said. "Some dairies may sell out rather than spend the money to make the upgrades. Still the biggest factor this year is probably cow prices. Whenever cow prices are high, producers are more inclined to sell out."

Chapa said cow prices tend to drop whenever news reports of bovine spongiform encephalopathy, or mad cow disease, occur. Fortunately, consumers seem to understand that BSE will not threaten milk supplies. The current case involves a cow that never entered the human food supply.

The Mississippi dairy industry generated an estimated $267.4 million in economic activity in 2004. The state's top dairy producing counties are Walthall, Marion, Lincoln, Amite, Pike and Newton, where 75 percent of Mississippi's milk is produced south of Jackson and U.S. Interstate 20.

Chapa said some existing herds have expanded and some new herds have been established, primarily in south Mississippi.