Marguerite Jones picked through boxes of name-brand butter and yogurt, all displaying the orange stickers that mean a radical discount.

She didn't even glance at the full-priced dairy products. A few moments later, she scanned the milk cooler, but — no orange stickers — she marched past.

Marcus Yam/myam@ajc.com (ENLARGE)

'People think that the farmer is making out like a bandit, but his margins are not better than before,' said Tommie Shepherd, an economist with the University of Georgia's Center for Agribusiness and Economic Development.

Marcus Yam/myam@ajc.com (ENLARGE)

Leyber Pineda Pineda ushers the cattle into the milking barn at Turk Dairy in Eatonton.

PRICE TIME LINE $2.62: Average price for a gallon of milk in June 1998 $3.77: Average price for a gallon of milk in June 2008 $2.79: Average loss for U.S. dairy farmers on every 100 gallons of milk produced in April FOOD PRICES: A LOCAL LOOK High fuel costs help, hurt local farmers who want to deliver Higher milk prices don't mean more profits for farmers Tough times chip away at snack sales Deals at Whole Foods? Tour shows you where | Photos Diesel spike means rough times for seafood prices Restaurants feel squeeze from both ends of economy Economic toll nips at scotch buyers, too Beer prices rising | Photos Egg price reflects soaring costs for diesel, feed | Photos Groups that feed families on edge are pushed to limit Poor not only ones feeling pressure This is an occasional series on how rising global food prices are affecting people and businesses in metro Atlanta.

Jones only buys expiring milk that is on sale, pouring it into plastic bottles to freeze until she needs it. "It saves me money," Jones said, as she made her way through the Kroger store on Atlanta's Ponce de Leon Avenue.

In a time of increased inflation, milk has become one of the toughest challenges to overstretched consumers. Like gasoline, its partner in inflation, milk has outpaced other price hikes. During the last five years, the cost of milk has gone up 43 percent, while overall inflation rose 19 percent.

And like gasoline, which has dipped in price recently, the price of milk also has dropped. In the past few days, Publix Supermarkets and some Kroger stores in metro Atlanta lowered the price on a gallon of milk by nearly 70 cents, to about $3.60.

But it's still an expensive staple. Nationwide, consumers paid about 10 percent more for milk in June than they had a year earlier, according to the Bureau of Labor Statistics.

The tug skyward has come from several factors, intertwined — among them the soaring price of other foods and rocketing energy costs.

These pressures mean higher prices for milk, but they do not translate into higher profits for dairy farmers, who are being squeezed by the spikes in fuel, feed and fertilizer.

Because dairy farmers' incomes are shaped by federal mandates that set prices for the milk they sell, they are unable to pass much of that burden along to the co-ops and grocery stores that buy their products. Yet once milk and other dairy products make it to shelves, there is no government cap on what consumers are charged.

When milk was cheaper, farmers received a larger share — often half — of the retail price. Now, the federal formula provides many farmers just one-third of the retail price, and the profitability equation has grown harder to solve.

In April, the most recent data available, the cost of producing 100 pounds of milk averaged $23.27, according to the U.S. Department of Agriculture. That month's paycheck to farmers for that milk averaged $20.48.

So costs are like a rising floor, shoving farmers toward a federally set ceiling, said Ernest Turk, owner of the 400-cow Turk Dairy in Eatonton.

"We are trapped," he said. "We can't do anything about either end."

Georgia has 272 dairies, compared with 420 a decade ago, said Tommie Shepherd, an economist with the University of Georgia's Center for Agribusiness and Economic Development.

"People think that the farmer is making out like a bandit, but his margins are not better than before," Shepherd said.

Plus, farmers can't do much about the rising costs, Shepherd said: "They don't have a lot of choice. You can't stop feeding your cows."

Feed is typically the largest single expense for a dairy farmer — now more than ever.

"The rule of thumb used to be that feed in a dairy would be 45 or 50 percent of costs," said Tim Camp, owner of T & W Farms in Eatonton, a dairy with 850 cows. "Now it's more like 60Farmers not seeing higher prof or 70 percent."

A year ago, feed cost him $191.05 a ton. This July, it cost $280.02 a ton.

Those feed prices are rising much faster than the price paid to farmers for their milk. One measure of that is the "milk-feed ratio," calculated by the U.S. Department of Agriculture.

In July 2007, a farmer could buy 3.19 pounds of feed for the price he was paid for a pound of milk.

In June 2008, he could only buy 1.78 pounds of feed with a pound of milk income.

Much of the rise in feed prices can be traced to corn — surging on the strength of the demand for ethanol.

"Corn is the staple of the dairy diet," Camp said. "Besides corn, you have soybeans, cotton seeds and wheat — but when corn goes up, everything else follows."

His feed bill in June 2007 was $90,819. This June, it was $148,593 — an increase of nearly 64 percent.

"That's a lot of money," Camp said. "That means it is $400,000 to $500,000 more it's going to cost me this year to produce the milk."

Everett Williams, who owns the W Dairy in Madison, grows almost half the feed for his 700 cows.

But it doesn't yield the expected cost benefit: Growing feed only translates to higher fuel bills for tractors, trucks and irrigation systems, sapping the savings.

His fuel bill for the first seven months of this year was $98,000, roughly double the cost of the same period a year earlier.

And then, after feed and fuel, there is a third "f": fertilizer. Those prices, too, are surging, thanks to higher demand, as well as transportation and energy costs.

Among fertilizers are potash, which cost $400 per ton last fall and is now $783 a ton; ammonium nitrate, which has jumped from $300 a ton to $575 a ton; and phosphate, which has more than doubled from under $500 to $1,100 now.

"Last year, I spent $25,000 to $30,000 on fertilizer, and this year I'll double that," Turk said.

Meanwhile, consumers are fighting budget battles, too. As with gasoline, consumers do have their limits — even for necessities.

"We have seen the price go up enough so that consumption declined," said Shepherd, the UGA agribusiness economist.

That softening demand already appears to be influencing area grocers.

Publix spokeswoman Brenda Reid said the chain is trying to bring more customers into stores by lowering prices on staples such as milk.

"It's a very popular item that people watch," Reid said.

— Staff writer Elizabeth Lee contributed to this article.

HOW MILK PRICES WORK

• Dairy farmers cannot pass along any increase in operating costs. When milk is loaded onto the truck at the farm, the farmer does not know what price will be received for that milk until the payment arrives the following month.
• The price that farmers receive is based on a federal formula derived from the price of four globally traded dairy commodities — butter, dry milk powder, whey powder (a byproduct of cheese-making) and cheddar cheese.
• Then a value is added based on the amount of protein, butterfat and solids in each individual farm's milk.
• These two values are added together, along with any quality premiums the farm may qualify for, and lastly, transportation costs are deducted.
• The final number is called the "mailbox price," or the price that the farmer actually receives.

— Source: New York Farm Bureau