AMES, Iowa — As sectors of America’s economy begins to show preliminary signs for a recovery, the nation’s farm economy remains deeply troubled.
U.S. men and women who produce grains and milk for America’s table are receiving, on average, one-half of what they did in mid-2008.
At the same time, their input costs are higher and ag operating loans are more difficult to come by, endangering some farmer’s ability to produce raw farm commodities at all this year.
“The economic pain is being felt in every corner of agriculture,” said National Farmers Organization President Paul Olson. “Fair farm prices can help stimulate the rural economy, which is a truly effective way to rebuild America.”
Olson used his home state of Wisconsin as an example. No other single product produced in the state creates a greater economic impact than milk.
The Wisconsin dairy industry generates $20.6 billion a year for the state’s economy and accounts for more than 40 percent of the 420,000 jobs in the agricultural sector.
Olson pointed to figures from University of Wisconsin-Madison’s Center for Dairy Profitability that a 250-cow Wisconsin dairy farm will spend, on average, about $675,000 annually in supplies, products and services purchased from local businesses and retailers.
“And it’s not just in Wisconsin, agriculture plays a tremendous role in the health of the nation’s economy, which is why it’s important farmers receive prices on par with what it costs them to produce those raw materials,” Olson said.
Here are figures dairy producers are facing this spring:
– USDA production cost estimates of $25-30/cwt.
– A current all milk price of $11.50/cwt.
– A milk-feed ratio of 1.51.
– 2009 USDA milk production projection down 0.8 percent.
– 2009 USDA consumption projection up 1.4 percent.
– 2009 USDA all milk price projection is $11.55/cwt.
“We don’t believe the dairy data accounts for the low market prices dairy farmers are experiencing,” Olson said.
He noted the pricing mechanism is outdated and needs to be overhauled. He said the new cwt herd buyout plan, which National Farmers supports, should further pressure milk supply figures positively for farmers.
The milk price to feed cost ratio is the price of a pound of milk divided by the price of a pound of feed.
Historically, milk/feed price ratios consistently below 2.5 have triggered herd liquidation and ratios above 3.5 have triggered herd expansion.
A grain producer growing corn this year may very well struggle to break even and, according to USDA estimates, his costs this year will hover near $684 per acre.
But cattlemen, who have struggled with more stringent lender requirements since the economic downturn, are actually in a better position to profit from a contracting perspective than they were last summer.
National Farmers is a group marketing and bargaining organization for the nation’s farmers, ranchers and dairymen.