Dairy prices in a slump, but showing some improvement

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cows in milking parlor
Cows in a milking parlor

SALEM, Ohio — A couple years of low milk prices have some dairy farmers thinking back to 2009, when most farmers were losing money by the cow and facing the possibility of going out of business.

From October 2014 through April 2016, prices for milk fell by about 40 percent, with some improvement over the summer, according to data from the U.S. Department of Agriculture.

The difference — this time around — is that prices have not dipped quite as low — and feed costs are not as high. In 2009, the dairy farmer’s margin — or the difference between the all-milk price and the average feed cost, to produce 100 pounds of milk — reached a low of negative 15 cents in June of 2009.

By contrast, the current cycle hit a margin low of $4.14 in July 2015, and improved slightly by the end of 2015, to $6.46.

While better than 2009, those margins are still pressuring the dairy industry, and do not include costs like equipment, labor and the many other expenses of running a dairy farm.

Signs of hope

The Class III price for 100 pounds (cwt.) of milk in August was $16.91, a favorable increase of $1.67 over the previous month, and 64 cents higher than August 2015. Class II milk increased five cents in August 2016, to $15.21 per cwt.

But the prices are still lower than most farmers like — and need — especially smaller farms and those with higher production costs.

milk graph
Farm-level milk prices

According to a U.S. Department of Agriculture chart that tracks production costs per size of herd, herds of 50-99 cows spend about $20.82 in total operating costs, to produce 100 pounds of milk. Farmers who milk 500-999 cows spend an average of $18.33 per 100 pounds.

“A lot of smaller dairies are struggling,” said Kenny Rufener, a dairy farmer from Congress Lake Farms in Portage County.

Rufener’s family milks about 650 head of Holsteins — still not a large farm by many standards. He said there’s not much that farmers like himself can do, other than bear the lows and hope that new demand comes along, bringing better prices.

Hanging on

Richard Owen, who milks about 70 head of Holsteins and Jerseys in Hadley, Pennsylvania, said smaller dairies are in more of a survival mode than anything else.

“You just have to make cutbacks, or whatever you have to do,” said Owen, who spoke to Farm and Dairy at the Portage County Fair.

Milk cows
Cows in a milking parlor.

Owen said he has at least one incentive with his Jerseys — they produce better components, like butterfat, which leads to better component pricing.

The way he sees it, dairymen have two main options: “market milk more effectively or produce milk more efficiently.”

Input costs

Lower grain prices have helped with that effort, but higher costs for equipment, land and rent remain a challenge.

Greg Conrad, a dairy farmer who milks Holsteins and Ayrshires in Pickaway County, said dairymen have come to expect the volatility, even though it isn’t easy.

“It’s just one of those thing we live with from time to time,” he said. “If you’ve been in the dairy industry a long time, you know that these moments come about all too often.”

Conrad, who serves on the Ohio Dairy Producers Association board, said the issue was compounded by a dry growing season for many Ohio farmers — which affected the corn and especially the hay cuttings that dairymen need.

Owen said he knows some livestock farmers who turned to crop farming during the last low-price cycle. But now that crop prices are low — that venture isn’t paying out, either.

“It’s just a complicated issue,” he said.

Deciding to sell

A few dairy farmers have turned to the auction block the past two months in Ohio and Pennsylvania — with some high-quality herd dispersals. But it’s difficult to say whether there’s a real trend.

“I think everybody is just kind of holding on,” said Adam Fraley, an auctioneer with the Fraley Auction Co., in central Pennsylvania.

Fraley conducted a large dairy farm auction in late August, that involved more than 1,300 head of cattle. But he said he’s still not seeing a trend — and hopes we don’t get to that point.

“Things are not great but they’re (farmers) kind of just plugging along,” he said, adding that if conditions don’t improve, then there could be more sales.

On the upside, he said cows that he’s sold so far have commanded a strong price — with many on their way to herds in other states, including Iowa and Main.

Supply and demand

A combination of factors have led to the decline in prices, including increased domestic production, falling exports, and growing imports.

Exports of cheese fell by 114 million pounds (14 percent) from 2014 to 2015, according to the USDA Economic Research Service, and exports of dry whey were down by 106 million pounds (22 percent). During the same period, imports of butter rose by 17 million pounds (71 percent), and imports of cheese increased by 64 million pounds (23 percent.)

Taking action

The low milk prices triggered USDA action Aug. 23, when the agency announced it would purchase about 11 million pounds of cheese from private inventories, to assist foodbanks and pantries and reduce the surplus. The department also announced it would extend the margin protection program enrollment deadline, to Dec. 16, 2016.

Earlier in the month, on Aug. 4, USDA announced about $11.2 million in financial assistance to dairy producers enrolled in the margin protection program.

But the program will only pay so much, depending on a farmer’s level of enrollment, and actual margins.

According to some farmers, the program is not as helpful for larger dairies, and although it can benefit smaller farms — it depends on how much the farmer already paid into the program.

Looking ahead, the rest of the year should finish stronger than the beginning.

Penn State ag economist Jim Dunn, wrote in the Aug. 31 Dairy Digest that milk prices will generally trend higher over the remainder of this year. He estimates the Pennsylvania all-milk price for the rest of 2016 to average $2.80 per cwt. higher than the first six months of the year, but still 62 cents below the 2015 average.

He expects prices in the first half of 2017 to be similar to the second half of 2016.

Increasing demand

Scott Higgins, executive director of the Ohio Dairy Producers Association, said there are some good indicators heading into the holiday season, with butter and cheese sales, and also exports of dry milk powder.

Higgins, who also serves as president of American Dairy Association Mideast, said the dairy checkoff continues to look for new uses of milk, and corporate partnerships to advance milk products.

Even in this time of low prices, he said the success of the checkoff has helped create new demand, and maintain previous demand.

Higgins said he’s heard from farmers from all ends of the spectrum — those who are still expanding and putting up new buildings, to those who are not breaking even.

“Most of them are hunkered down and they’re going to find a way through it,” he said. “In all cases, I know this has been a difficult time.”

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Chris Kick served Farm and Dairy's readership as a reporter for nearly a decade before accepting a job at Iowa State University Extension. An American FFA Degree recipient, he holds a bachelor’s in creative writing from Ashland University.

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