WOOSTER, Ohio — There are some dark clouds on the horizon in the dairy industry — in fact there have been since the beginning of the year. The cost of feed remains high and milk prices continue to drop — a trend farmers hope will change before it reaches the dreaded year of 2009, when milk class III milk prices dropped below $10 per hundredweight (hundred pounds).
The Federal Milk Order for the Mideast Marketing Area, which encompasses Ohio and western Pennsylvania, shows April Class III prices at $15.72 per 100 pounds. That’s a long way from the historic lows of 2009, but since January of this year, prices have dropped more than $2 per hundred pounds.
And, feed of all kinds is more expensive, especially soybean meal and alfalfa hay.
Normand St-Pierre, professor of animal sciences for Ohio State University, does a monthly feed cost analysis called the Cow-Jones Index, which measures the difference between what milk sells for per 100 pounds, and the nutrients it takes to produce that 100 pounds. To be profitable, farmers need a Cow-Jones of at least $7.50 per 100 pounds of milk, he said. In recent months, that hasn’t happened.
“The average producer is starting to lose money,” he said.
The reason for the drop in milk prices are many — but a big one is overproduction. The cow herd has increased, St-Pierre said, but so has the per-cow efficiency. In recent months, milk production has increased about 4 percent. All while U.S. demand for milk is decreasing.
Other countries, like New Zealand, are having a good year, and there’s more milk on the global market than there is demand.
“The world supply is increasing,” he said, and “the domestic demand in the U.S. is shaky at best.”
Economic downturns in other countries have also hurt.
“Milk prices have dropped as world milk prices have declined due to economic downturns in such European countries as France, Italy, Greece, and Portugal, high milk production in New Zealand with abundant rain producing high levels of pasture, and milk production is up in the United States as dairy farms recover from a disastrous 2009 and 2010,” said Michael Hutjens, a University of Illinois professor emeritus of animal sciences, in a released statement.
Dianne Shoemaker, a Mahoning County dairy farmer and OSU Extension state dairy specialist, said the mild winter also contributed.
Because it was so warm, milk production continued at a higher rate than usual, with an early spring that led to early grass and hay, and continued flow of milk.
“Cows are making milk,” she said. “We’ve had some phenomenal milk production increases.”
Milk prices tend to improve in the summer, when heat stress forces production down. Shoemaker said she doubts prices will improve until then, but, according to St-Pierre, the summer prices may not be enough.
That’s because the higher price for milk also means less is being produced — and he doubts the price increase will outweigh the decrease in summer production.
“Farmers (may not) be an better off, because they’re shipping less,” he said.
Land is king
Joan Winkler and her husband, Jim, milk about 300 Holsteins in Wayne County, Ohio. The biggest thing helping them is they raise about 1,000 acres of their own crops.
“That’s the only blessing we have, except that feed is running short because of the rainy year last year,” she said.
The Winklers, like other dairy farmers, are seeing their premiums go down while their inputs keep rising. She said fuel bills at the beginning of the year were “astronomical” and everything else seemed to go up, too.
On the upside, dairy farmers like the Winklers were able to make hay much earlier this year and most are nearly done with spring planting. But without better prices for their end product, they’re being very frugal.
“You don’t want to panic but … you have to really think about what you’re doing in every capacity,” she said.
Hutjens said solutions for dairy managers to remain profitable include managing for “higher milk yield per cow, high-quality milk production (milk processors pay a bonus for quality milk), and the use of by-product feeds such as corn distillers’ grain and corn gluten feed, which reduces feed costs.”
According to the University of Illinois, U.S. milk yield per is still increasing — now at 21,345 pounds per cow. That’s nearly 85,000 glasses of milk annually. The U.S. record high-producing cow produced more than 72,000 of milk in one year.
In 2011, nearly 51,500 dairy farms produced 196.2 billion pounds of milk with an average herd size of 179 cows.
St-Pierre said the crop year will be a crucial factor in determining prices through the end of the year, as will the price of oil — which determines the demand for ethanol and the amount of corn going into ethanol.
He’s hopeful things won’t get as bad as 2009, but the clouds aren’t likely to go away any time soon.
“I see absolutely nothing in the next six months that makes me rejoice,” he said.