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Dairymen enjoy record-high milk prices

Carol Ryan Dumas

Capital Press

Despite record-high milk prices and lower feed costs, dairymen in the western U.S. aren't making any moves to expand production beyond slowing cull rates. Instead, they are focused on recovering from the extreme downturn in 2009 and rebuilding equity.

Record-high milk prices have gone a long way in easing the stress on dairies in the western U.S., allowing dairymen to do deferred maintenance, pay down debt and maybe put away some cash, but dairymen still have concerns.

Prices are really good and should be for the next couple of months, but feed costs have been steadily moving up, said Jack Davis, owner of IdaCrest Farms in Kuna, Idaho.

Corn is back up over $5 a bushel and soybeans are at or near record high in the $12 a bushel range. With drought-stricken California dairymen already looking for hay in Idaho, alfalfa prices are likely to be above $200 a ton, he said.

“I’m sure hay won’t come down (and) proteins don’t look like they’re going to have a (price) break,” he said.

Dairymen are doing “pretty good,” but there’s not a lot of expansion going on. Dairymen are still hoping they can get back to where they were before 2009,” he said.

“They lost a lot. They’re trying to recover and get banks out of their lives,” he said.

Everybody is scared to expand until they get their equity back, although there is some localized expansion in Colorado to meet recently added capacity at the Leprino cheese plant, he said.

That said, dairymen are currently catching a break and “darn sure getting some bills paid,” he said.

But that’s only been just the last few months. Class III futures are about $24 per hundredweight, but they’ll come down $3 or $4 by June. Further out, they’ll likely drop to the high $18 to mid $19 level, and that’s coming close to breakeven, he said.

“This is short-term, believe me; it’ll turn quickly. This dairy thing changes so fast. It’s unbelievable how quick it can change,” he said.

Exports are strong, accounting for 15 percent of domestic milk production, but that could change overnight if there’s some sort of crisis. A dramatic loss of exports played a role in the 2009 dairy disaster, he said.

Things are good in California’s dairy industry, but no one knows how long it will last, said Tom Barcellos, a Porterville dairyman and president of Western United Dairymen.

“We can pay the bills with a little left over to play catch-up or bank for the future,” he said.

High milk prices are allowing for deferred facility maintenance, but there’s no talk of expansion. A lot of dairymen are planting nut trees, either getting out of the dairy business or making the conversion, he said.

California milk prices are at an all-time high of $23 per hundredweight, and everybody’s feeling “very good,” but they are still “very cautious,” he said.

Milk prices should stay in the profit range this year, but feed and water are going to be an issue, he said.

Hay is well over $300 a ton, and other forages are 10 percent to 35 percent higher than a year ago. All could move even higher this summer, depending on water availability.

Milk prices in Washington are “decent” right now and things look pretty good at this point, but that’s always subject to change, said Tom DeVries, a Moxee dairyman.

“I’m concerned about when it’s going to turn. Producers might be a little bit gun shy this go-round,” he said.

Things were pretty rough for dairymen in 2008 and 2009, and it’s been spotty since, with tight margins, he said.

The blend price for milk in the state has been about $25 per hundredweight the last few months, with some dairymen getting $1 or $2 higher for components, he said.

“I don’t think it’s sustainable at those prices. I think we’re losing market share (and) it’s hard to get customers back when they switch to something else,” he said.

Producers aren’t building new facilities, but they have slowed culling, keeping more cows in the herd. A lower-producing cow that wasn’t profitable a year ago is profitable at these high milk prices, he said.

Feed is reasonable, with corn coming off from highs that peaked at $8 a bushel down to $4 to $5 a bushel. But there are hay concerns because of the situation in California. Alfalfa could go up $250 to $300 a ton this year, he said.

Conditions for dairymen should be decent for the next couple of months, but after that it’s anyone’s guess. There’s a real potential for milk prices to drop and if China backs off its dairy imports because prices get to high, that puts a huge amount of milk back on the domestic market, he said.

Current favorable conditions are no surprise to Mike Roth, co-owner of Si-Ellen family dairy in Jerome, Idaho. He said he saw the perfect storm of strong exports and lower feed prices brewing six months ago.

Record milk prices were expected, “but the curve ball was none of us thought feed would go up again,” he said.

Even with higher feed costs, margins are still profitable, but these high milk prices never last very long, he said.

The stars that lined up for good margins are now aligning the other way. Cull rates are down, and milk production will probably come back, he said.

High milk prices always stimulate milk production, although this time around there’ll be less expansion than in past boom-and-bust cycles. People just don’t trust the market. Only those in an extremely good financial position will attempt it because banks just don’t want to be a part of it, he said.

The caveat is exports. It all depends on exports of milk, corn and soybeans, he said.

“If China sneezes, the whole world catches a cold,” he said.

The bright side would be record exports and not robust milk production.

“I don’t think the party’s over yet, but we certainly have to watch for increased (milk) production every month,” he said.



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