Profit margins evaporate

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Several dairies still trying to recover from 2009 problems


Capital Press

Dairymen face difficult times as milk prices fall in the face of rising milk supplies and feed prices.

The U.S. all-milk price fell 8.4 percent between January and March, according to USDA's National Agricultural Statistics Service.

The preliminary February milk-to-feed ratio -- which represents how many 100 pounds of feed can be purchased with the value of 100 pounds of milk -- was 1.58, well below the 2 posted in February 2011, according to the USDA's March 15 Livestock, Dairy and Poultry Outlook.

"This producer profitability indicator is unlikely to improve as the effect of higher feed prices will be exacerbated by forecast lower milk and dairy product prices this year," the report stated.

Revenue-over-feed-costs slipped lower during March and totaled just $5.63 per hundredweight of milk, as the all-milk price fell to $17.40 and corn, soybeans and alfalfa prices pressed higher, said Jerry Dryer in his Dairy and Food Market Analyst weekly report.

In March 2011, revenue-over-feed-cost was $10.76, with an all-milk price of $20.40, he said.

"It's a tough time for all dairymen. Everyone's trying to catch up from what happened in 2009," said Jim Pearson, a producer in Buhl, Idaho.

Feed prices are extremely high. The milk price was decent until the cheese market crashed, he said.

"I have a feeling it will be very hard to get a feed loan from any of the banks," he said.

Pearson hasn't taken out a loan in a couple of years, but he's still paying off a feed loan from 2009.

He grows all his own corn silage and some alfalfa, but purchases a lot of alfalfa, all his ground corn and other commodities in his ration and has been paying as he goes, he said.

"I used to have hope. My hope is starting to fail. If I didn't have obligations, I would probably get out with beef prices being so high," he said.

Riverdale, Calif., dairyman Jamie Bledsoe thinks that's exactly what many dairymen will do.

"There is going to be more quits. Dairymen who have gone through this once or twice are through," he said. "They're tired."

Others will raise only the heifers they need and sell the rest as replacements to be relocated in other parts of the country or put them into beef channels, he said.

With few costs left to cut, a dairyman's only option may be producing more milk. With cull rates about $1,000 a cow and replacements selling for about $1,400, he expects producers will cull more cows and replace them with better milkers.

Producers are also likely to lease more ground if they can find it and the water needed to grow their own feed.

The milk price is good, with California's April overbase price projected at $14.59 per hundredweight. But because of high feed and fuel prices, operating costs are about $17 per hundredweight, he said.

Dairymen who hedged a good portion of their milk in the third and fourth quarter of 2011 will better weather the tough times. There's not much opportunity to hedge milk now, he said.

U.S. cost of production per hundredweight of milk

Jan. '12 Feb. '12 2011 avg.

Operating cost 15.09 15.21 15.17

Total cost* 23.05 22.98 21.42

*includes operating and overhead costs


Total feed costs per hundredweight of milk

Jan. '12 Feb.'12 2011 avg.

11.95 12.13 11.97


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