RE: OUT OF THE DAIRY BUSINESS - APRIL 28, 2012

June 16, 2012 -

It's been 7 weeks since all the dairy cows and equipment were sold at auction (April 28th, 2012) brought on by the continued LOW milk prices and HIGH feed and operating costs that has plagued the dairy-farmer since 2009.

Low milk prices and high feed and operating costs are still hammering dairy-farmers, except now it's coupled with dairy-farmers having no more (or very little) equity remaining in their operations. Banks have been "pulling the plug" on numerous operation throughout the country to "stop the bleeding" of losses on the operations. Too much milk on the market causing too little milk checks for the dairy-farmer?

Processors and Co-ops have made huge profits over the past three years because of the low milk prices paid to dairy-farmers. However, the price of milk and dairy products in the stores have NOT been reduced to the consumer.

Processors and Co-ops continue to tell dairy-farmers NOT to reduce supply to increase the mail-box pay price to dairy-farmers. Dairy-farmers only choice available to them to decrease supply in-order to increase pay price, law of "demand vs supply", because the Processors and Co-ops need the excess milk for their export customers and to keep prices low for the USA consumers. It's crazy, they want dairy-farmers to keep producing milk at a loss so they can maintain their profits and customer happy.

Things will get very ugly over the next few months, any dairy-farmer left standing in the 4th quarter of 2012 will be battered and damn near broke, but they might see improved mail-box milk checks because of the hundreds (maybe thousands) of dairy-farmers that will go out of business over the next few months.

HIGH FEED COSTS & LOW MILK PRICES CONTINUE TO HURT DAIRY-FARMERS

It's been a few months since my last post (May 2011) and things have been getting worse. I realize that we did have a short run-up in Class III milk prices. But that was not high enough, nor did it stay long enough to really be much help for most dairy-farmers. The HUGE losses incurred in 2009 & 2010 for several months (16 to 18 months) were not recouped with 3 or 4 months of barely fair milk prices. IMHO.

Feed costs still remain too high and Class III milk prices still remain too low.  I'm confused by articles written lately talking about how "higher milk prices?" this year have helped dairy-farmers make a profit?!

I must be in the wrong part of the country and have the wrong kind of dairy operation to enjoy these higher milk prices and profits. My mailbox milk price is a blend of 1/3 class I, 1/3, class II/IV, and 1/3 Class III utilization in our Federal Market Order.

$400/ton whole cotton seed, $360/ton milk cow hay (average quality), most by-products in the high $250+/ton range, and baled corn stalks at $225/ton. Crazy, crazy, crazy!

I'm going to do a little research and look for Average National Cost of Production and Average Milk Price. I've seen some numbers where COP is $4/hwt higher than AMP.

Still the "same old, same old" situation for dairy

It's been more than a year since my last blog and the dairy milk price is still NOT enough to cover costs and pay back new debt incurred from the past 24 months.  All dairymen need to reduce production to help increase milk price and reduce feeding costs. 

Corn, alfalfa, and other feeds are double (200%) the cost from two years ago, BUT our mailbox milk price is only 50% higher.  Fuel is higher, freight is higher, utilities are higher, in fact ALL INPUTS are higher to produce each hundredweight of milk. Dairy is still operating in the RED, but processors are enjoying profits on almost every dairy product they sell.

Mailbox milk price should be at least $25.00/hwt to cover current feed and operating costs. However, the May Class III price on the CME is around $16.58/hwt.  $8.42 per/hwt short. If the USDA and processor don't start paying dairymen NOW for the milk, there will be hundreds of dairymen going out of business. The resulting shortage of milk has the possibility of driving prices to $35.00/hwt! Is that smart? I don't think so, it's bad for the industry and bad for the consumer.

Beware the Ides of March - Overproduction!

Nothing but bad news for Class III milk prices for the rest of 2010. Sales are slow, exports are slow, and Vilsack's Dairy Advisory Committee has yet to meet. Why all the drama? Dairy-farmers just need to reduce production 3% to 5% ASAP before the spring flush and schools let out for the summer.

I know we all need as much production as possible now to receive a bigger milk check to cover costs. But does a $12.50 net milk check with 5% OVERPRODUCTION really help us?

Let's say you ship 10,000 pounds per day @ $12.50/cwt = $1,250.00. WE ALL reduce production 5%, it's the only way it will work for all dairy-farmers in the US. Now you're shipping 9,500 pounds per day @ $14.50/cwt = $1,377.50 per day. I feel that this is a LOW estimate on the increased milk price.

Remember that the 3% to 5% overproduction cut our pay prices 30 to 50 percent over the past few years. The reverse should be true, Mar 2010 to Feb 2011 Class III future price is $14.22. A 30% increase in pay price is $4.26/cwt, added to the $14.22 current price give dairy-farmers $18.48/cwt.

This way everyone can stay in business, just milk 5% fewer cows. Don't be greedy!

Milk Prices below break-even for 2010

Anyone else disgusted by the Class III Futures Prices & Next 12-Month Averages as much as I am? Looking at the current prices compared to the 3 year average prices paid for milk is backbreaking. Feb-10 price is the only month greater than the 3 year average, but only 77 cents better.

The Jun-10 price of $13.60 is a whopping $3.20 LESS than the 3 year average of $16.80! Looks like 200,000 to 250,000 more dairy cows will need to be cull ASAP! 

If the average dairy herd size is 150 cows, that means 1,667 dairy farmers will need to exit the business! It may be a new year, but looks like the same old BELOW BREAK-EVEN pay prices for the U.S. dairy-farmers!

Dairy Cows in Morning Fog - 12-30-09

30 degrees and 80% humidity made for a foggy morning here at the dairy. Look closely on one of the photos and you can barely see the cars on Interstate 10 that runs just east of the cow pens.

Seems like the future of dairy is also foggy at the moment. There's still money being lost everyday because of low milk prices throughout the country.

It's wait and see how many more dairies go out of business over the next 90 days. Happy New Year!  :-(

You're kidding me, right?

Well the USDA finally determined how to divide the $290 million aid package to the country's dairymen. And again they used caps on the pounds of milk produced at 6 million pounds and a
payment of 32 cents per hundredweight for a maximum payment of $19,200.00 per dairy operation.

I hate the small dairy vs large dairy argument that always seems to divide our industry and does nothing to correct the real problem. Not enough money for milk to cover the costs of production, regardless of the size of the operation.

But it's programs like this that makes my blood boil at the unfairness of the USDA. If you're the right size dairyman (250 cows +/-), you're paid $19,200.00 to help the shortfall in milk prices for the past year. If you had 2,500 cows, you're paid $19,200.00, the same as the smaller dairy herd.

All dairymen (small and large) are losing a average of $100.00 per cow per month. So how does paying both the same money, fair and equal? Do you really think that the large dairy only lost money on the first 250 cows in the herd and were breaking even on the other 2,250 cows?

Yes, I know and understand that the dairy with 85 cows will only be paid $6,400.00 for their USDA share of the $290 million. But they are being paid for EVERY pound of milk they produced and were not capped on their production. The problem is that the large dairy herd is only being paid on 10% of their production.

What good is it to be helped with 32 cents per hwt after losing $5.00 per hwt for almost a year. I guess the USDA didn't want to announce a payment price of .032 cents per hwt for 100% of all milk produced. Although it would have been fair and equal to all dairymen for all their milk produced.

Quick and dirty the payments at 32 cents per hwt and 60,000 hwt cap are: (using 65 pounds per cow per day) the 85 cow dairy will be paid $6,453.20, the 250 cow dairy will be paid $18,980.00, and the 2,500 cow dairy will be paid $18,980. (remember the max payment is $19,200.00)

The large dairy has 29 times the loss of the 85 cow dairy, and 10 times the loss of the 250 cow dairy.

However, the 2,500 cow dairy only receives 2.9 times more money than the 85 cow dairy, and receives the same money as the 250 cow dairy.

Fair and equal treatment, YOU'RE KIDDING ME, RIGHT?