Farm Horizons, May 2009
Low milk prices; farmers still hopeful
By Starrla Cray
“It’s like going to work with a 50 percent pay cut,” dairy farmer Charles Krause said of the falling milk prices.
With average fluid milk prices in Minnesota down from $19.35 per hundredweight in 2007 to $12.90 in 2009, many local farmers are below their profit margin.
“This whole year is going to be a loss,” said Krause, of rural Buffalo.
Alan Otto of Lester Prairie, who milks 54 cows with his brother, Steve, said they are putting all projects on hold.
“I think we got a tough month ahead of us,” he said. “I guess we could see it coming, but I didn’t see it dropping that much.”
In 2002, the fluid milk price was also low, averaging $12.14 cwt in Minnesota, according to the University of Wisconsin Dairy Marketing and Risk Management Program web site.
“I’ve been through it so many times,” Bongards’ Creamery board member Charles Mathews said. “I don’t let it bother me too much anymore. That’s just the way the market works.”
“In the past, feed prices haven’t been as high, though,” Otto said. “It’s kind of a double blow.”
“Every cow you have is costing you to have it,” Waverly dairy farmer Dan Glessing said.
Fertilizer costs have also risen. According to an article from the Midwest Ag Journal, University of Minnesota soil scientist Gyles Randall said it will cost about $28 per acre, per year to put nitrogen on in the fall, and $48 per acre per year for spring application.
“Fertilizer costs are 30 percent higher than last year,” Krause said. “Fuel has come back down, thankfully. Every little thing adds up.”
One reason for the dropping milk prices is the strong US dollar.
“The problem right now is that it’s cheaper to import than to buy domestically,” Krause said. “A weak US dollar actually helps the farmer.”
In New Zealand, a large portion of its milk production is exported. “They are probably our biggest competition,” Krause said.
Milk futures prices are set on the Chicago Mercantile Exchange, which makes prices more volatile, Waverly dairy farmer Greg Bakeberg said.
“It’s like trading stocks in a company,” he said. “The great price fluctuation makes it more difficult.”
“It’s more about supply and demand than ever,” his brother George Bakeberg said, who milks 95 cows in rural Waverly.
To decrease the milk supply, massive culling (slaughtering surplus animals) is taking place in the western states, Krause said.
“That’s one thing that will help us in the long run,” he said.
In addition to the falling milk prices, the selling price for cattle has also dropped, but many farmers are selling anyway.
“If they don’t pay for their feed prices, why keep them around?” Krause said. “Cows can’t be turned on and off like an assemble line.”
It makes it tough for farmers who are getting out of the industry, he added.
“Every downturn, some farmers are forced to quit,” Dennis Butterfass, who milks 110 cows in rural Howard Lake, said. “It’s a sad reality.”
“Your whole net worth slips,” dairy farmer Gene Lambert of Buffalo said, adding that many farmers can’t afford to buy new equipment, maintain buildings, or make repairs.
“Any young guys who just got started, good luck,” Lambert said.
“Hopefully it’ll be short term so we can live through it,” Butterfass said.
For farmers who have the money, now is a good time to purchase animals or start a project, said Glessing, who is Wright County’s ADA chairman.
“With the downturn in the economy, construction companies are looking for projects,” he said. “That’s another positive. Beyond that, there’s not much.”
However, most farmers are still recovering from the previous drop in milk prices, Glessing said.
“I think there’s a misconception that farmers are loaded with cash,” he said. “Gross income is high, but net isn’t nearly what we’d like it to be for the amount of inputs.”
Despite the drop in income for farmers, retail milk prices haven’t fallen as much as they should have, Otto said.
“It’s way too high for what we’re getting,” he said. According to the University of Wisconsin Dairy Marketing and Risk Management Program web site, the US retail price of fresh whole milk averaged $3.50 per gallon in 2007. So far in 2009, the average has been $3.45 per gallon.
Local farmers are hopeful that the price they are receiving for milk will go up soon.
“In the coming months, it should stabilize,” Rep. Ron Shimanski of rural Silver Lake said.
The futures markets are predicting it may be as high as $16 per hundredweight for fall, said George Bakeberg, who is vice chairman on the Bongard’s board of directors. “It’s on its way up.”
In order for prices to go up, there will need to be a turn in the economy and a decrease in milk supply, Krause said.
“The milk price went kind of hand-in-hand with the drop in the stock market,” Mathews, who farms south of Lester Prairie, said. “When the economy is bad, everything follows suit.”
No matter how low the milk prices go, “dairy farming’s still seven days a week,” Otto said.
“As far as the low prices,” Glessing said. “You just hope you can weather the storm.”