Best performing herds "only" losing purchased feed costs

Whenever the milk-to-feed ratio gets above 3, there is a strong incentive to produce more milk. That was the case in the second half of 2007 when Michigan dairy producers had a $10.66 margin of income over feed costs, reports Chris Wolf, Michigan State University ag economist. Similar profit conditions prevailed throughout the U.S. in 2007. In fact, 2007 represented the best margin ever when not adjusting for inflation.

What followed in just less than a year were all-time low milk-to-feed ratios, ranging below a 1.6 ratio throughout the first half of 2009, reports Wolf. At this time, all dairy farms are suffering great financial stress. The farms that are surviving right now used their money wisely through the good milk price years. “The best performing herds are simply losing their purchase feed costs right now,” says Wolf. “Others are faring much more poorly.” Shown in the table are actual expense and revenue numbers for Michigan farmers this decade. (Click on the above image to ENLARGE it.)

As many know, the 2008 export market (which peaked at 11 percent of all U.S. production) was an all-time record. This helped underpin 2008 milk prices. “Currently, we are exporting half of what we did in 2008 which is causing inventories to build,” notes Wolf. Right now, cheese stocks are over 100,000 pounds over the same time last year. “Unfortunately, the holiday cheese orders are done,” says Wolf. “I believe these high inventories may cause spring futures on the Chicago Mercantile Exchange to retreat slightly due to heavy cheese inventories.”

Financial losses keep mounting

Numbers printed in the latest Dairy Farm Operating Trends by accounting firm Moore, Stephens, Wurth, Frazer, and Torbet simply put in red and white what dairy producers nationwide have known for some time . . . it's a financial storm out there. In the first six months of 2009, dairy producers throughout California, Arizona, Idaho, New Mexico, and the Texas Panhandle lost between $429 and $677 per cow. New Mexico was on the low end of the losses while Idaho and parts of California were in the $600 range.

When looking at profits and losses per hundredweight basis (cwt) or the cost to produce roughly 11.6 gallons of milk . . . west coast farms were losing between $4.37 and $6.43 for every 100 pounds leaving the farm. Specific losses were $4.37 in Arizona; $4.38 in New Mexico; $4.73 in Southern California; $5.06 in the Texas Panhandle; $5.38 in Kern County, California; $6.03 in California's San Joaquin Valley; and $6.43 in Idaho. The data used to compile this information is based on herds with a combined production of over 1.7 billion pounds and more than 164,000 head of mature cows.

California dairy producers losing over $8 per cwt

Rising costs and falling prices continue to wreak havoc on dairy producers across the country. The situation may be the worst on the west coast based on numbers just released by the California Department of Food and Agriculture.

During the first six months of this year, the average price paid to California dairy producers was $10.47, while it cost $18.51 to produce milk during the first three months of the year. That spread yields an $8.04 loss for every 100 pounds of milk leaving the farm. High feed costs have been depressing margins for some time. Even with last year's substantially higher milk prices, the profit margin was only 16 cents due to high feed prices which pushed production costs to $17.31.

While all costs have been rising, it has been feed costs that have risen the most, moving from $6.48 during the first quarter of 2005 to $9.82 this spring. As CDFA points out, comparing the first quarter of 2005 with 2009, grains, minerals, and supplements costs per ton increased 56 percent. Meanwhile, dairy-quality alfalfa hay rose 63 percent per ton.

2008's high feed costs eroded any profit in California

Near record mailbox prices for milk were not enough to prevent many California dairyman from losing money last year. Keep in mind these losses occurred prior to the current downward trend in milk prices.

In recently tabulated financial data by the accounting firm Moore, Stephens, Wurth, Frazer, and Torbet, they reported that dairy farms in Southern California were hit the hardest with feed costs rising $467 over the previous year to reach a total of $2,178 per head. That resulted in a net loss of $333 per head or $1.64 for every 100 pounds of milk (cwt.)

Feed costs ran equally as strong in Kern County at $2,114 per head, up $550 compared to 2007. However, financial losses were not near as bad, reaching $45 per head or 20 cents per cwt.

In the San Joaquin Valley, the heart of California's dairy industry, feed costs were only up $350 compared to the previous year's $1,700. However, the losses were higher than those in Kern County, reaching $152 per head or 65 cents per cwt.

Feed costs were up between $231 and $367 in other states where the accounting firm does business. However, dairies in Arizona, Idaho, New Mexico, and the Texas Panhandle had profits ranging from Arizona's $86 to Idaho's $351 per head.

Organic dairy farms feeling pressure

Rock-bottom milk prices and high costs are hurting dairy farms of all types and sizes across the nation. The financial blow to organic dairy operations may be especially severe, according to a recent USDA analysis.

The May 19, 2009, Livestock, Dairy, & Poultry Outlook focused on the three states with the highest number of organic farms, according to Census Bureau figures . . . Wisconsin (433), New York (301), and Vermont (182). The report estimates that organic dairy farms have operating costs that are $5 to $7 per hundredweight higher than conventional farms. The March 2009 USDA monthly cost figures for conventional farms in Wisconsin, New York, and Vermont were $21.54, $26.55, and $24.94, respectively. In April, the average organic pay price in the Northeast was thought to average $27.43, according to the Northeast Organic Dairy Farmers Association.

Therefore, the New York and Vermont organic operations were losing about $4 and $5 per hundredweight, respectively. Wisconsin organic dairy farms were thought to be losing $3 per hundredweight. These numbers are based on USDA’s total cost of producing milk.

Softening demand for organic dairy products has compounded the problem. The contracts of 10 of Maine’s 65 organic dairies were not renewed this spring, according to the New York Times. Sales of reduced-fat organic milk in February were 15 percent lower than a year earlier, according to USDA data.