Despite lower feed and energy costs, dairy farm losses mount

Now that the tax filing season is complete, farm accounting reports are beginning to be compiled and distributed to the dairy world. Those reports only quantify what we already know, 2009's losses were much higher than the previous year.

One of the early reports published was completed by Frazier and Frost, a certified public accounting firm. Their clients in California, Arizona, Idaho, New Mexico, and the Texas Panhandle produce over 4.2 billion pounds of milk with some 231,000 cows . . . that's about 3 percent of the U.S. market.

California's San Joaquin Valley dairy farms were hit the hardest with losses of $962 per cow in 2009. At $585 per head, New Mexico farms lost the least amount of money for those tracked by the accounting firm. Losses for their dairy farm clients went up between $426 in Southern California to $1,284 per head in Idaho, compared to the previous year. The average was $860 for the five states. On a per-hundredweight basis, losses ranged from San Joaquin's $4.43 per 100 pounds of shipped milk to New Mexico's $3.05.

Feed costs actually fell for all regions except the Texas Panhandle where feed costs rose $276 over 2008. Among all regions, feed prices fell $476 in Southern California; $244 in Kern County; $156 in New Mexico; $143 in the San Joaquin Valley; $125 in Arizona; and $41 in Idaho.

As a result of negative cash flows, milk production fell in most regions, compared to a year earlier: 4.9 pounds in Southern California; 1.6 pounds in Idaho; 1 pound in California's Kern County; 0.5 pound in the San Joaquin Valley, and 0.3 pound in New Mexico. Milk production went up 1.3 pounds in Arizona and 1.9 pounds in the Texas Panhandle.

Low pay prices also directly impacted replacement prices. The actual 2009 replacement prices (with the drop from the previous year's price in parenthesis) are: Kern County, $1,505 ($295); Southern California, $1,490 ($860); Texas Panhandle, $1,448 ($377); New Mexico $1,378, ($225); Arizona, $1,377 ($810); San Joaquin Valley, $1,330 ($517); and Idaho, $1,290 ($365).

USDA provides first forecasts for 2010

Early looks at what’s ahead on both the income and expense sides of the business were provided by yesterday’s USDA publication, World Agricultural Supply and Demand Estimates-WASDE-470. It’s a 40-pager, but the first five pages have enough meat and potatoes for most of us.

Milk production is expected to decline in 2010 because of the problems our industry is experiencing this year. Cow numbers will go down with only slight gains in milk per cow. The All-Milk price forecast is $14.70 to $15.70 per hundredweight, compared to an expected $11.85 to $12.35 this year.

Cattle prices are expected to be higher in 2010 due to tighter supplies and improved demand both here and abroad.

USDA projects feed grain and oilseed prices will remain relatively high in the year ahead. The agency estimates the price of this year’s corn crop will be around $4.10 a bushel, plus or minus about 40 cents. That’s a far cry from the $7.50 corn we saw last year, but it still is well above traditional corn prices.

Soybean prices, USDA projects, could be in the $9.45-a-bushel area, plus or minus $1. Soybean meal prices are expected to be around $290 a ton, plus or minus $30.

Corn planting has been slow. As of last Friday, 48 percent of corn had been planted, compared to a five-year average of 71. Beans were only 14 percent in, compared to typical 25 percent on that date. Corn planting is behind the most in the eastern Corn Belt. Continued wet weather could shift more acres to soybeans as happened last year, further tightening supplies of corn.

It's all about the economy at National Dairy Leaders Conference

The dairy economy – surviving the current downturn and preparing for what could be a much different financial environment that follows – dominated discussion at the 2009 National Dairy Leaders Conference April 20 and 21 near Denver, Colo.

An audience of some 200 dairy producers, co-op leaders, regulators, and educators was told that the current crisis is more than just another up-down cycle, due to the global recession that triggered it. As a result, economic forecasters generally see a gradual, subdued rebound rather than a quick snapback.

Terry Barr, chief economist for the National Council of Farmer Cooperatives in Washington, D.C., (pictured here) sees financial recovery beginning this summer and modest gains continuing throughout 2010. He warned, though, that consumers could remain cautious about spending for years, and the acceptable degree of debt and leverage has already changed for everyone, including farmers.

For the long term, however, his outlook for U.S. agriculture is positive. “The fundamental fact to remember is that the world will still be resource challenged, and demand for food will continue to exceed supply,” he said.

Marv Hoekema, a dairy financial consultant from Visalia, Calif., said he already sees signs of recovery in the form of tremendously slowing Commodity Credit Corporation purchases and declining inventories of manufactured dairy products. He sees recovery of cheese prices beginning this summer, driven in large part by declines in production per cow. However, he agrees that recovery will be slow and profitability may not return until 2010. He sees Class III milk prices rising above $15 per hundredweight only occasionally during 2009.