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Decline in milk prices forces farmers to buckle down


Lower milk prices at the grocery store might make consumers happy, but they are putting a crimp in the finances of local dairy farmers.

The average national price of milk at the grocery store has dropped 60 cents per gallon since the beginning of 2015, according to the U.S. Bureau of Labor Statistics.

But lower prices for consumers have consequences for those at the other end of the supply chain, and local farmers are feeling the effects of a volatile dairy market.

“When the price has dropped as much as it has this last year, and we’re getting only two-thirds of what we used to be getting paid, then, yes, that’s a concern,” said Doug Rebout, a partner at Roger Rebout and Sons Farm west of Janesville.

Wisconsin dairy farmers received an average price of $14.70 per hundredweight (about 12 gallons) of milk in May, the most recent month for which data is available from the U.S. Department of Agriculture. That was 90 cents lower than April’s average price and the lowest monthly price in the state since March 2010.

The recent price drop is the result of simple economics: higher supply, lower demand, said UW-Madison Director of Dairy Policy Analysis Mark Stephenson.

Struggling economies overseas have led to a decline in dairy exports. Demand in the United States has held steady, but a weakened global dairy market has driven prices down for local farmers, Stephenson said.

Meanwhile, new technology has dramatically increased the milk production of each cow. That has put surplus dairy products in storage, but Stephenson noted that supply growth has been fairly modest.

Weather-related events, short-term increases in foreign milk production and other relatively small changes in supply and demand can lead to big fluctuations in local prices, Stephenson said. He called such sharp increases and decreases “the new normal.”

“There’s much more volatility in the dairy industry than we’ve seen historically,” he said. “I think this is to be expected in the years ahead.”

Stephenson believes the milk market has already bottomed out and that prices will start to rebound soon. Similar price fluctuations in recent years may have prepared farmers for downturns such as this one, he said.

For now, dairy farmers are buckling down and spending less.

“In the farming industry where we have no control over our prices, we get used to it,” said Rebout, whose farm owns 170 cows. “Prices go up, and prices go down. Farmers have to deal with that fluctuation and keep going no matter what.”

Other businesses indirectly associated with dairy farming have noticed the effects of declining milk prices on local farmers. Amber Keller, an agricultural loan officer at Town Bank, said more farmers are taking out loans to cover operational costs such as buying feed and paying workers.

Farmers have been reluctant to expand their facilities and purchase new equipment, said Shane Olson, a capital equipment sales manager at Tri County Dairy Supply in Janesville. Maintenance and contracts signed last fall have helped sustain business, but new sales have slowed, he said.

Olson has grown accustomed to changes in milk prices, however.

“We’ve seen this roller coaster before,” he said. “It won’t be long, but we just have to wait it out.”

Argall Dairy Systems in Belleville has been more aggressive with smaller repairs and upgrading existing equipment, President Scott Argall said. While a decline in major purchases has affected the company’s bottom line, Argall said this is how it’s always been and that business would eventually improve.

Despite the drop in milk prices, Wisconsin remains a healthy dairy production state with high-quality products, Stephenson said. He noted that Wisconsin farmers were still receiving prices higher than the national average.

He believes farmers will persevere through this recent slump.

“Farms are generally in pretty good financial health,” Stephenson said. “If the downturn is not too deep and it doesn’t last too long, then farms will get through that.”

Source: GazetteExtra


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