Ag economists and producers alike recognize that milk prices are falling, but most aren’t concerned – yet.
“We have several professionals who predict that in the next couple of months prices could fall farther,” said Kristine Ely of the Walworth County Extension Office.
“One cannot just look at the income,” said Brian Gould, UW-Madison professor of agriculture and applied economics. “You have to look at both sides of the equation.”
He noted that corn is down from $7 to around $3.75, which counterbalances some of the decline in milk prices.
“Just because milk prices are going down, it doesn’t mean the margins are going down,” Gould said. “We’re focusing more on the margins.”
Mark Stephenson, director of Dairy Policy Analysis at UW-Madison, agrees the margin is the important figure.
“I think the thing that we can comfort ourselves with is that feed prices are still going to remain quite a bit lower than they have been in previous years,” Stephenson said. “The margins that we are looking at for farms are back in the normal range; they aren’t extraordinarily high like they were last year.”
One of the reasons for lower prices being paid, according to Stephenson, is an increase in production in New Zealand and Europe. He said China bought a lot of milk early last year and stepped out of the market, contributing to declining prices. He believes once the Chinese inventories are consumed, it will be back in the marketplace, buying large commitments of dairy product.
Gould doesn’t believe the outlook is terribly bleak, rather producers just need to be aware of fluctuations and spend a little more conservatively than they might have in 2014.
Lake Geneva dairyman Bill Leonard of William J. Leonard & Sons Inc. said his monthly milk check hasn’t taken much of a hit yet. Leonard and his family milk about 120 Holsteins and till about 380 acres.
“The past few years have been good and we’ve had good cash flow,” Leonard said. “So far, we’re not making any major changes or cutbacks. We just have to be smart about buying and selling equipment and cows.”
Stephenson said lower milk prices often lead to more aggressive culling of the herd.
“It’s going to be important for us to look within the herd. Maybe we need to think about culling the herd a little more heavily,” Stephenson said.
Leonard agreed those decisions are a little easier when a cow isn’t producing as well.
Another safety net is the Farm Bill’s Margin Protection Program.
Explained in simple terms, Stephenson said, “The Margin Protection Program is a program that’s going to measure the difference between the U.S. all milk price and a ration value to feed the cow.
And when that margin falls to too low a level, it’s like an insurance policy.
“Dairy farmers can protect themselves up to a certain level; if we fall below that level they would receive payments, dollar-for-dollar payments between what the level was and what level they protected themselves against.”
Leonard said he signed up at the lowest level of protection.
Stephenson said Wisconsin farmers are cautious, but many are enrolling, while producers in other regions don’t see the value in the program yet.
By Debbie Behrends
Source: Agri-View
