The rapid decline of milk prices in recent months has drained returns on dairy farms and created quite a challenge for farmers.
Dan Ziller, a dairy farmer from Huntley and president of the McHenry County Farm Bureau, said negative margins have impacted plans to build a new facility on his family farm.
“We (he and his wife, Carol) have kids working to take over the farm,” Ziller told FarmWeek. “They still want to continue with it, but to see a swing like this makes it very hard to plan.”
USDA reduced its price estimates this month to $16.05 per hundredweight for Class III milk and $18.20 for Class IV, down $5.91 and $6.27, respectively, from last year. Ziller reported his local milk price is closer to $14 for July, which puts the operation in the red.
USDA attributed the drop in Class III milk prices to weaker cheese and whey prices while the decline of Class IV prices reflects lower nonfat dry milk prices.
“What a difference a year makes,” Ziller said. “Our operation is labor intensive, so we’re way below our cost of production with where prices are now. We need prices near $19 to $20.”
The Zillers are enrolled in USDA’s Dairy Margin Protection Program through the Farm Service Agency (FSA). But it hasn’t entirely stopped the recent financial bleeding.
“We are fortunately in the FSA dairy program,” Ziller said. “It helps, but it’s not enough to make up the difference.”
The Zillers’ daughter, Meredith, plans to take over management of the dairy herd while their son, David, looks to take over crop and feed production on the farm.
“We’re trying to build a new facility,” Ziller noted. “It remains in the planning process. We’re adjusting to figure out where we can cut costs.”
Retired dairy farmer Tom Doolittle of Antioch, president of the Lake County Farm Bureau, said he exited the business years ago when his equipment and facilities became outdated.
He’s concerned for current dairy farmers as recent margins are unsustainable.
“When I came back to farm full time with my father in 1969, there were quite a few dairies,” Doolittle said. “But, here in Lake County, urbanization continues. We have one dairy left in the county.”
Lake County had about 125,000 acres in production ag when Doolittle first started farming. Now, there’s about 25,000 farm acres left in the county as most was swallowed up by urban sprawl, he noted.
Current milk prices are “terrible for this day and age,” Doolittle said. “And, with feed prices so high, it just kills the income for a small dairy farm.”
Timing of the recent milk price decline also adds insult to injury as rising temperatures in the summer typically fuel a rally with higher demand and reduced production.
David Anderson, Texas A&M AgriLife Extension economist, said the lack of a summer price bump could be attributed to a few factors. U.S. dairy production is up, but overall demand is struggling, which created a glut of milk in some areas.
“The milk market is complex, so that makes it interesting,” Anderson said. “There is a seasonality to the supply side and the demand side that keeps the market constantly moving.”
The next usual boosts in dairy demand are coming up in August, when school returns to session and drives built-in demand for carton milk, followed by the holidays when consumers typically increase their use of cheese, milk and other dairy products for baking.
“Milk and feed futures suggest producer profitability should improve considerably by October when Class III milk prices are anticipated to increase by about $3 (per hundredweight),” CoBank’s Knowledge Exchange noted in a recent report.
But for the time being, there doesn’t appear to be much relief in sight for dairy farmers.
“U.S. milk producers continue to struggle in the current price environment,” according to the CoBank report. “While several factors are to blame for this year’s milk price decline, the sharp drop in American/cheddar-style cheese prices (which declined by a third) is the most significant.”
Source: farmweeknow.com
