Dairy farmers: Feed costs squeezing profits

After a few months of good milk prices, dairy farmers say they are again seeing their profit margins drop, but forecasts indicate rising milk prices later in 2011.

In 2009, milk prices were low and feed costs high, meaning dairies lost money. Roosevelt County dairy owner Alan Anderson said dairies came back a little this year, due to better milk prices, but high feed costs are bringing down profit margins.

“Milk prices are going down as we speak,” Anderson also said.

He received $16.48 per 100 pounds of milk from November, but prices are projected to be $13.78 per hundred-weight for December milk and $13.11 for January milk.

Because of increased feed costs, Anderson said, the break-even price for dairies is higher than last year by at least a couple of dollars.

“And that’s really the killer this year,” he said.

Walter Bradley of the Dairy Farmers of America Clovis office said the payment for milk produced in November is at or a little above the break-even point. Prices forecasted for the next two month’s milk are below that point.

Bradley said corn closed at $5.80 per bushel Wednesday, about $1.80 per bushel higher than a year ago.

Anderson said the costs of other agricultural commodities, some of which are used for feed, follow the corn price.

Members of the dairy industry cite ethanol subsidies, the U.S. Department of Agriculture’s overestimation of the size of the corn crop and drought in other countries, particularly Russia, as the driving factors in high feed costs.

Local dairy owner Alva Carter Jr. said the feed market was built on the Department of Agriculture’s estimate. When the market had to adjust to a smaller crop in October, it became “scared” and prices increased.

As for ethanol subsidies, Carter said the ethanol industry gets about $1.40 from the government for every gallon of ethanol it produces. That payments lead the industry to buy more corn, raising the price.

Also, Bradley said with other nations experiencing drought, they’re buying the corn they couldn’t produce, thus driving prices up even more.

Bradley said the weak economy, and its effects on consumers’ pocketbooks, is driving down milk prices.

“Consumption is flat; it’s not growing,” he said.

On a more optimistic note, Bradley said prices at the Global Dairy Trade Event on Wednesday gave a positive indication for upcoming markets. The goods traded were mainly butter and milk powders, and all prices except that for buttermilk powder went up from the last sale.

“(Milk) prices have got to move upward, and today’s global trade indicates that it will, but not for a few months,” Bradley said.