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Dairy prices on the rise, outlook good

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Posted on April 21, 2011 |
By Andrea Suozzo



ADDISON COUNTY — After two years of rock bottom prices, business is looking up for many Vermont dairy farmers.

Cornwall dairy farmer John Roberts, who with his wife Lisa milk 200 cows at Butterwick Farm, said that this week his milk pulled in $23.19 per hundredweight (cwt) — more than double what it was fetching just two years ago, in 2009.

“It’s a big step forward,” he said.

Roberts milks mostly Brown Swiss cows, which give higher than average protein and milkfat components, so his milk gets a premium price. Nationwide, however, most dairy farmers are breathing a sigh of relief as worldwide demand for conventional milk rises again, bringing prices to an average of $20 per cwt.

But that’s not to say business is stellar, said Bob Wellington, a dairy economist for the Massachussetts-based Agri-Mark dairy cooperative.

“It’s good from a pricing standpoint,” said Wellington. “The problem is that the cost of producing the milk is rising, too.”

Roberts said that feed can run a farmer about one third of total farm expenses, and that he spends about $1,000 each month on diesel fuel to power the machinery, a cost that is likely to rise in the coming months.

And after the past two years, a break-even year just won’t be good enough for dairy farmers who are already tapped out.

Still, Wellington said milk prices are forecasted to increase to at least $21 per cwt by his conservative estimate. Despite rising grain and diesel prices, this should mean a comparatively successful year for most dairy farmers, especially those who grow their own feed.

“Farmers lost money in 2009, and 2010 was a break even year,” he said. “This year, probably most farms will cover their costs.”

Vermont now has 1,005 dairy farms, according to the Vermont Agency of Agriculture. That number represents nearly 100 fewer farms than the 1,097 in business in early 2008.

Roberts said that after the past two years, dairy farmers are aware of the tenuous balance that allows the dairy industry to stay profitable — a balance that they cannot control. And since those still in business have already pared their businesses down to the most essential mechanisms, another price collapse would leave many fumbling for alternatives.

“There aren’t many easy ways to cut back — it’s not like we’re joyriding around with our tractors,” he said. “If there’s another collapse as bad as the one we had, that will probably be even more devastating. Most farmers are pretty well tapped out on their reserves.”

Roberts, like many farmers, took on debt over the past two years in order to stay afloat, and the loan repayments create additional pressures. Unlike a loan that finances infrastructure improvements or creates efficiencies, the money is a stopgap measure.

“It’s increased debt that we took on that produced nothing except the ability to keep doing what we’re doing,” said Roberts.

A WORLDWIDE MARKET

Wellington said the real driver for milk prices is international, and rising demand is primarily fueled by the growing middle class population in Southeast Asia. Up until 2009, about 13 percent of American milk went overseas in the form of butter, dried milk and other processed dairy products. During the international recession, that percentage dropped to 8 percent, then down to 5 percent.

“Suddenly there were 10 billion pounds of milk that didn’t have a market,” said Wellington.

Since dairy farmers across the nation were producing at such a high capacity, the price of milk plummeted and stayed low.

Now, international milk exports are back up to 13 percent, and Wellington said it will likely rise, keeping demand — and the price paid to farmers — relatively high.

“Generally, things are very positive relative to price at least for the next year or two,” he said.

He said that the high overseas demand will mean there is less milk available for cheese-making in the United States, which will mean that the cheese plants will likely be offering higher prices for milk as well — another piece of good news for dairy farmers.

Wellington said that a rise in the price paid to the farmer doesn’t necessarily equate to a rise in the price of milk on supermarket shelves.

“It depends on how the middle man passes (the price) along,” he said. “Customers don’t like to see dramatically rising prices.”

By the same token, when the price of milk collapsed in 2009, the consumer price didn’t change significantly. But he said that with the recent rise in bulk milk prices, consumers are starting to see higher milk prices in many areas.

A CALL FOR CHANGE

Chris Galen, senior vice president of the National Milk Producers Federation, said that high milk prices don’t necessarily ensure a sustainable milk price for farmers because they do not take into account the price of production. His organization is working to craft a piece of federal legislation that would, if passed, change the way dairy prices are regulated and create pricing incentives for farmers who cut back on milk production.

“This plan would provide a coverage for not just poor milk prices, but for poor margins,” he said.

NMPF hopes to find sponsors in congress to introduce the proposal as a bill this spring. Roberts said he will be watching as it develops. Until then, he is gearing up for the spring planting season and hoping that yields will be high this year for some shelter from high feed prices.

In some more good news, Wellington said prices for bulk milk are likely to continue rising over the next two years. He said he would not be surprised if prices hit $22 or $23 per cwt.

“Farmers need that if they’re going to stay in business,” he said.

“I think we have a next generation that would very much like to be farmers,” said Wellington. “But dairy farming is hard work — you have to compensate them fairly.”

Reporter Andrea Suozzo is at andreas@addisonindependent.com.

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