Milk prices going sour
Falling milk prices are creating a tight situation for Rock County farmers. Kyle Geissler reports.
By the numbers
Dairy farmers are selling milk for about half of what they did a year ago.
How does that break down in Rock County?
According to the United States Department of Agriculture, Rock County had 12,400 cows in 2007. Those cows produced 2.48 million gallons of milk per month.
-- On a 100-cow dairy, the average size in Rock County:
Monthly milk sales in December 2007: $32,960
Monthly milk sales in January 2009: $17,120
Monthly milk sales in December 2007: $4.09 million
Monthly milk sales in January 2009: $2.12 million
They are the same cows.
It's the same milk.
But farmers are selling milk for half of what they were a year ago.
The U.S. Department of Agriculture just released the January price for Class III milk: $10.78 per 100 pounds, which is 12.5 gallons.
That compares to $15.28 in December and $20.60 in December 2007.
"This will be a kick in the gut to farmers," who will get their January milk checks in the next few weeks, said Rene Johnson, ag lender with M&I Bank, Janesville.
The slide looks to continue in the short term.
Class III milk February futures were trading at $9.34 per 100 pounds at the Chicago Mercantile Exchange on Wednesday morning.
Class III milk is the kind that's made into cheese. About 85 percent of the milk produced locally is Class III, Johnson said.
Granted, that $20 milk price a year ago was high, Janesville dairy producer Steve Broege said. But that makes the sudden drop even harder to bear, he said.
"We were very spoiled last year with good prices," Broege said. "It's really hitting hard."
Not only have milk prices dropped to half of what they were last year, they have dropped below what farmers need to cover expenses, Johnson said.
M&I Bank's lending department uses $16 as the minimum milk price for a dairy farm to maintain its cash flow, ag lender Jim Raymond said. That's typically enough to cover costs such as equipment, feed, fuel and bank loans, he said.
One place with a little wiggle room might be the feed bunk, Broege said. Think of the way shoppers try to cut costs at the store by buying cheaper cereal or cuts of meat, for example.
Farmers will be just as conservative when they buy feed, Broege said. He and his brothers, Gary and Paul, milk 350 cows on their farm south of Janesville. Dairy is 75 percent of their business, and the rest is cash crops, Broege said.
"We're not going to be spending any money we don't have to," he said.
That's a tall order because dairy farms have streamlined as much as they can, Johnson said.
"The guys that are left are really good managers," Johnson said.
They will have to be. Feed and other costs don't get cheaper just because milk does, Broege said.
"We buy hay from out west," Broege said. "They're not going to lower their price in half because we're making half the money."
Nor can dairy farmers wait long for prices to improve, Johnson said. Unlike grain, milk can't be stored for years on the farm.
"Dairy farmers are price takers. They take the price that is given them," Johnson said.
One reason for the plunge in prices is slow demand, Raymond said.
Shoppers might notice that the price of a gallon of milk hasn't been sliced in half. In the fourth quarter of 2007, a gallon of whole milk cost $3.40, according to the Wisconsin Farm Bureau Market Basket Survey.
At Woodman's on Wednesday, a gallon of whole milk cost $2.73 or $3.25, depending on the brand.
In 2006, the same gallon was $2.67, according to the Market Basket Survey.
"If it doesn't come down in the stores, it doesn't create more demand," Raymond said. "A little change in eating pattern makes a huge difference."
Things could start to look up in September, when Class III milk prices are predicted to hit $14.55 in Chicago. Add to that a $1.50 quality premium—farmers get paid a bonus for high butterfat and protein content, Johnson said.
At that point, farmers could start making the $16 price they need to break even, Johnson said.
In the meantime, farmers have to just keep doing what they do, Broege said.
"We've been through tough times before," Broege said. "We've made it before. You've just got to keep the faith."