January 20, 2011

 

Another year of modest upturn seen for US dairy industry

 

 

US dairy farmers can expect 2011 to be a second straight year of modest growth, according to a report released Wednesday (Jan 19) that offers a small dose of optimism to a sector still recuperating from a devastating 2009.

 

Feed costs for dairy cows will be higher for at least the first half of 2011, but increased milk demand will help drive sales and revenue, according to the report by Wisconsin researchers. Wisconsin is the No. 2 milk producer in the nation behind California.

 

"I think 2011 could be a good-enough year" for milk prices, said Mark Stephenson, a dairy expert at the University of Wisconsin-Madison. "I think 2010 was a treading-water sort of year. There was a lot of equity lost on dairy farms across the country in 2009. It would take much better prices to make up for that," he added.

 

The average dairy farmer needs to earn about US$16 per 100 pounds of milk to break even. Prices languished at US$12 in 2009, their lowest point in seven years.

 

The market began to turn around in 2010, and US dairy farmers earned an average of US$16.30. However, the return to profitability meant little to many dairy farmers who were still struggling under a mountain of debt.

 

However, as US sales and a sagging export market began to recover in early 2010, dairy farmers went in the other direction. They began to maximise milk production to help recover their substantial 2009 losses.

 

The dairy industry ended up producing an estimated 192.7 billion pounds of milk in 2010, a 1.8% increase over the previous year. This year's production is expected to be 194.4 billion pounds.

 

The Wisconsin report said milk prices could continue to edge upward this year, but that this would not translate into significant profits for farmers, at least not early on, because of a spike in the price of corn used to feed dairy cows.

 

Jim Ostrom, a partner with Rosendale Dairy in eastern Wisconsin, said corn that cost US$3-$4 last year now costs US$6.50.

 

The increase is likely to take more of a toll on the West coast producers who buy most of their feed. Dairy farmers in the Midwest tend to grow more of their own feed, insulating them from price swings in feed costs.

 

A stable 2011 is good news for the dairy industry in more ways than one. Not only does it help producers regain financial stability but it also protects them in the event that congressional wrangling over federal budgets causes access to federal subsidies to dry up.

 

US Agriculture Secretary Tom Vilsack signaled recently that cutbacks are likely as the aftermath of the Great Recession pushes US government deficits to levels last seen during World War II.

 

One proposed alternative is a government-subsidised programme that would provide assistance when feed prices exceed the price of milk. Early analyses suggest the programme would help the government save money even while protecting dairy farmers from major price swings, he said.