Thursday, September 3, 2009

Just in from Washington

Vermeer dairy--Jake Putnam photo
Dairy prices still flat

Washington--Despite all the talk last spring that dairy prices might begin to recover by mid-year, milk producers continue to receive the smallest milk checks they’ve seen since a quarter century ago.

Spot prices in July for the different classes of milk ranged from $9.97 per 100 pounds for Class III milk—the kind used to make most cheeses—to $10.87 for Class II milk—the kind used for soft products like ice cream and yogurt. Class IV milk—used for nonfat dry milk—was $10.15 per hundredweight in July. That compares to an average all-milk price range of $17-$18 one year ago.

Iowa Farm Bureau President Craig Lang says the break-even price on his dairy farm is around
$14 per hundred weight. He testified July 28 at a House Agriculture Committee hearing about
the dairy crisis.

“Because of the historically low milk price, we have almost depleted all the cash we put away
over the previous two years when the price was considerably higher,” he said. “We are now
using a bank line of credit to help pay for daily operations.”

Prices won’t improve much until milk production declines, says Allison Specht, American Farm
Bureau Federation dairy economist. “A supply decrease means that cows have to permanently
leave the market,” she said. There were 115,000 fewer dairy cows this July than in July 2008,
according to USDA, representing about a 1 percent reduction in the U.S. herd. AFBF economists
believe another 3 percent reduction is needed. Meanwhile, milk production was up 0.1 percent in July from a year ago.

It seems the mild weather that most of us enjoyed through midsummer was good for cows, too. Specht calls this is “double-edged sword” for producers. Also, she says some producers seem to be waiting to see if their neighbors will be the ones to throw in the towel.

“They hope the guy down the road will be accepted into the CWT,” she says, referring to the private, voluntary herd retirement program run by the National Milk Producers Federation. In the meantime, Milk Income Loss Contract (MILC) payments are helping smaller herd owners scrape by. Large operations have pretty much maxed out their MILC payments, Specht says.

Policy options that are being discussed include raising purchase prices for USDA’s Dairy Product Price Support program, something that national Farm Bureau policy does not support because it could send the wrong signal to the market to maintain production. Another option, one that USDA acted on after the European Union reinstated its dairy export subsidy regime, is to resurrect the Dairy Export Incentive Program that subsidizes the
price of milk for export.

Twelve northeastern state Farm Bureau presidents wrote Agriculture Secretary Tom Vilsack this month urging USDA to consider reforms to the federal milk marketing order system, which sets minimum prices for the different classes of milk based on current market trends. They said the current pricing system works well on the national level but does not always recognize regional production needs and tends to penalize areas with higher production costs.

USDA recently announced the establishment of a review commission, as called for in the 2008 farm bill.

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