Lower milk and corn prices equals tough math for dairy farmers

The declining price of milk is causing some serious economic consequences for America’s dairy farmers.

Recent numbers show the price for Class III milk, which is used to make cheese, is down 19% from this time last year, and down 41% since September of 2014. Class I, or fluid milk, has seen a sharp decline in prices since the beginning of the year. These lower figures are primarily driven by large decreases in the commodity values of non-fat dry milk, cheese and dry whey.

“It’s really hard to put this current decline into perspective with other declines,” said Dr. John Newton, Senior Director of Economic Research for the National Milk Producers Federation (NMPF). “In 2009, milk prices fell to below $10 a hundredweight and that was a catastrophic environment for dairy farmers.”

In 2012, it wasn’t a milk price decline so much as it was record high feed prices that really put the squeeze on dairymen. Now, today’s decline encompasses a completely different scenario.

“Today, we have milk price declines but feed prices have also declined considerably,” Newton said. “With that said, the dynamic has changed somewhat because not all dairy farmers purchase feed and those that grow feed also are having difficulty penciling out the cost of planting and growing their commodity and have to take that into consideration when evaluating the profitability of their dairy operation.”

NMPF is continually working with Congress and the U.S. Department of Agriculture (USDA) to make the dairy Margin Protection Program (MPP) the risk management tool that dairy farmers need. Several important improvements in the new safety net program for dairy farmers were announced recently by USDA, following recommendations made by NMPF to enhance the value of MPP.

One change announced by USDA will ensure that all farms enrolled in the MPP will receive catastrophic coverage at the basic $4 per hundredweight margin level on 90% of their production history, with the ability to purchase buy-up coverage at less than 90% of their history. Although lower milk prices are putting farmers in a tough spot, consumers are enjoying the lower prices at the supermarket as the national average for a gallon of milk is down almost 40 cents from year ago levels.

“Retail prices closely follow the farm price so consumers are getting some relief from the record high milk prices of 2014,” Newton said. “Hopefully what that does is increase the purchasing power per dollar of dairy units that consumers are able to spend and that should certainly help consumption.”

The current market situation is troublesome for U.S. milk producers, but the impact of lower prices is being seen outside of America’s borders too.

“It’s not only a dairy worldwide situation, it’s a commodity worldwide situation,” Newton said. “We have a glut of corn, soybean and milk supplies. A lot of the commodities have experienced significant price declines, including oil, compared to what they were just a few years ago.”

On the dairy side, Newton sites the European Union’s move to do away with their milk quota program in 2015 as a reason for the increasing world supplies of milk. That decision resulted in an additional 10 billion pounds of milk on the global market.

Check Also

Eliminating unwanted woody weeds from pastures in the winter

By Dean Kreager, Licking County Agriculture and Natural Resources Educator When you look at your …

Leave a Reply

Your email address will not be published. Required fields are marked *