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Dairy Industry Dealing With Drop in Prices
June 16, 2015

WATERLOO, IA- This year’s National Dairy Month observances during June will bring dairy producers a mixed bag of challenges and blessings in the dairy markets.

After experiencing all-time high prices just a year ago, prices have receded to near break-even levels, according to Larry Tranel, a Dubuque-based farmer and dairy specialist with Iowa State University. Tranel serves as an industry liaison in eastern Iowa.

The market was nearing $25 per hundredweight last year, and this year is sitting near the $17 range.

“In general, the industry, I’d tend to say, they’re pretty close to break-even in cost of production, when you’re talking about $17 to $18,” Tranel said.

On the bright side, according to Tranel, farm input prices have decreased as well.

“The milk price came down, and it has helped out tremendously that grain prices came down the last couple of years,” he said.

Dairy industry experts say record milk sales set in 2014 have caused a surplus in the market. Global overproduction factors in as well, leading to the the rapid drop in prices felt this year.

Just a year ago, there was a global demand for US dairy products which increased prices. Producers rose to meet that challenge. However, now times have changed. China cut their imports of after stockpiling milk powder and Russia has since imposed trade sanctions against the US.

Some farmers invested in new equipment and expanded their herds to meet demand, and now U.S. dairy farmers find themselves holding a surplus, Tranel said.

With supplies plentiful, prices for milk, butter and milk powder dropped.

Prices dropped below $14 per hundredweight. at one point in the spring, Tranel said.

Producers are adapting in different ways.

Hudson-based Hansen’s Dairy, for example, is widening its distribution somewhat, said Blake Hansen, who works with the dairy’s 350 cows.

“We’re trying to get our milk down to Cedar Rapids-Iowa City market,” he said. “It’s a new thing, and it’s going OK.”

Prices have been down, but there is hope for a rebound, Hansen said.

“I suppose some of the reason some prices might be going up in the future is in the warm summer months, cows tend to not milk as much, so supply may go down,” he said.

Culling of dairy cows for beef consumption also could lower milk volume, Hansen said.

Indeed, according to an article in Progressive Dairyman, the dairy industry contributes 15 to 30 percent of all the beef produced in the U.S. via dairy steers, cows and bulls.

“Not so much for steaks, but for hamburgers and stuff like that,” Hansen said.

The cull market is a viable outlet, said Josh Blough of Blough Dairy Inc. in Waterloo.

“Cull prices are just fantastic; you can almost sell a cull cow for what you might be buying a cow for,” he said. “With the drought down south, when they sold all their beef cattle, they didn’t have replacements, so that’s why the beef market got so strong. There just weren’t the numbers there.”

Blough said the cull market likely would remain “strong” for the next year or two while ranchers rebuild their inventories.

Organic dairy products also are gaining traction, Tranel said.

“One of the bigger changes we’ve seen is how the organic milk market is now about 5 percent of the total milk supply,” he said.

Most organic milk goes to traditionally strong organic-consuming markets on the East and West coasts, as well as Chicago, Tranel said.

“But, they’re all over now, so you can go to any store in Waterloo and Dubuque to find it,” he said.

The call for organic food is increasing across the U.S., and dairy is among the biggest gainers, according to the Organic Trade Association.

The organic dairy sector posted an almost 11 percent jump in sales in 2014 to $5.46 billion — the biggest percentage increase for that category in six years, the OTA reported in its annual market survey in April.

Iowa dairy farmers are noting the trend, Tranel said.

“Right now, the organic processors have a difficult time fulfilling the organic demand,” he said. “They can’t find enough organic producers to switch over to organic, to the point where organic milk price is almost double the conventional milk price.”

Federal regulations overseeing organics have been in place since 2003. The rules stipulate that land used for organic production must be free of artificial pesticides, fertilizers and other chemicals for at least three years.

“It’s still difficult to get producers to transition,” Tranel said.

Demand for all dairy products will grow, Tranel said.

“The demand for good proteins by way of meat and milk tends to be pretty high, which has a lot to do with the increase in the middle class around the world,” he said. In the past, people couldn’t afford to buy it; now, you have people can actually afford to buy it, so we’re optimistic that dairy and especially proteins will be in high demand.”

Source: Cedar Valley Business Monthly


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