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Michigan dairy farmer stays positive despite weak prices

By SHELLY STRAUTZ-SPRINGBORN
Michigan Correspondent

HOWARD CITY, Mich. — With milk prices nearly half of what they were one year ago, Winfield Township dairy farmer John Black is tightening his belt.

The fifth-generation family farmer said the downturn in the dairy industry “isn’t all doom and gloom” for him and his farm.

“It forces you to put the pencil to your ledger and figure out what your costs are and what your opportunities are,” Black said. “It makes you take a look at your business and trim some fat.
“When we had $20 milk, we got lazy,” he said. “We started buying premixed calf starter and would feed it to calves up to 400 or 500 pounds because we had the money to do it and it was simple. Now, we’ve cut back on that.”

Black said he and his partners, cousins Amber Black and Carl Black, are also more closely managing the milking herd, which totals about 165 head of cows.

“We’re culling anything that’s not profitable,” Black said. “We can’t monkey around with anything that’s open for eight months. We can’t keep them around for pets.”

On the upside, he added that as the downturn in the economy continues to fuel falling agricultural prices, his farm is reaping some rewards.

“There are opportunities that happen during this time, too,” Black said.

“We had a phenomenal year last year,” he said. In the midst of an expansion, “we built another 120-stall freestall barn and we paid for it,” which upped the farm’s capacity to 240 milk cows and didn’t increase its debt load.

“We’re hoping to get to around 250 cows, but we’re going to do it through internal growth. We went to using sexed semen a few years ago, so we have a lot of heifers,” he added.

Plus, Black said he recently purchased a feed mixer at an auction sale “for a third of what it would normally sell for. We have grouped our cows and are mixing feed for them, which has increased our milk production.

“I think there will be more opportunities coming along,” he added.
In Michigan, the dairy industry accounts for nearly one-quarter of all agricultural sales in the state, according to the 2007 Census of Agriculture.

As the global economic recession continues to drive down demand for milk and other dairy products here and abroad, concern ripples through the industry.

“Strong dairy prices had helped shield dairy farmers from some of the pains of rising costs for animal feed and energy over the past couple of years,” said Michigan Farm Bureau Livestock and Dairy Specialist Ernie Birchmeier. “Without that shield, though, producers are defenseless.”

Experts predict the steep drop in dairy prices will be felt by dairy farmers for several months to come, a situation that will only add to America’s economic woes, according to Birchmeier.

“People forget that farmers are consumers, too. When their budgets get tight, they cut back on spending and the ripple effect of a bad economy is only exacerbated,” Birchmeier said.
The decline in dairy product prices is not surprising to many in the dairy industry.

Allison Specht, a dairy and regulatory economist with the American Farm Bureau Federation, said the dramatic correction that took place from the end of December through January was unexpected.
Dairy prices on the futures market traded at $14.13 per cwt. on Dec. 1, 2008, $10.28 per cwt. on Dec. 31, 2008, and $9.30 per cwt. on Feb. 9, 2009. Milk prices are down more than 50 percent from last summer after hitting all-time highs in 2007 and climbing to the second highest level on record in early 2008, topping out at well over $20 per cwt.

The primary reason for low prices paid to dairy producers is the nation’s general economic slump.

“The financial condition of consumers has changed domestic food consumption patterns, and dairy is feeling the negative effects of this trend,” Specht said. “Exports have insulated the dairy industry from feeling losses in away-from-home demand, but this is no longer the case. While grocery dairy buying may be expanding slightly, losing any food service demand, which accounts for 40 percent of dairy consumption is bad news.”

The National Restaurant Assoc. tracks the industry’s health and performance, and the December 2008 index marked the 14th consecutive month that the index dipped below 100, signaling less dairy buyers in the marketplace.

On the export front, several factors have contributed to much stronger competition in trade markets, including New Zealand dairy production beginning to rebound somewhat after past droughts crippled the nation and decision by the European Union to once again subsidize exports.

Many dairy industry analysts foresee depressed prices through the duration of the nation’s recession; however, optimists anticipate a mid- to late-year turnaround.

In a recent Dairy Market Update, Michigan State University Extension Dairy Educator Craig Thomas wrote, “The price outlook for 2009 is improving, albeit slowly and short of any leaps and bounds. The first half of 2009 remains bleak and the majority of producers are receiving milk prices below their cost of production. Class III futures have gained some strength, particularly in the last half of 2009, since late February.

“Our overall economy remains very weak and many experts say we have yet to see the worst. Consumer confidence is low and the food service industry is really suffering. Dairy consumption will probably continue below trend until the general economy strengthens. I doubt hardly any dairy producers can profitably produce milk at current Class III futures prices, especially if you purchase a large portion of your feed supply,” Thomas wrote. “At the soonest, I don’t look for the market to offer profitable Class III futures prices until the second half of the year.”

Butter and milk powder prices are at government support levels. The federal government purchased nearly 162.3 million pounds of nonfat dry milk and almost 2.67 million pounds of butter from Oct. 1, 2008, through Feb. 6, 2009.

“The U.S. dairy industry is positioned very well in the long term, assuming a growing world economy,” Specht said. “But individual producer survival is dependent on management decisions and how long the short-term economic woes will last.”

4/2/2009