Producers Selling Cows as Dairy Prices Struggle

US - Dairy farmers have seen demand for their product sour at a time when it has never cost more to produce milk, and many are selling cows to cut costs.

20 April 2009

3 minute read

North America

John Anderson, agricultural economist with the Mississippi State University Extension Service, said milk prices per hundredweight were $13.23 in March and have been $14.66 in April. Farmers got $21.78 per hundredweight for fluid milk a year ago.

“Dairy farmers around the country are losing money. These are low prices compared to the cost of production,” Anderson said.

“Input prices have come down from the high levels of 2008, but the prices we’re selling milk at right now are well below the typical cost of production for about any type of dairy operation.”

Anderson attributed the low prices to the general economy and the effect the recession has had on demand, both in the United States and in the export market.

“Consumption has slowed down everywhere, and there has been some increased competition from other major dairy-producing countries,” Anderson said.

“We think of dairy products as being unresponsive to price changes, but a lot of dairy products – cheese, for instance – are consumed in restaurants, and people are spending less eating out than before.”

Producers are responding to the low milk prices by reducing herd size. Dairy cattle are being culled and sold as slaughter cattle in Mississippi and nationwide.

“The U.S. Department of Agriculture’s data shows that dairy cow slaughter in February was 17 per cent higher than it was a year ago,” Anderson said.

“The bottom line is we see dairy herds contracting all over the country. I think that’s reflective of how these milk prices compare to the cost of production.”

Stephanie Hill, professor of dairy nutrition and management with the Mississippi Agricultural and Forestry Experiment Station, said Mississippi producers are very concerned with the price situation.

“We’re not talking about a decrease in milk prices that might look up in a month or two,” Prof Hill said.

“This is a prolonged situation that, in combination with the global economic downturn, is causing serious turmoil for producers and their families. They are worried and desperate for solutions.”

In addition to reducing herd size, Hill said producers are coping by trying diligently to cut production costs, mainly the cost of feed.

“In Mississippi, many dairy producers rely on homegrown forages and pasture land year-round. We have an extended growing season here, and that helps reduce certain feed costs,” Prof Hill said.

“However, most of the pasture land could be more intensively utilized and perhaps reduce production costs.”

Energy costs are another factor impacting dairy farmers, as they must pay for the electricity needed to operate their milking parlors. Hill said MSU’s departments of animal and dairy science and agricultural and biological engineering are developing energy audits for Mississippi dairy farms.

“If we can identify where energy use is abnormally high, we can find management changes that might help reduce the costs associated with the high energy use,” Hill said.

In the meantime, the industry is prepared to bounce back when prices finally return to more normal levels.

“On the supply side, the industry has positioned itself for a healthy recovery in prices, but it needs some help from the demand side,” Anderson said.

“The question is, ‘When will demand recover?’ That will depend on when the overall economy recovers.”