23 May 2008

3 minute read

North America

"The price hikes in the dairy coolers aren't being shared by dairy producers," said Mike Hutjens, noting that corn now costs producers $6 per bushel, fuel $4 per gallon, and other energy, fertilizer, and transportation costs are also higher for dairy enterprises.

Hutjens' remarks came as he reviewed the state's dairy industry on the eve of the annual June Dairy Month.

Last year, Illinois had 1,040 dairy farms averaging 99 cows. The average Illinois dairy cow produced 19,252 pounds of milk compared to the national average of 20,267.

"In 2007, Illinois had 103,000 dairy cows, the same number as in 2006," he said. "Overall, the Illinois dairy industry remains stable while the U.S. dairy industry has increased 2 percent."

Illinois dairy producers, as he noted earlier, face a number of challenges. Milk prices have dropped $2 per 100 pounds to the current price of $18 per hundredweight while feed costs have increased $2 per hundredweight. Futures milk prices in the next six months are increasing, which will be important.

"The breakeven price to cover feed, variable, fixed, and labor costs is near $18 per hundredweight," he said. "Illinois dairy managers are barely breaking even."

High milk prices in stores have consumers rethinking their purchase patterns, he added.

"The feed outlook is challenging as wet weather has delayed corn planting which could result in shifting to soybeans - raising corn prices - and alfalfa yield is encouraging but is rapidly maturing reducing forage quality," he said.

"The role of biofuels impacts all feed prices with 25 to 30 percent of the 2008 corn crop possibly being used for ethanol along with soy oil for biofuels."

Another problem is that the loss of rBST (recombinant bovine somatotropin) technology that had been approved by the FDA will reduce profit on injected cows by 80 cents per cow per day or $195 per year.

"About 33 percent of Illinois dairy farms used this technology, which is no longer allowed by several milk producers," he explained.

The demand for dairy products in the world has resulted in over 9 percent of U.S. milk solids being exported, thereby raising U.S. domestic prices.

"But the European Union and Canada have increased their quotas allowing for more milk production," he said. "The Canadian border has opened for dairy cattle to move to the United States and over 20,000 heifers have moved south to the United States, increasing milk production. Dairying is truly an international industry."

For the dairy manager using foreign labor sources, the Department of Homeland Security's "no match" Social Security program can impact the quality and availability of labor on larger dairy farms.

Land values in the Midwest increased 16 percent last year - 8 percent annually over the last four years--leading to higher cash rent and feed costs.

"Some dairy managers may elect to market feed directly without adding value by feeding livestock due to additional labor costs and reduced profit margins," he said.

The Illinois dairy industry has plenty of room to improve in order to compete in the world dairy environment, he noted.

"Arizona dairy cows had the highest milk yield average at 23,260 pounds while New Mexico dairy farms averaged 2,012 cows. Only one herd in Illinois exceeds this average," he said. "The top Illinois Holstein herd in 2007 averaged 29,906 pounds."

Increasing the size of Illinois dairy herds has impacts beyond the farm.

"The economic impact of adding 100 cows to a dairy herd is impressive," Hutjens said. "Those cows mean $270,000 added farm income and 1.2 new jobs. Those 100 cows consume 122 acres of corn and 62 acres of hay. They require $6,550 in additional veterinary and breeding services, contribute $5,760 in taxes, and pay out $34,300 in wages.

"Livestock farms can support rural revitalization and growth."

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