Milk producers expecting to see record high prices in coming months
Prices have been on the increase mainly due to a shortened supply

Lori Cope | Country World editor

May 1, 2004 -- Even though some media outlets have focused on the likelihood consumers will be paying about 50 cents more per gallon of milk, the story initially begins with the news that the producers of that milk are seeing record-high prices.

"This is good news. It's a chance for them to recover from 18 months of bad (milk) prices," noted Dr. Ellen Jordan, Extension dairy specialist based in Dallas.

For the past 18 months, milk prices paid to the producer have ranged in the $11 to $12 per hundred pounds of milk (hundredweight/cwt.) range. The lowest price came in March 2003, at $11.10/cwt., Jordan quoted from the statistical uniform blend price report for the Southwest Milk Marketing Region, which encompasses Texas and New Mexico.

But over the past few months, milk prices have been on the increase, mainly due to a shortened supply.

The May Class I milk price, issued by the U.S. Department of Agriculture, is $19.65. "That's $6 above what we were getting in April," Jordan added.

Amy Clapper, director of marketing for Dairy Farmers of America cooperative, Southwest area, said information they received on April 23 showed the Class I mover price increased by $6/cwt. In calculating that price increase to wholesalers, "that's a 50- to 60-cent increase per gallon," Clapper said from her office in Grapevine. "This is what we will charge wholesalers and what they do with it is up to them."

A Brookshires Grocery Co. spokesperson said "milk-buying consumers will see prices reach an all-time high after May 1 when the wholesale price of milk, determined by the Milk Market Administration Office, a branch of the USDA, will increase 50 cents per gallon. When the price increase takes effect, consumers will see prices increase about 50 cents per gallon."

The spokesperson, from the company's Tyler headquarters, also noted the price increase is the largest one-month price increase ever.

Requests for in-store milk pricing information from HEB's Central Texas division in Austin were not returned as of press time.

With the better price for milk, will Texas dairy farmers increase their milk production?

Traditionally when there's been a good increase in milk prices, producers have expanded their herds, "but it's a different situation now," Jordan said. "There are two factors that are working against rapid expansion ... one, we can't purchase dairy heifers out of Canada (due to a case of bovine spongiform encephalopathy detected in May 2003), and two, feed prices are going up."

"Everybody would like to have more cows in the barn when prices are high, ... but there's just not as many out there," said David Fowler, co-owner of Sulphur Springs Dairy Auction.

Besides the lack of imported Canadian dairy cattle, reports indicate today's high beef prices make it attractive for producers to send culled dairy cows to slaughter a little sooner, instead of keeping her for just one more lactation. Also, reports cite the implementation of a national milk reduction program, called Cooperatives Working Together (CWT), as affecting the number of dairy cows.

The lack of dairy cattle numbers is evidenced in the commerce. "The dairy cattle prices are sharply higher. They are bringing as much as I can ever remember seeing," Fowler added.

Dairy auction reports from Country World's "Country Markets" show good, freshened dairy cattle at the Sulphur Springs auction on April 22 bringing as much as $1,825 per head; Holstein "springers" selling for $1,725; and dairy heifer calves, which are about 3-days-old, selling for as high as $620 a head.

Similarly, prices for cattle sold at Erath County Dairy Sales and Livestock Commission in Dublin have increased "pretty substantially ... just in a couple months' time," reported Christie Beyer, office manager in the family-owned business. Some Holstein springers recently sold for $2,500. Price increases in each classification of dairy cattle are reported. "We had a 1-day-old calf, a Holstein heifer, bring $500," Beyer added.

Some dairy herd expansion in the Central Texas region is occurring, according to Beyer. "We haven't seen much of an increase in the number of cattle sold, but the dairymen need more (cows) for that $18-$19 milk," she added.

Besides high cattle prices, dairy farmers, along with other ag producers, have been calculating increased fuel, fertilizer, and feed expenses into their budgets this year. The budget is more easily balanced when the "end" price is high, such as it currently is with milk.

Also, "veterinary suppliers, feed manufacturers, building suppliers, and other general agriculture businesses should find extra money in their pockets because dairy producers will have more income to spend after years of scrimping and saving," noted Michael Swanson, senior agriculture economist for Wells Fargo.

Fred Moseley, a former dairy farmer and Texas Farm Bureau president for Hopkins-Rains counties, pointed out more dollars in a dairyman's pocket is definitely good news, not only for the farmer, but for the economy. "Every dollar that's spent turns over seven times in the local economy, so that's good for ag-related industries, and the county." Moseley, who produced milk for over 30 years, pointed out that although the number of dairy farms in Hopkins County, and the state, is declining, the volume of milk is steady -- and it's the volume of milk which generates the farmers' income.

These "unusually high milk prices also create an opportunity for dairy producers to plan for their financial future and prevent a repeat of some of the financial stresses that the previous down cycle caused," Swanson said. "While dairy producers and others can likely erase any current deficits, they should be prudent about their lending needs."

The milk price needed for dairy producers to "break even" varies from farm to farm. "It really depends on the producer's debt load and operating expenses," noted Hopkins County Extension Agent Larry Spradlin.

"A key concern is finding the right balance of operating and capital debt to get through the inevitable price swings in the dairy market," Swanson added.

Jordan also pointed out this is a key time to "pay down debt ... and put a little away ... because the dairy industry always follows the rule of what goes up, must come down."

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