Dairies put in tough spot

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The past few months have been tough for the world’s dairy farmers.

“The last six months have been nothing short of awful,” said Terry Entzminger, owner and partner of a dairy operation south of Jamestown. “What made 2009 bad in general is we’re still working last fall’s high input costs of $7 corn and $4 diesel through the system.”

Entzminger said milk prices were $11.59 per hundred weight in September. This compares to $15.65 per hundred weight in September 2008. Costs of inputs, feed, fuel, labor and fertilizer have actually climbed over the past years.

“Prices are down close to 50 percent,” he said. “While input costs are up close to 50 percent.”

That situation is pushing dairy farmers out of the business.

“We hit the level of 200 dairy farmers in North Dakota just recently,” said Gary Hoffman, executive director of the North Dakota Dairy Coalition. “That is down from about 250 when the downturn started. We lost 50 dairy farms in that time although not all are from the downturn. Some are retirements or people that just want to get out of the business.”

Hoffman said the number of dairy farms has steadily declined over the years with over 1,600 farms in operation as recently as 1990.

But some farms are expanding.

“If you start in a down cycle you know you have to be careful,” said Connie Van Bedaf, owner of a new dairy operation at Carrington. “We’re not making any money but we’re better off than dairy farmers in other places.”

Van Bedaf said they are currently milking about 780 cows they purchased in the last year.

“The prices of cows and replacement heifers are down,” she said. “We decided to start up and you can’t go half way, you have to go ahead.”

How badly each farm is affected depends on the business model it uses.

“Farms that operate what we call the ‘West Coast Dairy,’ where they purchase all their feed and other inputs are particularly hard hit,” said J. W. Schroeder, dairy specialist for the North Dakota State University Extension Service.

Schroeder said dairy farmers have been improving efficiency for years and there is little more they can do in response to this price decline.

“Dairy farms are notoriously efficient already,” he said. “The evidence is the amount of milk they produce.”

The decline in prices occurred in the first months of 2009. Milk prices at the end of December 2008 were $16.90 per hundred weight but had dropped to $10.51 by the end of March. Prices stayed between $10 and $11 until September.

The current low prices are the product of a number of factors acting on the marketplace.

“It is all supply and demand driven,” Entzminger said. “A change of 2 percent in production has a huge effect on prices.”

Some farmers had increased production over the past years.

“We had $20 milk a few years back,” Entzminger said. “That probably wasn’t a good thing because it caused overproduction.”

The same holds true for reductions in demand.

“Even as a standard part of the diet, milk took a terrible hit from the economy,” Entzminger said.

About 50 percent of the milk produced is processed into cheese, he said. Much of the cheese is sold in prepared meals served in restaurants, which have been particularly hard hit by the economic downturn.

And retail prices for dairy products have not decreased along with the cost of milk on the farm.

“Retail prices have stayed steady or even gone up while the prices to farmers have gone down 50 percent,” Hoffman said. “With no saving to the consumer we haven’t seen demand increase.”

Another factor is the world market for dairy products. With prices down all over the world exports from the United States have decreased, Entzminger said.

“Last year, the United States exported 11 percent of the dairy production,” he said. “This year it is from 5 to 6 percent.”

Government programs have had limited impact on the situation.

“There is the Milk Loss Program,” Entzminger said. “It is based on milk prices and feed costs and average producers have been eligible for $1.75 per hundred weight since February. But an operation like ours met its limits in about two months.”

Other programs include the producer-funded Cooperatives Working Together program and a new undefined federal program that has been funded with $290 million.

“The CWT will come into play,” Entzminger said. “But this downturn is too extreme for it to have much of an impact.”

Still, many dairy farmers will keep milking cows.

“We’re in it for the long haul,” he said. “But there are only so many things you can control.”

Hoffman agreed.

“We’ve gone through cycles before but this is the most severe I’ve seen,” he said. “Still, dairy farmers like what they’re doing or they wouldn’t be there. A lot of them have said if they can hold out till it turns around they will.”

Entzminger sees a turnaround coming in the next months.

“Personally, I’m optimistic,” he said. “They say the lower the lows, the higher the highs. The futures market for the next 9 months have $14-plus milk and after that the futures are more than $15. The thing is, even the most optimistic futures are short of the actual prices we had a year ago.”

Van Bedaf sees more of roller coaster to dairy prices in the future.

“If we look at 2010, with feed prices where they’re at, we can make money,” she said. “Milk prices will go up and farmers will expand and then milk prices will go down.”

Sun reporter Keith Norman can be reached at (701) 952-8452 or by e-mail at knorman@jamestownsun.com

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