Dairy prices on their way up as industry begins to improve

December 6, 2010

WEST LAFAYETTE, Ind. - The dairy industry is slowly recovering from low prices and record losses encountered in 2009 and early 2010, a Purdue University agricultural economist said.

"It will take higher prices over an extended period of time for dairy producers to begin to replace equity that was lost in 2009 and early 2010," Nicole Olynk said.

Typical dairy farms in 2009 lost $350 to $1,000 per cow in equity. Part of the losses were driven by high costs, especially for feed and labor, exceeding returns from milk sales and lower value of cows and heifers as dairy replacements, said Olynk and Purdue Extension dairy specialist Mike Schutz. Dairy farms that were better able to control their own forage production and that had more equity, often through owned land, were best positioned to survive such economic losses.

Milk cow prices were at $1,290 at the beginning of 2010, compared with $1,920 a year earlier, although prices are now moving higher along with increasing milk prices, Schutz said.

Volatile feed prices continue to leave dairies concerned about changing costs of production. Grain supplies and feed prices have become an added concern for dairy farmers looking to 2011, Olynk said.

Milk and cheese prices usually drive the overall milk price and averaged $14.07 per hundredweight for the first nine months of this year, Schutz said. The milk prices of the summer represented a return to levels that should cover costs of production for most dairy farms.

"Things are turning around in the dairy market," Olynk said.

Butter inventory is low, which has caused demand to drive butter prices higher, and export markets are on the rise. But cow numbers are going up and cheese stocks are at historically high levels.

According to both Olynk and Schutz, a return to the low prices of 2009 seems unlikely, but the improvement in prices also is unlikely to last long enough to make up for a significant portion of equity lost in 2009 and early this year. Forecasts point to triggering of Milk Income Loss Contract program payments beginning in February. But anything that affects milk production or product sales could dramatically change a very fragile market.

For more information, read Olynk and Schutz's article "Better Dairy Prices Butter Up Farmers" at http://www.agecon.purdue.edu/extension/pubs/paer/2010/october/olynk.asp

Writer: Jeanne Gibson, 765-496-2384, jegibson@purdue.edu

Sources: Nicole Olynk, 765-494-2567, nolynk@purdue.edu
                  Mike Schutz, 765-494-9478, mschutz@purdue.edu


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Keith Robinson, robins89@purdue.edu
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