With June Dairy Month arriving, dairy managers are recording huge financial losses; 2009 will not be a "kind" year for dairy farmers. Milk prices dropped nearly 40 percent starting in January reaching less than $12 per one hundred pounds (cwt) from $18 in December, 2008. To cover all production costs (feed, non-feed, and labor), Illinois dairy managers need $16 to $18 per cwt depending on herd size, debt load, labor efficiency, and feed costs. From February to June, 2009, the average Illinois dairy farm with 105 cows is losing over $10,000 a month (larger southwestern U.S. dairy farms lost over $300,000 a month).
Reasons for these huge losses include a decline in foreign exports (11 percent of U.S. dairy products were exported in 2008), stronger U.S. dollar (reduces export while raising costs), decline in the U.S. and world economy, and less dairy products being consumed with reduced incomes and job losses).
Illinois dairy managers have few alternatives to reduce daily losses on the farm. Feed costs represent 60 percent of the cost to produce milk. With a new forage crop year started, any and all ways to increase forage quality and quantity in dairy rations will be a plus. By-products feeds such as corn gluten feed, wet brewers grain, and distillers grain are "good" buys replacing soybean meal and corn as nutrient sources in rations while reducing feed costs. Illinois feeding guidelines include less than $6.50 per cwt of milk, target feed cost below nine cents per pound of dry matter, and raise feed efficiency over 1.6 (pounds of milk per pound of dry matter consumed). Carefully review feed additives included in ration; silage inoculants, monensin, buffers, yeast products, and organic trace minerals are excellent investments. Do not pull nutrients from the ration reducing milk yield, decreasing health and immunity, and/or lower fertility.
Several opinions are available for Illinois dairy farmers to reduce losses.
- MILC (Milk income loss contract) is a government sponsored program that provides some relief for smaller dairy farms (less than 150 cows). If the dairy manager has enrolled in the program, she/he received $1.51 per one hundred pounds in February, $2.04 in March, and $1.49 in April.
- Future milk prices (based on the Chicago Mercantile Exchange) are increasing in the summer with $15.00+ per cwt listed for October, November, and December (better, but below break even milk prices).
- Cooperative Working Together (CWT) has launched another herd buy-out programs reducing cow numbers by paying some dairy farms to leave the dairy industry. This project is funded by dairy farmers using check off funds in an attempt to reduce cow numbers and milk supply (there is an excess of 300,000 dairy cows currently in the U.S. leading to surplus milk).
- In some stores, the price of milk has dropped 50 cents a gallon while other dairy products remain constant. As consumers respond with more milk and dairy purchases due to lower prices, this helps to reduce surplus levels.
Other "wide card" factors will be the growing conditions in the summer dictating forage amounts and quality, price of corn and soybean meal in the fall related to ethanol production and yields, heat stress on dairy cattle which could reduce milk yield, world demand for dairy products and feed grains, and water restrictions in the western states (nearly 50 percent of the U.S. milk is produced in this region).
The 2008 report card for the Illinois dairy industry compared to 2007 is concerning as the average Illinois dairy cow produced 18,569 pound of milk annually (down 0.2 percent) while the U.S. average is 20,396 pounds per cow (up 1 percent). Illinois produced 1.89 billion pounds of milk (dropped 1.2 percent) while the U.S. dairy industry produced 289.9 billion pounds (up 2.3 percent). Illinois has 984 dairy farms (down 5.3 percent) compared to the total of 57,127 (down 3.4 percent). Illinois ranks 20th in total milk yield, 21st in cow numbers, and 25th in milk yield per cow. Illinois dairy farms produces less than 30 percent of the milk and dry products consumed by Illinois consumers and continues to loss jobs and market share while having an abundance of feed and a huge consumer market base.
Take-home messages for Illinois dairy managers are to minimize equity losses, review feeding programs using economical feed ingredients, produce high quality milk leading to quality premiums, maintain high milk yields, and do not make "wrong" decisions in this summer (not getting cow pregnant or slow heifer growth for example) that results in long term negative impact in 2010. Dairy farming is a business; make smart business decisions and hang on as the dairy future looks favorable.
