As we enter the fall months of the year, it appears that we finally have milk pricing that would put us in the black once again, but how long will it last? We are already seeing the Class III market on the CME fall below the cost of production for the first six months of 2011. Beginning in 2009, we have endured unprecedented losses. For approximately 10 months, we experienced losses averaging $5 per hundredweight (cwt), which was followed by another eight months of less than breakeven prices. We have seen our cow loans stretched to the maximum, our feed loans out of compliance, our property values falling below desirable levels and our cow values falling as well.
Think for a moment. If you wanted to sell, how many buyers would you have in this kind of environment? On top of all this, we have a growing heifer population and, as we have seen in the last couple of months, a growing milk supply. Where do you think milk pricing is headed under this scenario?
Our rising milk supply is not a surprise because as “individuals” we need to create as much cash flow as possible just to try and pay our bills. As a nation of producers, we are the best in the world at producing milk when it is needed. Unfortunately, we have no mechanism to slow that supply down when it is not needed, other than attrition.
We have had three downturns in the last eight years: 2002-2003, 2006, and 2009-2010, the last one the worst of all. The CWT program (herd retirement and export assistance) was born in 2003 and credited each time to a rebound in milk prices; CWT has made a difference in stabilizing our prices.
Unfortunately, the program has only been supported by about 67 percent of our nation’s milk supply. With that lack of support I believe the herd retirement portion will come to an end. Where does that leave us?
We can go back to the old way of doing business, survival of the fittest, or we can collectively put our heads together and manage our milk supply in such a way to have a sufficient margin to remain a vibrant industry. What can this do for us? With a profitable industry our cow values would return to a reasonable level (allowing sales and growth), our property values would stabilize and attract those dairymen who are looking to expand their operations. By managing our milk supply, the wall of heifers that we face can be used for herd improvement rather than just herd expansion.
All of us need to ask ourselves: Are we happy with the events of the last two years or are we ready and willing to affect our future together as an industry? Can we come together to truly affect our future? The current state of the industry is our problem, and it should be up to us to solve that problem.
There have been many programs proposed in the last two years that are worth looking at. Having served on the board of directors of Darigold for many years, I have been appointed to serve on the National Milk Producers Federation (NMPF) board of directors; I have been part of a team effort which has developed a program called Foundation for the Future and I’m excited about the opportunity all of us have for working together to make a difference. PD
Adrian Boer
Dairyman
Boer Dairy
