Dairy farmers navigate turbulent times

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January 3, 2009

By BRUCE ROWLAND The Press Republican Fri May 14, 2010, 06:57 PM EDT

North Country dairy farmers are reeling from the same financial whiplash being experienced by so many other businesses during the current financial crisis, trying to predict how to keep their balance sheets on an even keel despite extreme ups an downs in the markets.

"The dairy prices this year (2008) have been decent, not quite as high as last year, but not bad," said Don Dimock, a long-time dairy farmer from Peru. But, he said, the cost of "inputs" to the dairy business, such as grain, fertilizer and fuel, have been on a roller coaster.

Most of the large farms in the region grow their own hay and corn for silage, chopping the whole plant, including stalks and leaves, for feed, but they purchase grains such as corn and soybean meal on the market. "This is pretty typical of most of the larger farms in the Northeast," Dimock said.

Partly due to the diversion of corn for ethanol production, corn and soybean costs increased rapidly this past summer outstripping the price received for milk. But with the recent collapse in commodity prices, grain has become more of a bargain. Dimock said it's difficult to know whether to lock in prices now for next season or hold out in the hopes things get lower still.

Nitrogen fertilizer is tied to the price of natural gas, and the price of that has been falling, too. But the demand for fertilizer on the world market is strong as developing countries like India and China increase plantings to feed their populations, so the cost has jumped up and down unpredictably. It's been down significantly recently as the world economy plunged, which will be a help for next season.

The cost of diesel fuel has been coming down, too, which has helped, although that's a much smaller part of the total cost of production, Dimock said.

In tracing recent trends, 2007 was a banner year for dairy farmers with milk prices high and input costs reasonable. The milk price spiked — as consumers may have noticed in the supermarket — because it followed a difficult stretch of two years or so when milk prices were extremely low. At that time, many farmers quit the business or cut production, reducing worldwide supplies.

However, at the same time, emerging world markets such as China, whose residents were experiencing an increasing standard of living, were developing a taste for the finer things in life including ice cream, butter and cheeses.

Suddenly, demand was severely outstripping supply, and prices shot up, with the price per hundredweight for milk rising past $20.

When prices inflate, however, it doesn't take long for production to follow as producers rush to take advantage of higher profits. This was the trend when the world-wide recession hit, pulling demand back down and creating the current situation.

As for the future, Dimock said, it's very hard to predict.

"They're telling us the price of milk is not going to be good for the coming year," he said. But inputs should remain cheaper, too.

Carl Tillinghast, dairy specialist and executive director with the Franklin County Cooperative Extension, also noted that milk prices have been trending down steadily throughout 2008 after their peak last year, although input costs have been coming down, too.

"The overall picture is dairy farmers are probably going to be experiencing tougher times in the months ahead," he predicted, explaining that projections show a weaker market through spring with possible improvement as 2009 progresses.

He said farmers are closely tied to the overall health of the global economy. "It's definitely a world market now," he said. "Given the nature of the market, things can change rather quickly."

The cost of the "big three," fuel, feed and fertilizer, will be a key to how well things go in the future.

"It takes a lot of fuel and fertilizer to make a corn crop or a hay crop."

Tillinghast said 2008 has not been the best of growing seasons, as it was hard to get a dry hay crop in due to all the rain. However, that was not as much of an issue for corn silage as May wasn't a bad month for planting — the moisture helped the crop grow, and it wasn't as wet at silage harvest time.

However, the poor hay crop added pressure to silage demand and tightened supplies.

Franklin County has been a leader in experimenting with growing soybeans, and Tillinghast said this could become more of a trend in the future. He said many farmers are investing in the large steel drying bins that can be seen sprinkled around the North Country to store their crops of grain.

He noted that grain can't be stored as well in conventional silos because they are build for the density of silage.

Bob Gleason, president of the Franklin County Farm Bureau and a member of the New York State Board of Directors, also said world markets have complicated predictions. A key ingredient of fertilizer being produced in a foreign country can suddenly dry up, for example, throwing the whole market out of whack.

He said that when milk prices go below about $16 per hundredweight, it gets difficult for farmers to make a living, and prices around $15 or below are predicted in the immediate future. "They're going to have a fight on their hands to survive," he said.

Gleason also said the 2008 crop season was a mixed bag.

"It started out decent," he said. "Then it was wet as a son of a gun."

Farmers had to let their hay stand in the fields until it dried out enough for them to get to it, causing more hay to be baled in August and September than in the spring and early summer.

Another problem many farmers are coping with is debt that's still on the books from the lean years in 2005-06 when milk prices were historically low. Even the good year in 2007 couldn't make up for that.

"It can take more than one year to bring yourself back to an even keel," Gleason said.