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Thoreson sees better times ahead for dairy producers Tuesday, August 25, 2009
Agri News staff writer
DUBUQUE, Iowa --Eighteen months ago dairy prices were over $20.
Since last summer, prices have plummeted to $11 in July but costs have remained high. Many dairy producers are wondering "what the heck has happened to our dairy industry," said Dale Thoreson, ISU Extension dairy beef and forage field specialist.
Speaking at last week's Dairy Financial Situation meeting in Dubuque, Thoreson said U.S. dairy industry growth in 2006 to 2007 was encouraged by increased global demand.
In 2008 the U.S. economy faltered and consumption of dairy products decreased domestically. The U.S. recession spread worldwide and decreased consumption even more. New Zealand's drought ended, which brought that country, the world's lowest cost producer of dairy products, back into the market.
"We're looking at a decrease in demand worldwide coupled with high input costs, a financial crisis and credit difficulties," Thoreson said. "No one, not even industry experts, saw this crisis coming."
There are some glimmers of hope, Thoreson said. Prices have slowly trended upward since July. Cow slaughter continues at a steady rate. On July 31, USDA increased the support price 18 cents for blocks and barrels and 12 cents for nonfat dry milk for August through October. This has increased Class III prices for August, according to Robert Cropp, professor emeritus at the University of Wisconsin.
Nonfat dry milk sales have increased to the government and sales increased through the Dairy Export Incentives Program, which had been idle for several years. The whey market is moving steadily higher. Every penny increase in whey prices adds six cents to the Class III price. Some feed costs have dropped.
Cropp is projecting Class III prices near $12.50 by September and in the low $14s by December, Thoreson said. Prices will continue to improve in 2010.
Gary Sipiorski, a long-time banker who is now dairy development manager with Vita Plus, has said many producers are at the end of their borrowing ability and the next 90 days will be tough with real estate taxes and cropping bills due, Thoreson said.
Thoreson expects many Iowa dairy producers and lenders to be making decisions about whether to continue in the coming weeks.
"I think they'll decide if they're going to chop silage for the next year or they're going to quit," he said.
Producers must stay in contact with their lenders, explore Farm Service Agency loan guarantees and make plans to build equity, Thoreson said. Sipiorski is advising producers to make plans to build liquidity during future good times and think about grabbing margins with future milk prices and inputs.
Many industry efforts are under way to improve dairy prices, Thoreson said.
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