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Higher milk prices help dairy farmers play catch-up

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Posted on June 16, 2014 |
By Zach Despart



ADDISON COUNTY — Local dairy farmers are riding a wave of high wholesale prices that some say will finally pull them out from the dairy crash of 2009.

“The prices we’re receiving now are much stronger,” said Bob Foster of Foster Brothers Farm in Middlebury.

Foster said much of the surge is due to high overseas demand.

“We’ve seen a reflection of higher demand for product, particularly internationally,” he said. “We’re now exporting upwards of 17 percent of dairy produced in the U.S.”

Foster said this increase in exports is a good thing, as the U.S. dairy industry is now known as a reliable supplier, rather than one that just dumps surplus on the global market. Agri-Mark, which purchases Fosters Brothers’ milk, exports to 27 different countries.

Foster said that China is a major destination for exports, as well as regions without a large dairy infrastructure, like South America, the Pacific Rim and the Middle East. In addition, milk is not sold just as a fluid product. Foster said that lactose, when dried, is a popular food ingredient in animal feed. Whey proteins, such as WPC 80, are used for infant formulas.

“We take the whey we used to discard, separate the protein and sugar out of it,” he said. “China is a big customer of WPC 80.”

But while exports may open up the U.S. dairy industry to more markets it also greatly increases risk from volatility in demand. Foster said if foreign demand was to drop as little as 2 percent, prices that farmers get paid could drop as much as 30 percent. In addition to fluctuating domestic and overseas demand, the U.S. dairy industry is increasingly tied to the value of the U.S. dollar against the Euro and other foreign currencies.

While the price of milk is currently at record levels, farmers’ operating margins are still relatively tight. Depending on the region and transportation costs, the current price per hundredweight is around $24. The price of production has also risen in recent years, to about $19 per hundredweight.

In 2009, when prices dropped significantly, the price per hundredweight was as low as $10 and production costs were $13 to $14, Foster said.

“Relatively, the margins have increased from 2009 from being negative to positive, but they’re not wildly positive,” Foster said. “There’s the impression that everyone is fat and happy and making bundles of money, but much has gone to pay production costs.”

But even though farmers aren’t awash in cash, Foster said these good times are a huge lift to the industry.

“People are paying down debt and becoming current on past obligations, which is crucial,” Foster said.

This includes unpaid bills to veterinarians, feed producers and other support that dairies rely on.

“It’s an industry that works all together and is very local, in the community,” Foster said. “That’s why it’s really helping the whole economy.”

The veteran farmer noted that while 2014 has been good to dairy farmers, he always has his eye out for the historically volatile swings of the industry, which he said, when graphed, look like a sine wave.

“Its amplitude over the last 15 years has gone from almost flat line to pretty wild swings,” Foster said.

He said legislation like the farm bill, which was finally renewed by Congress this past February after more than a year of delay, has helped.

“There’s more variability, and the farm bill does develop some tools,” Foster said. “But the rules and regulations haven’t been written.”

Foster said he hopes Congress or the USDA implements more safeguards to protect farmers against economic realities overseas, which U.S. policymakers have little control over.

“We’re in an evolving market right now,” he said.

Foster said he hopes the high prices will bring stability and allow younger generations of farmers to enter the aging industry.

“Hopefully, it will be sufficient to bring another generation into the business,” Foster said. “We’ll see.”

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