Milk prices surge, but so do farm costs

ADDISON COUNTY — There’s good news and bad news for Addison County farmers.
The good news is that milk prices have continued to remain strong, giving dairies a good return on their products.
The bad news is that skyrocketing production costs — particularly in the areas of fuel and feed — have all but negated the more robust return for milk.
“The price of milk and the price of inputs are not balancing,” said Addison County Farm Bureau President Bill Scott. “The cost of fertilizer has doubled, grain prices are way up and freight hauling is going to be up also because of the cost of diesel fuel.
“It’s the same old story,” he added. “Everyone is caught up in the cost squeeze, even though the price of milk is up.”
Bob Wellington, senior vice president economics, communications, and legislative affairs with Agri-Mark/Cabot, forecast a June blend price of $19.40 per hundredweight for milk, up around $1 compared to the May price. He projects another $1 bump in price for July.
It should be noted that the $19.40 represents the price in Boston; Vermont farmers, when factoring in transportation costs for their project, can expect to receive $18.50 to $19 per hundredweight, according to Wellington. He said the firm June price should be released next week.
The problem for many farmers is that even with milk prices now at around $6 per hundredweight more than three years ago, it’s still not enough to keep some farmers afloat.
“Vermont farmers need prices above $20 (per hundredweight) to cover all of their costs, because feed costs are so outrageous, and energy costs,” Wellington said. “It’s a real problem for farmers.”
Most farm equipment runs on diesel fuel, which lately has been running at between $4 and $5 per gallon — up from an average of $2.63 per gallon in March of 2006. And farmers are also sharing in the higher costs of trucking their products to out-of-state processors and markets.
“Everything out there right now is affected by fuel,” said Jim Bushey, co-owner of Middlebury-based Bourdeau & Bushey Inc., a major seller of feed and other agricultural products. “Farmers are feeling the pain in everything they buy.”
Bushey noted that many farm supplies are currently delivered to Vermont from the Midwest. The fuel surcharge in such deliveries is now running at 40 percent, according to Bushey.
Those surging fuel prices, coupled with increased demand for U.S. agricultural products from foreign markets, are contributing to feed “prices that change by the minute,” Bushey said.
As of Monday, corn was trading at $7.18 per bushel, up from $1.85 a bushel only one-and-a-half years ago, Bushey noted. Soybeans are now trading at around $16 per bushel, up from around $5.50 just a year-and-a-half ago.
Fertilizer costs have also doubled or tripled during the past year, while seed prices are also on the way up, according to Bushey.
“Farmers can have fantastic incomes, but they have fantastic expenses,” Bushey said.
“When you talk about 3 percent inflation, this is crazy,” Bushey said. “Nothing we buy is changing 3 percent.”
Dairies aren’t the only ag businesses being affected by the rising production costs.
Andrea Ochs, vice president of the Addison County Farm Bureau, noted that fruit growers are also seeing costs rise. She and her family run the Crescent Orchard in Orwell.
“Plastic bags and cardboard boxes are up 10 percent to 15 percent this year,” Ochs said. “It’s because of petroleum.”
She noted that while apple prices recently rose by $1 per box (wholesale) “that’s not enough to cover rising fuel costs. Something has got to give, and I’m hoping it’s not the farmer.”
Steve Kayhart and his family run the Kayhart Dairy in Addison. They have a herd of 575 cows, and have seen their production costs escalate dramatically during the past year.
“There is no doubt our energy costs have gone through the roof,” Kayhart said. He also cited the spiraling costs of fertilizer, grain, soy bean and dextrose.
“It’s kind of trickled through everything,” Kayhart said.
He acknowledged the federal Milk Income Loss Contract (MILC) program could provide some financial cushion for farmers. The MILC program compensates dairy producers when domestic milk prices fall below a specified level. The program was reauthorized this year with a new “feed adjuster” that sets a baseline feed cost of $7.35, which is based on 51 percent corn, 41 percent alfalfa hay and 8 percent soybeans. Each month, the U.S. Department of Agriculture computes the cost of feed using corn, alfalfa hay and soybean prices. That monthly calculation is then used to increase the trigger price for MILC by 45 percent of the percentage increase between the cost of feed for milk production and the base MILC Class I trigger of $16.94 per hundredweight.
“When prices are really bad, (the MILC program) really does help,” Kayhart said. “But getting a payment from the federal government is a sign that things are not going well.”
Still, not all the news is bad for farmers.
Kayhart noted the stellar milk prices of the last half of 2007 allowed farmers to pay down some debt and reposition themselves financially.
“2008 prices are still strong enough to remain cash-positive and make a return,” Kayhart said.
Farmers able to take care of their own feed and fertilizer needs on-site, using their own crops and materials can also weather the economic storm in decent shape, according to Bushey.
“We can make better use of our homegrown feeds,” Bushey said.
“Grain farmers are tickled to death,” he added.
Bushey believes that as long as milk prices remain strong — and even improve a little — agriculture will hold its own compared to many other industries.
“I feel very good about agriculture,” Bushey said. “In the long-term, I think we’ll be just fine.”
Things are also fine at the Middlebury-based Agri-Mark/Cabot plant, which is running seven days a week turning area milk into Cabot’s award-winning cheddar. The dairy cooperative also runs plants in Cabot and Chateaugay, N.Y.
The Agri-Mark plant on Exchange Street has 110 workers. More than 50 million pounds of cheese are made at the facility each year, using 500 million pounds of milk. The plant also produces 8 million pounds of whey protein concentrate annually, along with 40 million pounds of “whey permeate,” used primarily in animal feed.
Milk production is expected to drop some during the summer heat, something that dairy forecasters said could bump prices more in the near future.
“All of our plants are running full because there is a lot of milk around right now,” said Agri-Mark/Cabot spokesman Doug DiMento. “Fortunately, we have strong sales.”

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