NORWICH – Coming off record highs the last eight months of 2007, in the coming year milk prices paid to local dairy farmers are likely to dip some, say economists with the U.S. Department of Agriculture, but increased foreign demand should ensure relatively solid returns.
“I think this might be a pretty good year,” said Guilford dairy farmer Terry Ives, echoing the USDA’s forecast. “Demand is still higher than our output and because of that prices are still holding. Exports are helping us quite a bit.”
In 2007, farmers were paid between $21 and $25 per hundred pounds they produced from May to December. In some months, that was $10 more per hundred pounds than what farmers got in 2006, when returns hit record lows.
The trend is continuing into 2008, with the price for January set at $24.22 per hundredweight. That’s $7.38 higher than it was this time last year.
The result: Ives said its helped local farmers pay off debts they incurred due to severely low milk prices two years ago, but admits other factors, such as corn and hay sales, have contributed to farmers getting back on their feet.
“We’ve made up a lot with corn and crop sales. The demand for corn is phenomenal,” said Ives, who, like many farmers, have been able to find a comparative advantage trading corn crops for feed at area mills. “We’ve also been selling a lot of hay to farmers down south. It’s been so dry there that they’ve been coming up here.”
Ives says farmers have been able to sell hay to farmers from as far away as South Carolina at $4 per small bail, double the normal price.
Peter Fredericks, an economist with the USDA in Albany, says U.S. dairy exports to Europe and Asia were major factors in the better-than-usual prices last year. He also said a decrease in milk production in 2006 added to the rise in return for 2007.
“Farmers pulled back production in 2006, because the prices were so low, and contracted the milk supply,” Fredericks said. “Then demand took off in 2007.”
The demand should remain in 2008, he said, citing droughts in Australia and New Zealand – large dairy exporters – and a need for milk proteins, like milk powder and whey, in Europe and Asia. The weakening of the U.S. dollar has also made America an attractive source for dairy, Fredericks added.
As a result of the call for U.S. dairy, there has been a rise in nationwide milk production. However, if prices fall, they shouldn’t be below $18 or $19 per hundredweight at worst.
“We expect some softening in the price,” Fredericks said. “But nothing dramatic.”
Fredericks also points out, however, that input costs, like fuel, feed and equipment, have risen with the prices, meaning farmers aren’t necessarily making as much money as they did in years past.
“Even though we’ve seen record prices, farmers might not be making as much as they were when fuel was less,” he said.
Ives believes that more emphasis has to be placed on marketing and selling milk ingredients separately, like protein.
“Milk has a high nutrient density,” he said. “Fat might be the downside, but for everything you’re getting – calcium, protein – it’s positive.”