Milk prices on the upswing

MOUNT VERNON — Cautiously optimistic is how Phillip Ball describes the outlook for milk prices in 2010. That is good news for Knox County dairy farmers, who in 2007 accounted for $11.2 million of the county’s economy.

“They are improving at this point,” said Ball, who, along with his father runs a 70-plus head dairy operation on North Liberty Road. “All last year they were below the profit level. It’s getting to the point now where we are getting to break even.”

Fourth-generation dairy producer Tom Staats of Danville agrees.

“It was terrible during the summer; now the cycle is starting back up,” he said. “There was too much supply. The economic conditions I am sure had an effect.”

Staats said the pullback in consumer spending affected supply and demand of dairy products in terms of people still bought milk, but cut back on items such as ice cream.

Ball said producers are getting between $14 and $15 per 100 CWT, which equates to about $1.20 a gallon.

“We got below $1 for a while,” he said. “December is the first month prices have risen to the point where they are not subsidizing milk.”

Staats, whose family operation milks about 100 head, said the break-even point varies by producer.

“For people having debt, it’s really been a struggle this past summer. They weren’t making enough to pay on their debt,” he said.

On average, Staats said, the break-even point is around $13/CWT.

“The lowest our price got was $12.97, but our quality premium was good,” he said. “We get $1.50 or so premium for quality. If your quality is down, you are around $11 [per CWT].”

In addition, he said, he gets 40 cents per 100 CWT for not using the growth hormone BST.

In August, Stoll Farms in Wayne County terminated its herd of about 3,000 cows through Cooperatives Working Together, a national cooperative whose goal is to stabilize milk prices by balancing supply and demand. One of the reasons cited by owners Ed and Bonnie Stoll on their decision to terminate their herd was because of the amount of milk being imported into the country, which affects the price.

According to Paul Kiendl, dairy economist in the Office of Global Analysis for the U.S. Department of Agriculture, 135,200 gallons of fluid milk were imported in 2008, a value of $180,000. Through October 2009, 222,900 gallons were imported at a value of $479,000.

“We do not have a specific 2010 import forecast for fluid milk,” he wrote in an e-mail Friday. “We are, however, forecasting that U.S. imports of all dairy products in fiscal year 2010 (October through September) will total $2.9 billion — up 8 percent from FY2009.”

Staats, a member of the cooperative Dairy Farmers of America, agrees with the concept of terminating herds. The program is a voluntary effort funded by co-op members; it does not receive government funding.

“It cuts down on the supply,” he said of herd termination. “There’s less milk to find a home for. I’m sure it has helped.”

“We don’t need to import,” he continued. “Here we are trying to get rid of cows so we won’t produce too much, so we shouldn’t have to import.

“Exporting,” he added, “helps our prices.”

Ball said he is skeptical whether such programs work, although he does not have a problem with them as long as they remain voluntary.

“I beg to differ whether it’s had an impact,” he said. “Milk production in the United States has been pretty much the same.

“In 2008, when we were having a good price for milk, we had a weak dollar, so we were exporting. Last year it collapsed. ... Sometimes we import, sometimes we export. It just depends on the dollar’s value overseas. Imports and exports probably all even out in the end.”

Of more concern to him is government regulation, specifically the cap and trade legislation. Ball said that although the dairy industry is excluded now under cap and trade, rules could change in the future to include dairy.

“It makes me uneasy what they are doing in Washington right now,” he said. “The EPA has said carbon dioxide is a pollutant. Cows emit carbon dioxide; that’s what cows do. There’s talk about implementing a tax on every cow of $200 to $300. That is not going to work.”

“That scares me,” he said of the potential tax. “That probably right now concerns me more than milk prices. It bothers me more than the import-export issue.”

Ball said he agrees if an incident occurs such as manure getting into a creek, for example, the producer should be liable for damages.

As to the future, Staats said prices will continue to change.

“They will trend higher for a while, until something happens to lower it,” he said. “You may see an increase in the store a little bit, but you don’t really buy that much milk. But the extra, I feel, helps the dairy farmer more than it hurts the consumer. You just have to support everybody or they are not going to stay in business.”

“In my opinion, the more the government stays out of [the milk industry,] the better,” said Ball, acknowledging government intervention is nice if prices decline. “The thing, is you have an oversupply, and basically it’s like any other business — if your product is out of demand, you go out of business.

“I’ll do this as long as I can,” he said of the dairy business he’s been in since the mid-90s. “If I go out of business, I’ll go do something else.”