Anyone milking cows knows all too well how painful the current milk price cycle has been. While the dairy industry has faced periods of low milk prices before, this time it is different.

“Rather than the deep cut we’ve seen in previous price downturns, like in 2009 and 2012 — and those were deep cuts — this is starting to feel like a long scrape,” said Mark Stephenson from the University of Wisconsin Center for Dairy Profitability. “This is the fourth year of prices that are not covering our full cost of production. It hurts, but it hasn’t hurt enough to make us change production decisions yet.”

During his presentation at the Wisconsin Agricultural Outlook Forum held in Madison, Wis., Stephenson addressed the question of “Why do we continue to produce (more milk)?”

“It’s the age-old question,” he said. “The simple answer is that milk price hasn’t dropped below the fixed price of production.”

While low, he explained that the milk price is above operating costs, although it is not covering the total costs of production. “Milk prices would have to fall lower before a farmer could sensibly make a decision to reduce milk production,” he said.

Unfortunately, in the meantime, farms are consuming capital, and it is not being replaced at the same rate it normally would for close to three years now, Stephenson noted.

He also pointed out that open accounts with input suppliers, feed dealers, and others have been growing. “These are signs of financial stress,” he said.

Is there relief in sight?

Stephenson is projecting the downturn to continue until at least the second quarter of this year. He predicts the Class III price will be down about $1.35 for 2018.

“2018 will, unfortunately, feel a lot like 2016,” Stephenson said.

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(c) Hoard's Dairyman Intel 2018
February 5, 2018
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