Dairy farm profits set to return in 2010
The price of milk at the farm and the outlook for Missouri dairy producers got a whole lot brighter with the arrival of 2010, said a University of Missouri Extension dairy economist.
Joe Horner told producers that the year of $12 milk is over. He projects an average price for the last half of 2010 at $16.50 per hundredweight.
The new farm-gate milk price will not reach the 2008 price of $20 per hundredweight that Missouri dairy producers had received. But price forecasts point to profitability in dairying, which had gone from boom to bust.
Horner spoke at five Dairy Profit Seminars across the state in February.
With a year of low prices, many producers are in a financial hole, Horner said. Digging out will require careful management and attention to debt restructuring and risk management.
Horner cautioned that good prices could be driven down by increased milk supply. "After a year of an oversupply of milk, the supply and demand are carefully balanced."
Danger areas cloud the outlook. "While producers culled cows in the past year, there is a huge supply of heifers available to bring online in 2010," Horner said. "If producers see those higher prices ahead and stop culling cows, they will be in trouble again." If producers don't stop culling and don't rev up production, he added, better financial times are in store for 2010, 2011 and beyond.
"We're starting the best part of a three-year milk-price cycle," he said.
Domestic demand dropped sharply in the recession. That demand is slowly recovering.
"We must keep solid sales of fluid milk and butter," he said. "However, the biggest variable is cheese. If we eat out more, we order more pizza. Then cheese demand goes up."
Export dairy sales also help sustain milk prices. "If the dollar weakens, our dairy exports will increase. If the dollar strengthens, we will price ourselves out of world markets.
"Export sales are the kicker that strengthens milk prices all the way back to the farm gate," he said.
The profit seminars were conducted by the Missouri Dairy Association, MU Commercial Agriculture Program and MU Extension.