LITTLE ROCK — This year’s agriculture boom is a bust for U.S. dairy farmers as surging costs for cattle feed compound a glut of milk products.
While the 27 percent jump in wheat prices and 48 percent gain in cotton may send farm income to a record, dairies will lose money in 2011 for the second time in three years, said Mike Brown, an economist at Glanbia Foods Inc., which processes milk in Idaho and New Mexico. Corn, a feed ingredient, jumped 33 percent in the two months ended Oct. 31, almost three times the gain in wholesale-milk prices. Futures slumped 11 percent.
Dairy farmers expanded herds after the 70 percent jump in prices to a record in 2007, just before the U.S. entered its longest recession since before World War II and unemployment rose to the highest level in a quarter-century. Weaker demand was compounded by this year’s drought, floods or freezing weather from Canada to Kazakhstan that ruined crops and increased competition for U.S. grain that dairies require.
“The crop farmers around here have been driving around with new equipment all the time,” said Linnea Kooistra, who owns a 250-cow herd in Woodstock, Ill., with her husband, Joel. “They’ve been making so much money the last couple of years because of high commodity prices, but for livestock farmers, it’s really been a hard time.”
Farmers lost $2.50 to $4 on average for every 100 pounds of milk last year, and the deficit may be $1 to $3 in the first half of 2011, Brown said. Glanbia’s three plants in Idaho and a joint venture in New Mexico process a combined 22 million pounds a day and make cheese and whey.
“We don’t think some dairymen will be able to survive,” Brown said from his office in Evanston, Ill. “They’re looking at some rough times.”
Corn futures have risen 48 percent since the end of June, the biggest gain in the Thomson Reuters/Jefferies CRB Index of 19 raw materials after sugar. The U.S. Department of Agriculture cut its estimate for the crop on Nov. 9 for a third straight month because of flooding in Iowa and Missouri and hot, dry weather from Illinois to Ohio.
Futures jumped to $6.175 a bushel on the Chicago Board of Trade that day, the highest since August 2008. Soybeans and wheat are up more than 37 percent since the end of June, and cotton reached a record on Nov. 10.
Crop rallies may send farm income higher than the record $87.4 billion reached in 2004, according to Neil Harl, an agricultural economist at Iowa State University and a former adviser to the governments of Ukraine and the Czech Republic.
On Nov. 24, Deere & Co., the largest maker of agriculture equipment, forecast that U.S.net farm cash income will jump 31 percent this year to the highest ever, before gaining another 15 percent in 2011.
While higher farm incomes improve prospects for Deere tractors and Mosaic Co. fertilizers, Dean Foods Co., the biggest U.S. milk processor, said Nov. 9 that consumers are swapping name brands for cheaper products.
“Our industry is going through a wrenching ordeal,” Dean Foods Chief Executive Officer Gregg Engles said on a conference call Nov. 9, after the Dallas-based company reported a 51 percent drop in third-quarter net income.
The National Milk Producers Federation spent $240 million culling more than 231,000 cows in the past two years. The industry-funded group stopped subsidizing the herd reductions last month in favor of promoting exports, Jerry Kozak, the federation’s president, said Oct. 28.
The U.S. herd had almost9.12 million head in October, or 0.2 percent more than a year earlier, according to the USDA. Milk output will rise to a record 192.8 billion pounds this year, the USDA said Nov. 9. Production per cow in May, usually the peak month, reached a record 1,868 pounds, the data show. Cheese inventories reached 1.037 billion pounds in October, the highest for the month since 1984.
Consumers aren’t benefiting from the glut. While farmers sell to processors at higher prices, it’s not enough to cover additional feed costs. Processors in turn are charging more to retailers. Grocers sold whole milk at $3.321 a gallon on average in October, up 9 percent from a year earlier and the highest since January 2009, Bureau of Labor Statistics data show.
Mounting losses will force producers to keep sending cows to slaughter, said Phil Plourd, the president of Blimling & Associates, a commodity researcher in Cottage Grove, Wis. That should reduce supply and drive milk prices to $17 per 100 pounds by the end of 2011, he said. Futures closed at $13.70 on Nov. 24 on the Chicago Mercantile Exchange.
About 60,700 dairy cows were slaughtered in the week that ended Nov. 13, or 11 percent more than the same time a year earlier, according to the most recent USDA data. That’s the ninth consecutive week of higher year-on-year figures.
Business, Pages 23 on 11/30/2010