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1987 Milk Prices Hinge On Restrained Production
INTERCOURSE - Prices will
record modest gains in the next
few years if dairymen restrain
production after the buyout
program ends in August.
The buyout will continue to in
fluence milk support prices into
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Joseph Mathis
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1989. “It’s having an impact. But
having a greater impact are those
who bid and didn’t get into the
program,” Eastern Milk
Producers’ economist explained.
Speaking at an informational
meeting held on Tuesday at the
Harvest Drive Restaurant, Joseph
Mathis said that for every
producer who signed up in the
buyout program, Eastern and
Dairylea are loosing two producers
due to sellouts.
The buyout, designed to quickly
reduce the amount of milk pur
chased by the government by 12
billion pounds, removed over
950,000 animals by Jan. 2., the two
third completion mark.
Farmers with relatively low debt
loads were able to bid low and were
accepted. Acceptance was also
concentrated around major
metropolitan areas of the state,
Mathis noted. “In areas around
major cities there is a lot of
pressures on the land for other
purposes such as industrial and
housing developments,” the
economist said.
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With the influx of industry, work
opportunities other than farming
become available, he added.
When the program ends in
August “there is going to be some
recovery, but not as much as after
the diversion program,” Mathis
speculated. He explained that after
the diversion program milk
production skyrocketed because
participating farmers were in a
position to “plow the feed back to
the cows.” Plus, all the heifers and
cows could have remained on the
farm participating in the diversion
program.
With the buyout program, the
cows will be destroyed as well as
their calves and heifers, Mathis
noted. All the production capacity
of a farm will be removed and the
participant must stay out of
dairying completely for five years.
“Most likely they’ll stay out,” he
added.
According to Farm Credit
numbers, he said, there is not
much borrowing power out on the
farms. This will prevent ex
pansion. However, moderate
production increases will continue
through the use of better genetics
and management, he said.
Milk production per cow has
steadily improved at a yearly rate
of 2 to 2.5 percent. Total milk
production is tied to this number
and changed by the number of
cows in the country, he explained.
In 1985 feed was cheap and low
producers were culled. The net
result was an increase in milk per
Lancaster Farming, Saturday, February 7,1M7-A2l
cow at the end of the diversion.
There will be no big surge in
production until the end of 1989
when the bovine growth hormone
is approved, he said. Mathis ex
plained that the general feeling of
the pharmaceutical companies
developing BGH is that it will be on
the market in the end of 1989.
Problems started to develop in
the dairy industry in 1980. Between
1976 and 1979 “supply and demand
were in balance,” Mathis ex
plained. After that time, the
government “increased the sup
port price without regard to the
market” and commercial use
dropped, he continued. The price
increased every six months by 50
cent increments.
Farmers responded to the in
creased prices by increasing
production, he stated. When the
government purchases reached an
excessive amount, the government
responded with the diversion
program.
The diversion program worked,
Mathis said. It removed 2.5 per
cent of the production which
otherwise would have been added
to the milk surplus. The diversion
program reduced the amount of
government purchases while it
was in effect.
In 1986 he estimated government
purchases at 10.6 billion pounds. “I
think in 1987 this amount will
continue to drop,” the economist
said. In 1988 he predicts the supply
demand conditions will be tight
enough that the government will
purchase less than 5 billion pounds
of milk.'
The secretary of agriculture has
the authority to drop the support
price by 50 cents if it looks like the
government will buy over 5 billion
pounds of product on Jan. 1, 1988,
Mathis said. Potentially, under
current law, the price could drop
by 50 cent on Jan. 1 of 1989 and 1990,
he added.
1988 is going to be a close call if
the price drops or not, he ex
plained. “Most likely what we hope
will happen is that it’ll stay die
same.”
A bill currently under con
sideration, and one which the dairy
cooperatives are supporting,
would trigger a limited buyout
instead of a 50 cent price drop on
Jan. 1 of 1988, 89 and 90, Mathis
said. The co-op are hoping to sell
the bill without an assessment to
the farmer. Mathis said the
government can save $l6 per
hundredweight by not buying Ok.
milk. The government would also
not have the storage costs on that
milk.
“It looks as though the worst is
over. We had a general drop in
milk price since 1981. We should get
some improvement in price but it
won’t be much,” Mathis said.
The moderate price im
provement hinges on the farmers
controlling milk production. In 1985
prices dropped because of a sharp
rise in production. “We got back
into record production after the
diversion program,” the
economist explained.
Since August prices have been
better than a year ago, Mathis
pointed out. In 1984 he predicts
prices will be lower than 1984 but
better than 1985. Yet, he added, the
second half will not be as good as
the second half of 1986, prices will
level off.
In Federal Order 2 in 1987, dairy
farm numbers are expected to
drop by 6,3 percent compared to
1986. The reduction will range from
7.6 percent in the first half of the
year to 3.5 percent in the second
half, Mathis explained.
However the output per cow is
expected to grow by 3.6 percent.
The trend will be opposite the farm
reduction with greatest increase
coming at the end of the year, he
added.
The net result of the two trends,
Mathis explained, will be the Class
1 and Class 2 markets coming
closer together. Milk manufac
turers have witnessed a 6 percent
decline in Class 2 milk availability.
Eastern has temporarily closed its
Grover cheese plant because of the
supply reduction.
Commercial use which has had
an “unprecedented increase”
since 1983 will also level off. “I
don’t think the trend is going to
continue. We won’t be able to
sustain the rate,” he speculated.
While increases have been
recorded at 7 percent in past two
years, he predicted an increase of 2
percent could expected in 1987.
While conditions appear good,
they are not super and something
could happen to drop the price,