AlB-L«nca«ter Farming, Saturday, January 22, 2000
Farmers Can Weather Current Milk Price Crunch
(Continued from Page A 1)
dredweight. Transportation
costs are not as high as they
were 20 years ago.
According to Bailey, produc
tion has to fall for prices to im
prove. “Farmers haven’t been
hit with the record low milk
price yet,” said Bailey. “Decem
ber milk production is still up
3.8 percent across the nation.”
Next week farmers will
receive their milk check for De
cember, which has the 22-year
low milk price on it. In Febru
ary, they’ll get paid for January
milk, which will bring an even
lower price. Once the low milk
prices hit, Bailey expects milk
production to go down.
“Farmers need incentives to
expand.” said Bailey. “With the
high cost of replacement heifers,
interest rate increases, high
labor costs, and low milk prices,
there is no incentive.”
Bailey expects the milk prices
to come back up in June or July.
“Once we get through May,
which is typically the month
when production peaks, it’s
going to improve,” he said.
“And there are things that farm
ers can do to get through the
tough times.”
Budget your income out for the year. Bai
ley’s website includes a spreadsheet to help
farmers budget their income and rearrange
their expenses.
“If you can get a line of credit to get
through the next six months, do it now,” said
Bailey. He expects that during the first few
months of 2000, milk prices will be below
break-even points.
“1 know that many farmers don’t have a lot
of flexibility,” said Bailey. “But you have to
budget it out.”
Farmers should think about what they can
do to cut back on expenses. “You can’t take
away expenses that are going to affect milk
production. But you may be able to delay loan
payments, reschedule interest payments, or
arrange for short-term financing.”
Ask questions about your feed supply. Be
cause of last year’s drought, many dairy pro
ducers will have to buy forage and other
feeds. Now may be a good time to lock in feed
costs for the year.
Bailey suggests visiting your local feed mill
to find out if you can forward contract some
of your feed supply. “You want to look at
your risks for the upcoming year, and feed
costs are one of your biggest risks,” said
Bailey.
“Feed prices have been very low over the
last couple of years. We don’t know what
they’re going to do. The last thing you want is
to see milk prices finally improving and then
suffer from higher feed costs, too.”
Joel Rotz, dairy specialist at the Pennsylva
nia Farm Bureau, also suggests some other
options.
While he doesn’t see the milk price improv
ing over the next few months, he does think
that farmers can survive if they stick to
gether.
“There’s no doubt about it, the low milk
prices are going to hurt farmers,” said Rotz.
“But they’re the result of cheap feed and a
couple of years of good milk prices.”
For example, the Pennsylvania state aver
age milk price in 1998 was $15.92 per hun
dredweight compared to prices in the $l3 to
$l4 range during past years.
Rotz suggests the following options.
Look into contracted prices. “I know some
milk cooperatives are offering contracted
milk prices that take the sting off of lower
prices,” said Rotz. “However, farmers have
to realize that contracting locks them into a
price for the entire year. If the price improves
at the end of the year, you still have to take
the lower price.”
Despite the risk, Rotz still thinks it is some
thing farmers need to consider.
Ask your cooperative or dairy
about over-order premiums. Ac
cording to Rotz, the Pennsylva
nia Milk Marketing Board has
mandated an over-order prem
ium for Class I milk produced,
processed, and sold in Pennsyl
vania. The premium is about
$1.24 per hundredweight.
“The premium will help some
farmers a lot and others not so
much,” said Rotz. “It depends
on the utilization of your milk.”
Lower your cost of production.
“When prices are this low, the
farmers with the lowest cost of
production are going to fair the
best,” said Rotz.
Many farmers have expanded
to spread out the production
costs over more cows. But, as
Rotz said, “that creates the di
lemma of excess production.”
Rotz suggests smaller dairies
lower production costs by reduc
ing overhead costs, owning less
machinery, cutting harvesting
costs through grazing, and net
working with neighboring farm
ers to share high cost equipment.
Stay focused. Both Bailey and
Rotz agree that the best thing
farmers can do to get through
the low milk price period is to
focus on their operation and
limit their expenses.
“It’s frustrating when farmers
talk to their neighbors or hear
about people on Wall Street who
are making so much money,”
said Bailey. “But we got to real
ize that this is an open market,
and we have to be prepared for
the ups and downs.”
Bailey cautions spending
energy trying to change the cur
rent policy. “We spend the last
five years making hard-earned
changes to the policy,” said
Bailey. “Now we finally got the
new system in place, and I don’t
see any significant changes hap
pening for some time.”
Rotz agrees. “The new system
is actually putting more money
into producers’ pockets,” said
Rotz. “It allows for Class I milk
prices to be based on the higher
of either Class 111 or Class IV.”
Rotz estimates that, on aver
age, the new system adds about
55 cents per hundredweight to
the farmer’s blend price for
milk.
Bailey also warns against
blaming the processors, bottlers,
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and retailers for the low prices.
“They’re our partners,” said
Bailey. “Without them, farmers
would really be in bad shape.”
While Rotz still sees the
Northeast Dairy Compact as an
option for increasing premiums,
he thinks it will be a tough battle
Land O’Lakes Explains
New Pricing System
JAYNE SEBRIGHT
Lancaster Farming Staff
MORGANTOWN (Berks
Co.) Mention federal market
order reform and the new milk
pricing system, and many farm
ers are left scratching their
heads. Yet the new system af
fects January milk.
That’s why Land O’Lakes Co
operative is hosting 16 local
meetings in the region over the
next two weeks.
“We want to help producers
understand what’s going to
happen in the next couple of
months,” said Dennis Schad,
Land O’Lakes Manager of Reg
ulatory Affairs.
PLANT.
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Brown vegetation
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Green vegetation
to get the Compact passed in
Congress for Pennsylvania. Rotz
estimates that farmers in the
New England states are getting
$2.80 more per hundredweight
because of the Compact.
(Turn to Pago Al 9)
One of the first meetings was
held Tuesday at Sunnycrest
Dining Hall in Morgantown.
Twenty farmers attended the
meeting, where Schad intro
duced the new milk pricing
system and the federal market
order changes.
The new federal milk markets
took effect on January 1, 2000.
The reform, mandated by Con
gress in the 1996 Farm Bill, con
solidated 33 market orders into
11.
Due to the reform, Pennsylva
nia and surrounding areas will
be a part of Order 1, which in
cludes the Northeast region of
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