Rising input costs represent a moving target

One of the challenges in writing for a national audience is to capture the big picture, while also trying to acknowledge all of the regional differences that exist.

This happened recently when I came across a press release from the University of Missouri quoting one of its faculty members, Scott Brown, on the prospect of smaller milk checks in 2008. I usually pay attention to anything Brown says — he is a highly respected dairy economist, whom the National Milk Producers Federation calls on to analyze the economic impact of its Cooperatives Working Together program.

In the press release, Brown predicted that milk prices would average around $16.90 per hundredweight this year. Not a bad price, but because of higher input costs, it might only be break-even for many producers. “Even if milk prices stay near $17, there may be concerns,” Brown said. “At best, that will be a break-even price.”

The temptation is to run with the press release and ask somewhat provocatively in the headline, “Is $17 a new break-even?” Certainly, it captures the idea of higher input costs cutting into profits. But given the regional differences that exist, that kind of headline is much too generic.

Producers in the Southeast have had to deal with higher break-even costs than $17 for some time now. For many of them, $17 would be welcome.

For others, break-even may still be lower than $17. 

Among California dairies that work with the certified public accounting firm of Genske, Mulder & Co., the average expense during the first nine months of 2007 was $14.35 per hundredweight. That includes feed, depreciation, labor, interest and all of the other operating expenses.

Yet, input costs continue to rise, rendering what might have been a benchmark as recently as six months ago out-of-date.

Steam-rolled corn was priced at $169 per ton (delivered) in central Calfornia during the first week of September. By mid-February, it had risen to $233 per ton. Whole cottonseed in central California rose from $250 per ton to $352 per ton over that same time period. Soybean meal rose from $284 per ton to $397 per ton.

There’s not a lot you can do about higher feed costs. But perhaps there are a few other areas you can look at.

“Labor is an area I see a lot of times that is pretty high, and the more efficient you can get the dairy, the better off you end up being,” says Glenn Hoagland, CPA at Genske, Mulder & Co.

We will continue to report on higher input costs. We will do our best to be cognizant of regional differences, while also recognizing how quickly those costs can change. And, we won’t preach the “get more efficient” message without good data to back it up.

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