With feed costs declining and milk prices strengthening, California dairy farmers say their short-term economic outlook appears to be improving, but their frustration with the state's current milk pricing system and Congress' inability to pass a new farm bill projects a more sobering forecast.
Thanks to a bumper U.S. corn crop this year, dairy farmers have seen corn prices drop from a high of $330 a ton last year to the recent $215. This downward trend may help lower the cost of other feeds, said Tulare County dairy farmer Tom Barcellos, although he noted that prices of cottonseed, soybean meal and dry distillers grains have remained strong. Alfalfa hay prices are also still high but have begun to soften, he said.
But falling corn prices coupled with higher milk prices have definitely provided financial relief to producers, he said, even as some dairies are still struggling to stay in business. The current market situation has also allowed dairy farmers an opportunity to use risk management tools, such as locking in their feed cost, he said.
"On an input-and-return basis, there's room to pay the bills, to have some money left over to catch up or try to weather the next dip in (milk) prices," Barcellos said. "I'm confident that the outlook is positive. But outlook also changes."
Corn, including corn grain, silage and gluten, represents 28 percent of a dairy's total feed costs, according to the latest data from the California Department of Food and Agriculture. Alfalfa hay is about 17 percent, while cottonseed is 6.2 percent and soybean meal is 0.7 percent.
Barcellos said the concern with hay prices lowering too much is that it also increases export demand for hay.
"China is buying as much as they can," said Michael Marsh, CEO of Western United Dairymen, "and so they've been in the marketplace helping to drive up prices for U.S. livestock operators with regard to hay."
In addition, lack of rain has shortened this year's California hay crop, keeping prices high, Marsh said. And with more farmland converting to trees and vines, there is also less alfalfa acreage planted to meet the growing demand for hay, Barcellos said.
Despite positive signs in the marketplace that have helped improve profit margins on the farm, dairy farmers said they remain discontented with how their milk price is determined under the state's current milk pricing system, and are now moving forward with a plan to petition the U.S. Department of Agriculture to replace the state milk marketing order with a federal order.