At World Ag Expo, financial experts shared their insight on dairy finances and the extreme milk market volatility that dairy producers have faced this past year.

“Our client’s average milk price for 2008 was $17.53 per hundredweight,” says Joel Eigenbrood, a partner at Genkse, Mulder & Co. Certified Public Accountants. “In 2008, we hit some record highs, but unfortunately alongside record high milk prices came record-high input cost.” For example, feed cost averaged $9.22 per cwt., one of the highest levels ever seen.

In 2009, cost remained near-record-high levels. Here is a closer look at the average milk price and cost of production, broken down by state or region. Figures are through Sept. 30, 2009.

                        Milk price        Cost of production     Loss per cwt.   Loss per cow   Loss %

Arizona            $10.96             $16.61                         $4.98               $868                     42.8

California        $10.77             $15.67                         $4.51               $722                     40.4

Idaho                $11.03             $16.24                         $4.88               $744                    42.9

New Mexico     $11.47             $15.59                         $3.66               $573                    30.6

Midwest            $12.74             $16.99                         $3.40               $557                    25.0

Texas                $11.80             $16.51                         $4.09               $621                    32.8

Washington     $11.60             $16.63                         $3.86               $662                    30.2

Jersey herds    $13.40             $19.50                         $5.10               $589                    35.4

Take a closer look at the cost studies through Sept. 30, 2009, and you’ll see that feed cost was still high in 2009; it didn’t come down, says Albert Nunes, a partner at Genske, Mulder & Co. Certified Public Accountants.

The all-milk price for 2009 was $11.50, causing a loss of $4.02 per hundredweight or $873 per cow. “To put that in perspective, most banks will generally only lend $900 per cow,” says Nunes.

"Our client's average cash-flow breakeven, which includes expenses, interest and principal payments, for 2009 was $16.69," says Nunes. The true break-even, which is all expenses, interest and no principal payment, was $14.85.

Debt per hundredweight was $1.84. “The interesting thing about debt per hundredweight is that before 2008 most of my clients were below $1 per hundredweight,” says Nunes. “Nationwide, the dairy industry has added almost $1 per hundredweight to breakeven.”

“The question you have to ask is, ‘Do I make enough money to cover the extra debt?’” asks Nunes.

The scary part of 2009, says Nunes, would be to imagine if California didn’t have milk-production caps. “What would have happened if California didn’t have a cap on its milk supply?” he asks.

Looking to 2010, the financial experts estimated what the dairy financial landscape might look like.

“In our estimate for 2010, we kept feed prices close to the same,” says Nunes. "The thing about feed is that nobody knows what’s going to happen to feed costs.”

If corn does come down to $3.25 per bushel, feed costs will be $1 less than estimated by Nunes and his colleagues. They predict that interest rates will go up, as dairy farmers have had to borrow more money to make it to this point.

Repairs and maintenance have been estimated to be higher in 2010, as few farmers did many repairs in 2009. Fuel expenses are also estimated to be higher.

“If our estimations come to fruition, and our numbers are aggressive,” says Nunes, “dairy farmers will have a cash-flow breakeven of $17.18,and a true breakeven of $15.06 nationwide.”

“I don’t want to be doom-and-gloom, but you need to understand what the numbers are,” says Nunes. “Your bankers are going to be coming to you for answers and you need to be able to respond.”