The worst drought in half a century will hit livestock producers in the United States harder than grain farmers as soaring feed costs erase profits and drive many to take on more debt, downsize herds or simply leave the field altogether.
But no one will be hit harder than dairy farmers.
Analysts say it will be the small dairy farmer who will be in the most intense fight to survive. Milk producers came into 2012 already weak from abundant supplies and stagnant prices. Larger farms and well-funded corporate milking operations continued to squeeze out small producers. Then the drought nearly doubled the price of corn, soybeans and hay.
Unfortunately for dairy farmers, milk prices have not - and are not likely to - keep up with such soaring feed costs. Consumers tend to absorb higher prices of staples like milk but also reduce consumption, which can force costs back on to the producer, analysts say.
So the economics of supply and demand are set to tighten the vise even more.
"Survival is on the minds of all," said John Wilson, a senior vice president with Dairy Farmers of America, Kansas City. "Whether they are in a drought area or not, their cost of production is greatly impacted by these high corn and soybean meal prices and alfalfa hay. The milk price has not kept up. The dairy commodity prices are inching up but not fast enough to offset the increased costs. So dairy farmers are really thinking about survival," Wilson said.
In 2011, there were 60,000 dairy farmers in the United States, down from 62,500 in 2010, according to the U.S. Department of Agriculture. While the number of milk cows on July 1 was 9.2 million head steady with a year ago, milk production rose. Output in the top 23 states totaled 51.5 billion pounds in the April-June 2012 quarter, up 2 percent from a year earlier, USDA said last month.
Each cow in 2011 produced about 21,000 pounds of milk for the year - about 58 pounds a day. Each needs a daily ration of corn, soybean meal and hay.
"The challenge in the dairy industry is that during the first half of the year, we had record production. Inventories of finished dairy products in the United States and around the globe are adequate. As a result, I don't see our milk prices rising quick enough to catch-up or offset the rapidly rising feed costs," said Mary Keough Ledman, a dairy industry consultant and a former USDA economist and manager of dairy economics for cheese-making giant Kraft Foods.
"That's going to put dairy farmers in a real tough margin squeeze in the second half of this year. It is likely that the industry will experience pretty significant reduction in the U.S. dairy herd between now and the end of the year," Ledman said.