By DAVID LESTER -- YAKIMA HERALD-REPUBLIC
If 2009 was the bottom and 2010 was a year of stability, this could be the year of recovery for Yakima Valley dairy producers.That’s what Bill Wavrin thinks.
The Mabton dairy operator is seeing better prices early this year."I think the take-home message is things will get better in the dairy industry, even in the next six months,” Wavrin said.
So far, he’s right. Prices for raw milk were higher than anticipated for late January, a good sign, especially in light of higher prices for corn and other feed products, which account for an estimated 70 percent of a dairy’s costs.
Feed prices are a sore spot for dairy operators, who criticize federal subsidies for ethanol production that divert corn away from feed. As a result, dairies are trying to insulate themselves from the volatile feed market by growing more of their own.
Better milk prices would be great news for dairy producers who saw the value of their operations decline in 2009, forcing them to use savings and borrow to stay afloat while losing money on every pound of milk produced.
Average prices in 2009, according to the Washington Dairy Products Commission, the industry’s marketing arm, were well below cost at $13.50 per 100 pounds of milk. Break-even is between $17 and $18.
Average prices for 2010 were $17.25 per 100 pounds.
The price collapse in 2009 followed a run-up in prices as high as $22 per 100 pounds that gave producers an incentive to increase production. When exports fell during the global economic slowdown, the supply of milk exceeded demand and prices fell dramatically.
Agricultural economist Chuck Nicholson of Cal Poly San Luis Obispo, Calif., who follows the dairy industry, likens what happened to dairy producers to the housing market during the recession, when homeowners owed more on their mortgage than their house was worth.
“Banks and other ag lenders and even input suppliers essentially were in the business of extending credit to farms to keep them going,” Nicholson said. “The year 2010 was OK, but not a great year. The concern is if there’s not a great year soon, there will be ongoing issues.”
Pain on the farm has rippled throughout the Yakima Valley because dairy producers are a major component of the local economy, employing several thousand people directly and more in related industries that supply goods and services to producers.
Yakima County is the largest milk-producing county in the state and among the top dozen counties in the country. The county’s 72 dairies received payments for their milk of about $300 million in 2008, the last year figures available, according to the U.S. Department of Agriculture.
Prospects for improved pricing faded some last month when the Environmental Protection Agency approved a higher corn-based ethanol blend in gasoline for cars and trucks, which sent corn prices rising.
The price this week for corn on the Chicago Mercantile Exchange was $6.67 a bushel for March delivery.
Jay Gordon, executive director of the Washington State Dairy Federation, said the news was a blow.
“When you start putting 15 percent ethanol in fuel tanks, that is half the U.S. corn crop into ethanol,” he said. “That’s a hungry monster eating half our corn.”
The uncertainty has more producers looking to obtain land to grow their own feed, Wavrin said, adding that most dairy operators he knows are farming more ground than they were a decade ago.
“The more we can clear up the questions about what’s around the bend, the easier it is to make decisions,” said Wavrin, who has about 3,500 cows and is also a veterinarian.
Cal Poly’s Nicholson said he is more optimistic than he was a month ago, when milk prices went into a slide.
“Now, I would say the high feed prices are there, but prices (for milk) look better. It’s hard to predict what might happen with futures market prices,” he said. “This year might be slightly better than 2010 even with the high feed costs. So much depends on what happens with feed.”
David Lester can be reached at 509-577-7674 or dlester@yakimaherald.com
