Every dairy producer knows that volatility in milk prices and operating costs seem to be on the upswing. Now there’s proof: The highs are higher and the lows are just ridiculous.
Lane Ely, an Extension dairy specialist with the University of Georgia,has logged net farm income per hundredweight of milk sold since 1995, based on average values for the Eastern United States. Over those 16 years, dairy producers have banked a profit in 12, or 75% of the time. “That’s a pretty good record, and why many have found the dairy industry to be a good option,” says Ely.
But the range in loss to profit was much less during the first 11 years of that period. Ely notes the greatest loss from 1995 through 2005 was just 62¢/cwt and the largest profit was $2.80/cwt, or a range of $3.42. Since 2006, that range has nearly tripled--to $9.81. 2009 was obviously the killer year, with an average loss of $6.23/cwt. But the best profit year in the last 16 also occurred in 2007, at $3.58/cwt.
Ely analyzed the data further, accumulating profits over time. For example, in 1995, dairies recorded a loss of 62¢/cwt, but then showed a $1.73/cwt profit in 1996. The cumulative profit for the two years was $1.11. If you follow that cumulative addition through 2010, the dairy would have had a cumulative profit of $10.78/cwt over the 16 years.
However, if the dairy started operation in 2000, the cumulative profit through 2010 would have been just $4.69. And if the dairy had started milking cows in 2005, the cumulative profit for those six years would have been just 60¢/cwt because of the devastating impact of 2009 losses.
“The lesson from this should be that ‘saving for a rainy day’ or using some profits to be prepared for the downturns will be successful in the long run,” says Ely. “It takes very good financial records and planning to keep ahead of the game.”
