Processors claim dairy farm margins are improving; producer groups say dairies still struggling with red ink.
Claims by a California dairy processor organization that the state’s dairies are enjoying dramatically improved farm income are being called "specious" and "disingenuous" by producer representatives.
"For dairy farmers, the reality is just the opposite," says Michael Marsh, president of Western United Dairymen (WUD), a producer trade group that represents about 60% of California’s milk production.
Marsh was referring to a July 30 news release from the Dairy Institute of California, a trade association that represents milk and dairy processors on legislative and regulatory matters.
The release reports that California cheese makers and other dairy processors have paid the state’s dairy farmers over $400 million more in the first six months of 2013 than for the same period last year, according to data released by the California Department of Food and Agriculture (CDFA).
"That $400 million in additional revenue translates to about $250,000 more per dairy farm this year," says Rachel Kaldor, executive director of the Dairy Institute of California. She notes that the trend is expected to continue for the rest of the year due to strong global demand for dairy products.
"California dairy farmers are far, far from profitability or recovery," responds Marsh. "When you’ve been losing $2 million, and now you’re losing $1.75 million, you’re still losing money."
Marsh said that while total revenues into the state’s dairy marketing pool have increased, California dairy producers continue to lose money. CDFA numbers show that California milk prices for the first quarter of 2013 averaged $16.53 per cwt., with dairies’ average cost of production at $17.69 per cwt., says Marsh. (These cost of production numbers do not include a return on management or investment.)
"That’s a negative margin of $1.16 per cwt.," says Marsh.
This year’s red-ink numbers, however, are better than first-quarter 2012 margins, which yielded a loss of $1.72 per cwt., Marsh said. That was based on an average milk price of $14.91 per cwt. with the cost of production of $16.63.
But, in fact, dairy farm margins are improving, Kaldor notes. "One of the most common ways to gauge dairy farm profitability is to measure farm income over feed costs," she says. "For the most recent two quarters reported, dairy farmers are enjoying an average 57 percent improvement in their margins over the middle of last year."
Feed costs have moderated this year and are expected to decline dramatically over the remainder of the year — down about 40 percent from last year’s drought-driven highs, Kaldor says.