Surplus milk, high feed costs push 2012 Pennsylvania average milk price $2.14 per cwt. below 2011.
Source: Pennsylvania State University
One source of income for Pennsylvania dairy farmers has hit its lowest point in three years, according to a dairy market expert in Penn State's College of Agricultural Sciences.
James Dunn, professor of agricultural economics, said that in May, milk margin per hundredweight -- the income portion left to pay dairy producers' bills for inputs other than feed, such as electricity, equipment and labor -- hit its lowest point in Pennsylvania since September 2009.
"This is starting to really eat up the farmers," Dunn said. "The milk price is not historically low, but the feed price is so high that the amount that's left is not good."
The 2012 Pennsylvania average milk price is estimated to be $2.14 per cwt. lower than it was in 2011.
Feed prices and difficulty with weather and crop harvests have contributed to dairy producers' struggles. Last year's wet seasons hindered farmers' ability to produce feed for their dairy herds. Dunn said some producers are running out of corn silage.
Exports and the strength of the American dollar also have played a role in the fluctuating milk prices. With the amount of milk produced per cow increasing -- creating more milk than the U.S. population can consume -- dairy-product exports must increase or cow numbers must shrink to balance supply and demand.
Increased exports in the last year have meant the dairy industry could grow. In 2011, 14% of domestic milk production was exported, and prices were favorable. The exports were boosted by bad weather in Australia and New Zealand, leading to low milk production in those countries. Food-safety concerns related to Chinese products also were a factor, as well as a then-weak U.S. dollar.
Dairy producers used the favorable dairy prices to make largely the same decisions.
"The problem always in agriculture is everybody looks at the same information and reaches the same conclusions," Dunn said. "And when producers saw really nice prices, everybody said, 'I'm going to expand.'"
With the expansions came 4% more milk production in January through March than the same months in 2011. However, sales of milk could not increase at the same rate.