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Will Lower Feed Prices Be Enough?

December 8, 2008
 
 

By Jim Dickrell

Last week, I visited two Midwest dairies for stories I'm working on for the February issue of Dairy Today.

As I wrapped up each interview, the discussion invariably turned to the prospects for '09 milk prices. My crystal ball in no less clear than anyone else's. But throughout this fall, I've maintained that these incredibly strong feed prices suggest that low milk prices in 2009 will be short-lived. 

 

Back in September, with corn running at $5.40/bu. and soybean meal at $400/ton, breakevens for an average Midwest dairy were running close to $19/cwt. Even top-end dairies, averaging 24,000 lb./milk/cow, had breakevens close to $17.50, according to Iowa State University (ISU) spreadsheets. 

 

The $15/cwt. Midwest milk price (Class III + $1 basis) projected by the Chicago Merc for this winter and spring suggest only producers willing to tap into cash reserves (if they have any) and leverage equity were going to be able to hold on for very long. But falling feed prices changes the equation pretty dramatically.

I punched in $3/bu. corn, $260/ton soybean meal and $300 cottonseed into the ISU spreadsheet. With those feed prices, breakevens for a 20,000-lb. herd drop to $15.25 and for a 24,000-lb. herd to $14.

 

That suggests to me that average herds will be on the bubble for the first six months of 2009. Better than average herds might still have a bit of cash flow cushion. 

 

But this is all theoretical, of course. Most dairies have locked in feed prices, particularly on the forage side. If they grow their own hay and corn silage, they've already paid the high seed, fuel and fertilizer bills that it took to grow those '08 crops. Many also locked in corn and protein prices for a good chunk of 2009. One can only hope they locked in some favorable milk prices that were still available earlier in the year. 

 

A lot of producers are also hoping their neighbors bid their herds in the last round of the Cooperatives Working Together program. We'll find out later this week or next how many cows have been accepted. The last round, just this past July, took out only 25,000 cows because bids were so high. The scuttlebutt now is that bidders were much more realistic this time around—given 2009's dire outlook. We'll see.

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