Editor’s note: To see what a Federal Order in California might mean for milk prices in the rest of the country, click here.
California has been locked in a severe drought for four years, but that has not sent feed costs skyrocketing for dairy producers. Milk in the Golden State has been on a downward trajectory, not because of high feed costs but rather because milk prices—particularly for butter and powder—have been exceedingly low.
In July, California milk production fell 3.3 percent below July 2014 levels. The state’s producers milked 1,000 fewer cows than the previous year, while average output per cow fell 65 pounds to 1,915 pounds, a 3.3 percent drop.
“In the first half of the year, California milk output totaled 649 million pounds less than in the first half of 2014,” says Sarina Sharp, agricultural economist with the Daily Dairy Report. “The drought has often been blamed for at least part of this 3 percent deficit.”
California has been mired in a multi-year severe to exceptional drought throughout the state’s agricultural areas, and the troubles it has caused for the state’s agricultural industry should not be minimized, Sharp says. But a closer look at feed costs indicates that the drought has contributed little to the slowdown in California milk production, she argues.
“With water becoming painfully scarce, farmers in California have fallowed some land or planted crops that demand less water,” notes Sharp. “Many have chosen to plant permanent crops, like almonds. Although almond trees require quite a bit of water when they are mature, they draw relatively little in the first few years.”
This shift to permanent crops in California has clearly reduced acreage allotted to forage. USDA’s latest Crop Production report estimated a 21-percent year-over-year drop in the number of acres planted to alfalfa in California, compared to last year.
“USDA also forecast the lowest average alfalfa yield for the state since 1978, which would put production at its lowest level since 1949,” Sharp notes. “However, growers in nearby Oregon, Arizona, and Utah increased alfalfa acreage.”
National alfalfa production is also expected to exceed last year’s output by 1.1 percent, according to USDA, and prices are falling.
“Despite the drought and the decline in local forage production, dairy producers in California are enjoying much lower feed costs than they did last year,” says Sharp. Premium-quality alfalfa prices in the Central Valley have fallen to roughly $250/ton, which is about $75/ton lower than they were a year ago and the lowest price in more than three years.
“Corn silage costs no more than it did a year ago, and the price of grains and proteins like soybean meal have recently plummeted, and continue to fall,” notes Sharp. “Low milk prices, not the drought, are responsible for the woes of California dairy producers.”
Sharp thinks that after months of low milk prices and culling, California milk output is likely to remain depressed even if the substantial rains expected from this year’s El Niño bring a particularly wet fall and winter to the Golden State.
“California milk production seems unlikely to rebound without a substantial recovery in the nonfat dry milk market,” she says. “And given the waning appetite for milk powder around the globe, such a recovery is far from imminent.”
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