Tuesday, June 09, 2009

This is going to get really ugly, I'm afraid...

For grain farmers like me, as we watch the train wreck that is the dairy crisis, we should be at least uneasy with our consciences.  To be sure, the dairy industry is caught between two government schemes: their perverse pricing system and government ethanol mandates which have raised the price of feed.
Has agricultural success for some of us been reduced to the product our lobbying prowess?

Jim Dickrell is doing high caliber work, and bravely offering pointed opinions on causes and effects.
What’s happening is every producer is waiting for his neighbors to blink first. And prices aren’t improving. The June Class I price came in at $10.08/cwt. The May Class III price was announced last week at $9.84; the May Class IV at $10.14.
At the Elanco meetings, Elam couldn’t predict when milk prices will rebound to profitability. The best he could do: “We could see fourth quarter all-milk prices at $14/cwt,” he says. “But 300,000 cows (including the 100,000 CWT leaving this month) will have to go away by the end of the year.”
So the question is two-fold: Who will blink? And when will they blink? One producer I sat with at lunch last Thursday made this prediction: “Things won’t turn around until everyone is convinced things won’t ever get any better.”
My advice: If you can’t survive the next six months at your current mailbox price, don’t let what equity you have left erode further. The sooner you make that decision, the better off you and the rest of the industry will be. [More]
This will be a sad summer for too many dairy farms.


Ron Swanson said...

I think the train wreck you refer to should probably be expanded to include the pork sector as well, for it can't be far behind. My son, an independent hog producer, was taken aback by the solemn atmosphere at the World Pork Expo in Des Moines last Friday when he was there. Are we going to lose our largest demand for corn (livestock) before this is over?

Anonymous said...

Why is your conscience bothering you? You do remember, as I do, when the only ones buying new farm equipment were the dairy farmers? Further I also remember when the dairy farmers poured their product down the drain to create a shortage and force the prices up--resulting in government price regulation. For grain farmers the increased prices has also brought increase costs in both inputs as well as ground rent. Why I remember you discussing the increase in rents you are paying and the "interesting" discussion you were anticipating with your banker. While all these increases in prices the increase in profits hasn't been all that remarkable.

Anonymous said...

--too the fellow with no conscience,,#1 can never compare milking cows to work done by grain farmers and #2 --when you were cashing huge gov't checks and milk,beef,hog guys were making a buck sweating our _alls off we didn't beat up on you....hope you miss us livestock guys when we are all gone and you have to eat that corn in your bin rather than pork chops----regards-kevin

John Phipps said...

anon #1:

I assume you are unaware of the returns to grain farming over the last three years.

And how much the government forced those economics.

Our costs are choices we make. If you don't like $350 rents don't pay them. Nor should we ask the taxpayer to support our choice.

Our problem is we have raised competition who now realize we will work to underwrite their aggressiveness. In other words, while screwing long term customers, we are encouraging our worst nightmares as competitors.

We will regret these decisions, I think.

JR said...

One of the points being missed by the crop farmer as compared to the dairyman (I am sure that this might be true in the case of beef and hogs) Is the capital investment we make per 100,000 gross income I will use myself. Our family milks 130 cows we farm right at 280 acres. THe operation is truly family My Dad and I provide the labor. We have one part time milker who works approximaitly 30 hours a week. I have a 14 year old and a 10 year old who are much help as well. We own 120 of the acres rent the rest.We buy almost all of our corn grain. we have 130 cows which last year were valued at 2000 per cow or 260,000 this year they are worth about half. we have 120 hiefers that last year were worth 200,000 this year in reality they are worth nothing as no one wants to feed them. We have several hundred thousand dollars worth of equipment and 120 acres of prime dirt in NC IOwaOur dairy facility has five silos which cost dad nearlyu 250000 dollars to build. our parlor and all other barns cost about 250000 to replace today. so lets add up our capital cost
200000for dairy cows
100000 for hiefers
275000 for farm machinery (off my last bank asset sheet)
250000 for feed storage
250000 for buildings
480000 for land.
A total of about 1.3million to gross this year 360000 dollars or about 350000 dollars in capital expense to make 100000 dollars
We are not debt free and feed costs this year will take nearly 200000 alone which leaves us with 160000 to pay the vet and help and property taxes and electric bill and fuel and and and..... IN Iowa this year if yu had your land half owned and half rented and farmed with 80's equipment (only two of my tractor are that new) you could gross over 600000 dollars and probaly work half the hours I do I am not looking for sympothy however when I line up against ethanol don't squeal to me that it is your turn to make money I am just looking out for me. JR

Ol James said...

Mr. JR I have a question..
Do you think that the grocers/retailers upping their cost, (for instance a gallon of whole milk at a local grocery store rose from $2.25/gal to $4.30 this past year and has not came down), is contributing to the dairy dilemma??
I used to raise hogs,(back in the 70's), we got out right before the market went south and then some. Our feed bill just about tripled overnight and you just about couldn't give a hog away. We were not a big operation, about 150 sows and accompanying litters. We finished them off and usually had them butchered at a local meat cutter, mostly for sausage. The meat cutter shut down not long after we got out, not because of us mostly because folks quit raising meat for the freezer. That and people figured they would just buy from the store.

Anonymous said...

Did everyone see the USDA report that came out today on the grains. Bullish for soybean and corn prices but a disaster for the livestock sector. To paraphrase a farm writer's comments last week, this the end of the livestock business as we know it.


JR said...

Ol' James Thanks for asking that question! Yes the grocers do have apart in this as well (remember they blamed ethol for tortillas going up last summer) However this is something we just don't have the political will to do anything about. ON the Western United dairymans web page is an interseting article from the Hanford Sentinal this quote says it all. "there was concern about having enough supply to meet existing needs according to Glenn Wallace CEO of DFA" This was the response that came out of the five largest coop in California about implementing a policy to dump 5% of thier members milk. Some would say we can't afford to dump 1% as we don't have enough to fill all the bottles now. 1% does not a surplus make! Also if you look at thier web site the first thing that scrolls through is the webinar on suicide that will be aired tomorrow for the benefit of the dairy community. That should speak volumes. JR

Anonymous said...

Milk still is my preference on cereal over ethanol....