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Dairy farmers get relief from low margins

By Staff | Apr 6, 2014

-Farm News photos by Jolene Stevens DARIN DYKSTRA, background, watches while an unidentified dairy employee sanitizes cow teats prior to milking. Dykstra said he sees a good year for the dairy industry with lower operating costs and continued dairy product demand despite an upswing in consumer prices.

MAURICE – Dairy producer Darin Dykstra is among those who believe the industry is off to a strong start this year.

“It’s already been a good year,” he said, observing that the Daily Dairy Report shows a first quarter futures price average of $22.73 per hundredweight for the first four months of 2014.

“When you look at the average price last year, it was $17.48. We’re talking a big difference, over $5 per hundredweight higher.” Dykstra said.

He paused, briefly searching for second quarter prices expected for May, June, July and August of this year. The average for the period this year is $28.88; last year, it was $27.96.

The previous high for the period, in 2007 he pointed out, was $19.05.

Dykstra, who operates Dykstra Dairy near Maurice, said he sees several factors contributing to the “substantially higher” return for dairy producers, including droughts in New Zealand and the United States.

“If you look for instance at New Zealand, producers there had a drought and didn’t put out their normal milk supply,” he said.

U.S. feed prices were also affected by the drought, although dairy prices in general, including those for milk, were low.

“Now everything gets out of balance, and we’re going to see super high milk prices moving forward because things were out of whack before,” Dykstra said.

He pointed to earlier higher feed costs, due to 2012’s drought that lowered yields and hurt export demand, that accounted for 50 percent of dairy feed costs.

He said the feed price turnaround, seen as beneficial for himself and meat-type animal producers, poses an entirely different picture for crop producers faced with the expected low prices come fall for corn or soybeans.

Dairy producers, he said, are also holding on to more cows, slowing down the culling of their herds, resulting in fewer cows at slaughter. A recent Daily Dairy Report showed 8.5 percent fewer cows slaughtered from this time a year ago and 2 percent fewer in January, compared to January 2012. A 32 percent drop in cow slaughter was shown throughout Region 6 of the report. including the states of Texas and New Mexico.

In addition, Dykstra said, beef herds are at their lowest point since 1951. At the same time, some producers are picking up dairy cull cows to put in their feed lots.

While this has the potential for fewer dairy heifers “coming through the pipeline” as herd replacement, Dykstra said dairy producers will continue adding to milk supplies in response for a demand for more milk. He said he expects to see even lower-producing cows being kept with profitability since the cows can cover their costs.

Dykstra doesn’t look far for replacement heifers for his operation, relying on his dairy’s heifer facility a short distance from the dairy. Heifers born at the facility and fed on computer feeder will be brought to the dairy at 18 to 19 months to become a part of the herd, and bred to calf at 22 months.

The baby calves born at the heifer center are now genomic tested by taking a hair from the newborn to compare to the base of other animals within the Dykstra herd.

“We’ll cull off the low end and keep the higher end calves sometimes flushing them for additional offspring,” he said. “I guess you’d call it trying to stack the deck in your favor.”

“It’s also another means of our trying to improve,” Dykstra said, adding that he also strives to reduce inputs and be a good environmental steward.

Dykstra said that New Zealand exports have, according to recent reports, begun to see a softening there with some price downturn. It’s important, he said that U.S. producers keep an awareness of the rising prices domestically that could cut off U.S. dairy product sales to other countries.

Despite currently rising milk prices, Dykstra said he thinks supplies are ample, as the Consumer Price Index for February showed a modest 1 percent increase over a year ago despite a rise to 3.6 percent for fluid milk since July 2013. The dairy level increases compare to a 4 percent single month figure for beef and veal and comparable 4 percent February 2014 CPI for pork.

Dykstra acknowledged that fluid milk consumption has dropped significantly over the past 20 years, partly, he said, because of the “bombardment of consumers with good, new sugary drinks” and the lack of early milk-drinking opportunities for some youngsters. Still, he is optimistic about milk’s future in family meal planning.

“Milk is a pretty inelastic thing, right? It might be a little bit price-sensitive, but people are still going to buy it along with cheese and other dairy products,” he said.

Coupled with producer optimism and the ability to pay down accumulated debt, Dykstra said he believes the dairy industry will remain strong. He said he also sees a possible future upsurge as some larger producers who had “mothballed” their dairies when profits were lower have begun to reverse their strategy.

“The situation is one that if they can buy cows for pennies on the dollar and fill up facilities when prices are at the high end they will,” he saidd. “The cure for low prices is high prices. The cure for high prices is low prices. And when the market is demanding more milk, that’s the way it goes.”

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