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[MAY 26, 2004]  URBANA -- Dairy producers need to fasten their seat belts, as all signs point to a roller-coaster pattern for prices, said a University of Illinois Extension dairy specialist in reviewing the state of the industry with the approach of June Dairy Month.

"Producers will receive record-high prices for the next couple of months, but the returns will be short-lived," said Mike Hutjens. "While milk hit its highest price ever -- $20.45 per hundredweight -- on May 4 on the Chicago Mercantile Exchange, August futures prices are $15.89 and continue to drop, with November futures at $13.20 and January futures at $12.05."

And, he added, producers can expect to lose about 20 percent of the present price bonanza to higher feed, fuel and energy costs.

Earlier this spring, Hutjens attributed the rising dairy prices to a conjunction of several factors, including fewer cows and less milk being produced, a 50 percent reduction in the supply of a growth hormone used to stimulate production, and the closing of the Canadian border due to a mad cow disease outbreak keeping over 80,000 replacement dairy heifers in Canada.

"When people ask me what the future holds, I ask them to tell me what the weather will be like this summer," he said. "While futures prices now indicate a decline in milk prices, hot weather could change all that. We don't know if we will have weather hot enough to cause heat stress in cows, thereby decreasing their production. We also don't know if the growing season will be favorable for corn and soybean prices.

"Bad weather for crops could impact dairy producers since 50 percent of their costs involve feed, which is reliant on corn, alfalfa and soybeans."

Hutjens also believes the current high level of dairy prices is likely to affect consumer demand.

"Demand will likely dip due to the prices, especially for products like cheese, butter and ice cream," he said. "We're already seeing a response by manufacturers who are using smaller containers for yogurt and ice cream. We may also see subtle changes involving the amount of butter or cheese used in prepared food products like pizza."

Producers should pay down their bills, reduce indebtedness, get a handle on production costs, attempt to lock in lower prices for feed and "get ready for the fall in prices," he said.

 

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Illinois producers have a mixed bag of good and bad news to sort through in June Dairy Month, he noted.

"On the good-news front, in the last five years, Illinois dairy cows have doubled their production and are catching up with the national per-cow average," he said. "However, the number of dairy cows in Illinois is dropping, and we have not increased the total amount of milk produced in the state. In effect, Illinois dairy producers are losing market share."

The average dairy herd size in Illinois is 86 cows, compared with a 1,865-cow herd in New Mexico, the nation's leader. Illinois cows produce on average 18,441 pounds of milk, compared with 23,333 pounds for Arizona cows, which top the category.

"We see that some Illinois producers are becoming more interested in lowering input costs through better use of pasture," Hutjens said. "We are also seeing some expansion in the Illinois dairy industry."

Looming in the future is a new challenge Hutjens predicts will be critical for Illinois dairy producers. It's called a quality assurance program. Increasingly, these are being demanded by consumers and are now being piloted in California, a major dairy state.

"Quality assurance is basically the consumer telling the producer that he or she wants to be assured that the animal products produced on the farm are safe, that the animals are treated in a humane and environmentally acceptable manner, and so forth," said Hutjens. "Conformity is measured by an independent third party.

"I believe we will see supermarkets pushing these programs and putting a seal on a gallon of milk, for example, indicating it came from a quality-assured farm. We get one or two calls a month here at the University of Illinois from consumers wanting to know if this type of product is available. The quicker Illinois producers do it, the better off they'll be."

[University of Illinois news release]

 

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