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Dairy Producers Aim to Take Advantage of Favorable Market

posted on March 28, 2014


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Order breakfast just about anywhere these days and your entrée will likely to be accompanied by a complimentary side of sticker shock… 

The prices of bacon, coffee and orange juice have all touched multi-year -- if not all-time highs -- in recent weeks, due to global supply issues ranging from drought in Brazil to disease on U.S. pig farms.

Last month, the government reported that meat, fish and eggs led the biggest increase in domestic food prices in nearly 2-and-a-half years.   

And let’s not forget dairy products.  Milk prices also are in record territory, prompting some producers to expand their herds.  Others, however, wonder how long the good times will last. Zac Schultz explains. 

Pat O’Brien, Stoner Prairie Dairy: “The milk prices are exciting right now.”

The milk Pat O' Brien's cows are producing has never been more valuable.

Pat O’Brien: “I've been farming for 40 years and I've never seen milk prices this high. It's about time.”

O' Brien's Stoner Prairie Dairy is milking 210 cows... and they hope to be at 250 by the fall to take advantage of the high prices.

Pat O’Brien: “This is a boom time definitely.”

Robert Cropp, University of Wisconsin Professor Emeritus: “Farmers are experiencing some very nice margins.”

Robert Cropp has been studying dairy prices for the University of Wisconsin since 1966.

Robert Cropp: “Well we're at record milk prices, substantially higher than we had a year ago.”

As is usually the case in farming, the weather has a lot to do with it.

Robert Cropp: “Right now California has the worst drought in hundred and thirty years. Nevada and some of those areas are very dry. Texas has suffered from that.”

Severe droughts in the southwest the last two years and rising beef prices have led to some farmers sending their dairy cows to the meat market.

Robert Cropp: “Farmers sell a dairy cow for a hamburger for a pretty good price.”

Pat O' Brien says a wet spring in Wisconsin last year made for poor forage, which means lower milk production.

Pat O’Brien: “Our milk production isn't quite as good as it has been in the past.”

But it's not just the weather in Wisconsin, or even the United States.

Robert Cropp: “We're impacted a heck of a lot more whether it rains in New Zealand or it doesn’t in New Zealand.”

Cropp says the biggest driver in dairy prices is world demand, and if exporting countries like New Zealand see a decline in production, demand for U.S. demand dairy rises.

Robert Cropp: “Relatively small changes have big changes in price.”

The United States exported 15.5% of all milk production last year, valued at $6.7 billion dollars.

Robert Cropp: “Record exports last year continued through January, exports were about a year ago. Butter exports are up 115%, cheese 46%.”

Pat O' Brien remembers when all that mattered was the weather in your own backyard, not on the other side of the world.

Pat O’Brien: “We didn't think about the impact of the weather on farmers in California or whether New Zealand had a good crop.”

John Umhoefer, Executive Director, Wisconsin Cheese Makers Association: “It takes a confluence of events from around the world.”

If anyone knows about the world market for dairy products...it's the cheesemakers.

John Umhoefer “This came from Austria for the contest.”

John Umhoefer is the Executive Director of the Wisconsin Cheese Makers Association.

Cheesemakers from around the state are in this warehouse unpacking contest entries for the World Championship Cheese Contest.

John Umhoefer: “This is the ugly work before the pretty show.”

90% of all milk in Wisconsin goes into cheese production, so these men feel the effect of rising prices.

John Umhoefer: “You start to put all that together with really high demand and the milk prices and the cheese prices are soaring.”

They're paying twenty-three dollars for milk going into cheese which is you know six dollars higher than they had to pay a year ago.

John Umhoefer: “Well, when you get a high price like that, it is partially absorbed along the way, and the consumer sees a higher price.“

Brian Zimmerman, Cheesemaker: “I think the farmers and the chesemakers both are gonna see some pretty good months ahead.”

Brian Zimmerman is a cheesemaker, and says his profits are tied to the price of a 40 pound block of cheese.

Brian Zimmerman: “As the forty pound block price increases our profits increase.”

While rising prices likely won't impact the sales of high end cheese like those found at the world championships... Umhoefer says cheesemakers are worried high costs could eventually be too much for consumers.

John Umhoefer: “There's always a range that's good, and if you hit the top of that range, you start to get the consumer saying, "I can't afford that. The cheesemaker would love to see a price settle in a little lower so the consumer's happy, the farmer's happy, he's happy. You don't need record prices.”

Bob Cropp isn't seeing it.

Robert Cropp, University of Wisconsin Professor Emeritus: “We've seen in the past when cheese gets to over two dollars a pound we saw some resistance on the demand side, we're not seeing that.”

Pat O' Brien is also concerned the high prices could drop off.

Pat O’Brien, Stoner Prairie Dairy: “I'm a little concerned that we may overproduce and they'll become a huge supply and we're gonna lose this.”

In the past a jump in prices led farmers to increase their herd sizes, but Cropp thinks this graph of milk prices will make farmers more cautious.

Bob Cropp: “They know they're not gonna stay at record levels forever, they know feed prices go back up again and so there may be more cautions than expanding to recognize the uncertainty.”

Pat O’Brien: “We have no intentions of expanding. We're just gonna kinda get caught up.”

Pat O' Brien says he'll use extra income on repairs that were put off during the hard times...like new barn doors.

Pat O’Brien: “The milk prices in 2009 were devasting. And I think there's a lot of farmers - probably a little bit including ourselves - that are still recovering from that time.”

Meanwhile, farmers and cheesemakers want you to know their profit is your gain as well.

Brian Zimmerman, Cheesemaker: “You make hay while the sun shines and when the cheese makers are doing good and the farmers are doing good, the local economy is doing great.”

Pat O’Brien, Stoner Prairie Dairy: “We go downtown. We spend our money at the implement dealer. We spend our money at the car dealership.”

Cropp says the good times will continue...at least through the end of the year.

Robert Cropp: “Prices will lower the second half of the year but we're not looking for real sharp declines.”

For Market to Market, I’m Zac Schultz.


Tags: cattle cheese dairy Pat O'Brien production Robert Cropp Wisconsin World Cheese Championships