“It’s very deceptive to the consumer when they see the $3 to $5 price range in the store,” said Stacey Fletcher of the Nebraska Dairy Council.
Deceptive, indeed, since it costs producers about $1.50 to produce that single gallon.
From 1997 through 2008, farmers’ share of the price spent on milk dropped 25 percent. At the same time, retail prices shot up by 40 percent.
Prices paid to farmers don’t correlate to the prices paid at the grocery store. What’s more, the farmers’ share has nothing to do with production costs or milk output.
Instead, the Chicago Mercantile Exchange trades futures and options on milk and its byproducts, including butter and cheese.
Some dairy industry insiders report fluid milk consumption remains steady, but a reduction in butter, cheese, ice cream and yogurt sales is trimming the fat from consumers’ waistlines, as well as from the dairy industry.
USDA estimates report Nebraska’s 59,000 dairy cows produced 1.08 billion pounds of milk in 2007. On average, each cow produced nearly 20,000 pounds in a 10-month period.
That’s a large quantity of milk for a state with a population just over 1.7 million.
Still, Nebraska dairy parlors are closing the doors.
The Nebraska Department of Agriculture said Nebraska currently has 275 licensed dairy producers across the state.
The Nebraska Dairy Council said that number dropped from 322 licensed producers just 18 months ago.
“Large or small, all dairies have been impacted by the dairy crisis to some degree,” Fletcher said.
Prior to the crisis, some Nebraska dairies were solid financially. But others weren’t prepared for the dairy depression.
Fletcher said it’s important to look at the diversification of each operation. Many dairies raise crops and have other commodities to spread their costs across, giving better leverage to those producers.
Nebraska’s dairy cows are feeling the financial pinch, too.
Steve Thompson, feed location manager for Central Valley Ag in Elgin, has seen a drop in the number of farmers.
“Several dairy producers are choosing to cut back feed and protein due to high prices,” Thompson said.
Producers can apply for assistance through the Milk Income Loss Contract (MILC) program sponsored by the USDA.
Payments are generated when Class I milk prices in Boston fall below $16.94 per hundred weight. Feed costs are taken into consideration, but so is production.
Producers are eligible to receive payments on up to 2.985 million pounds per fiscal year.
Larger dairies may meet that in a matter of a few months. The program is geared for family dairies instead of mega-dairies that produce large quantities of milk.
It helps, but it’s not always enough to cover expenses.
“Some producers made wise forward contracting decisions and others did not. However, as a whole, even the best decision makers with a solid financial background have felt this ripple to some degree,” Fletcher said.
Nebraska consumers can expect dairy prices to rise up to 4 percent in 2010.
Unfortunately, Nebraska producers will see minimal additional profits.
“Sometimes we see a delay in shelf response to what is really happening in the marketplace to what the consumer sees,” Fletcher said.
