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Published February 07, 2009, 10:00 AM

Milk prices slashed in half for Minnesota farmers

Since last fall, when milk prices peaked at $20 a hundredweight, the price Steve and Amy Combs and other dairy farmers now receive for their product has been nearly cut in half.

By: Carolyn Lange, West Central Tribune

NEW LONDON, Minn. — It’s 11 below zero at 6:15 a.m., and Steve and Amy Combs are just finishing milking their 100-head Holstein dairy herd.

As the cows file in and out of the old-style dairy barn on the family farm west of New London, the farm report on the radio delivers a string of futures markets for milk that are not good.

Since last fall, when milk prices peaked at $20 a hundredweight, the price Combs and other dairy farmers now receive for their product has been nearly cut in half.

It’s one of the biggest swings Combs has seen in his 30 years of milking.

“It’s going to be a struggle just to break even this year, I think,” said Combs, who expects to be “working at a loss” for much of the year.

“Just terrible,” is how Matt Quade, division manager for Associated Milk Producers Inc. in Paynesville, Min.., and Dawson, Minn., describes the last two months for milk prices.

“It’s taken a big-time downward spiral, and it’s not done yet. It’s very serious,” Quade said.

Milk prices were strong until the middle of December. “And then it dropped like a rock,” said Quade, catching most people off guard. “This was not seen by anybody.”

In 2008, raw milk prices were high and generated good revenue for dairy farmers. But feed costs and operating expenses were also very high.

“So, our profits were still good, but they weren’t as good as they could’ve been,” Combs said.

Feed has come down in price, but prices are “not half of what they were last year,” he said. His paycheck from the milk buyer, however, is half of what it was last year.

“There’s no way farmers can survive on these prices,” Quade said.

There are several reasons for the quick price drop for farmers, including overproduction and under-consumption — both domestically and internationally. European subsidies were also increased, which decreased the demand for American milk products.

But so far there has not been a reciprocal drop in milk or cheese prices at grocery stores.

Just like the price of gas that took a while to come down after oil prices decreased, there may be a lag time in when consumers see lower dairy prices at the store.

Because part of the problem with low raw milk prices is because of overproduction and under-consumption, the Midwest Dairy Association is using dairy check-off dollars to team up with Dominos Pizza to give a short-term boost to cheese sales.

The pizza maker has developed a new line of “American Legend” specialty pizzas that use 40 percent more cheese than a regular pizza, said Sherry Newell, industry relations manager for the Midwest Dairy Association.

Pizza consumption has a direct impact on cheese sales, said the association’s CEO, Mike Kruger. About 25 percent of total cheese is used on pizzas, which accounts for more than 25 billion pounds of annual milk production.

The price farmers receive has been so low the prices have dipped below the federal price supports in recent weeks.

The average price for raw milk in 2008 was $18.25 a hundredweight, said Quade. The January price is $11, and it will be $10 this month.

The futures market doesn’t show much improvement.

That’s been prompting farmers to sign up for the Milk Income Loss Contract, said Wes Nelson, director of the Farm Service Agency in Kandiyohi County. “We’ve had producers in real steady this month,” he said.

The program, which was extended in the new farm bill, pays 45 percent of the difference between the average price and the target Boston milk price of $16.94.