Foodstuffs
2:00 pm
Thu April 9, 2015

Foodstuffs: 'Tight Prices' Ahead For New England Dairy Farmers

A drop in dairy prices is likely to continue through much of the year, says Agri-Mark's Robert Wellington.
A drop in dairy prices is likely to continue through much of the year, says Agri-Mark's Robert Wellington.
Credit macalit via Flickr Creative Commons

This could be a challenging year for some New England dairy farmers. Milk prices in some parts of the region have been falling, after reaching record highs last fall.

To learn more, All Things Considered talked with Robert Wellington, senior vice president and economist with the Agri-Mark dairy cooperative, which includes, among others, the Cabot brand name.

Record highs only last fall, and now prices are down. What's been causing these changes?

It's a combination of things. Production of milk in the country went up a fair amount because farmers were getting more for their milk, which sent them a signal they should produce more milk. But at the same time, they're exporting a lot of their milk as various products - cheese and butter and milk powders. That demand for that product escalated to over 15 percent of the milk in this country was going overseas as dairy product. That's like 1 in every 7 days of milk production.

Unfortunately, the high value of the dollar has made our product more expensive. There's been some economic issues, of course, in Russia, China, [and] other places that have lowered demand. All that has resulted in a moderate amount of extra milk in the marketplace, and anytime there's extra milk, the perishability of the product drives the price down.

How significant is the timing of this downturn? There was a report from the Associated Press that said this is the time farmers make seed buys, they're purchasing fuel, and so it can be useful to have a little extra money on hand if it's available.

Certainly. The time when they're doing their planting, getting ready to grow their crops during the summer and move on to harvest in the fall, is a very expensive time. Farmers usually try to have some kind of reserves in place, but it is the most difficult. Prices tend to be lower in the spring anyway, because there's additional milk production available, as cows tend to give more milk in the springtime. But they rarely fall to the degree they're falling - they've fallen about a 30 percent decline in price. That's well below the cost of production in most areas.

How, then, do farmers try to manage these fluctuations?

It's a combination of things. Farmers usually try to put some money aside in reserve - they had a good year last year, so they probably paid down any debt. They might have pre-bought certain things. That can be very helpful. There is a program that came out of the farm bill, a margin-retention program that allows them to buy insurance that helps protect them from very, very low prices, even lower than they're getting right now. That program hasn't triggered in yet, but it does provide a safety net for those farmers that want to participate.

Then, of course, farmers can participate in cooperatives. Agri-mark is a cooperative. Farmers basically put the money up for our Cabot business, our McAdam cheese businesses, they own multiple plants involved, so they manufacture their own cheese and butter. And that usually returns a fair amount of money back to them.

Some farmers use diversification as a way to try to keep things more even. They may see a drop in dairy prices so they may focus on their syrup business for a time.

Yes, that's true. Syrup is one of the things many farmers do around New England and northern New York. Also, we're getting more and more artisan cheese makers - farmers that take some of their milk production and they make specialized cheeses. Other farmers do things like - we have a member of ours down in Connecticut that does cow pots - they make manure into pots for planting, and that's a very popular item out there.

Farmers are the most innovative people in the world. If there's a way to make additional money, they're going to find it.

Is it likely that prices are going to stay down for much of 2015, in the same way that they seemed to go up in 2014?

Unfortunately for farmers, that's going to be the case. It's good from the viewpoint of consumers, that they've probably seen some moderation in various dairy prices - particularly butter, which had gone up very high. But probably through the end of this year we're looking at significantly lower prices than last year.

We hope there will be some recovery next year, because, like I noted, this is below the cost of producing the milk. Farmers cannot sustain these current levels for too long a period of time before we see a lot of them go out of business. Right now it looks like it's going to be at least another six months or more of tight prices for farmers.

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