Release Date: August 2008
Jerry Kozak,
President/CEO
There was an interesting front-page story in the July 18th issue of the New York Times about how the catfish industry in the Mississippi delta region is literally drying up, because the cost of feeding the farmed fish has become prohibitively high. Skyrocketing corn and soybean prices have sunk the prospects of the aquaculture business in the south, where fish farmers are pulling the plugs on their ponds in response to the poor economics of their business. They’ll be planting crops instead.
It’s a similar story for other sectors of the U.S. livestock industry this year. In that same Times article, a hog farmer in South Dakota, who says that in contrast to the peaks and valleys of prices he’s used to, the current situation “is like falling into the Grand Canyon.”
Elsewhere in the pork business, major meat producer Smithfield is forecasting dire economic conditions this year, and is scaling back its sow herds and turkey flocks as a bulwark against added feed costs. Similar responses are being employed across the cattle and poultry sectors as unprecedented input costs, including record-high energy prices, erode profit margins and, in some cases, present producers with a net loss on every animal sold. That’s not a problem you can make up on the volume.
In the dairy sector, even despite above-average farm-level milk prices, the litany of pocketbook problems is the same. The USDA has reported that the milk-price feed ratio, which is a quick assessment of the relative value of the feed it costs to make milk, is at its lowest-ever proportion. In the past two years, dairy feed inputs have surged by more than 35%, while diesel costs have risen by more than 60%.
The world-wide surge in food prices is one of the biggest stories of the year, because food is essential life, and everyone has noticed the high price of food. Feed prices are essential to livestock producers, who face few good options for how to confront the escalating cost of making a living. Fortunately, in the dairy industry, one tool at the disposal of farmers is Cooperatives Working Together.
The low price of milk was the main impetus for the creation of CWT five years ago; input costs back then weren’t even part of the picture. In 2008, CWT remains an important self-help program for dairy producers, even though milk prices are much stronger than they were in 2003.
The reason we chose to conduct a herd retirement this summer was because for far too many dairy producers, their profit margins are severely compressed. CWT isn’t just about the past month’s all-milk price. It’s about the overall economic equation facing our members. And that ledger has been tainted by the high feed price factor, coupled with sky-high energy costs.
Some questioned whether it was prudent to use CWT’s resources in this fashion at a time when consumers are still looking at relatively high dairy prices. But this is a producer-funded and -focused program, and they expect and deserve to have the program operated in a way that recognizes the challenging playing field of 2008. And frankly, the dairy industry is not unique. Herds and flocks are being downsized across the board. CWT just allows us to do it in a more proactive fashion.
CWT announced earlier this month that it will be accepting 209 bids from its members, reducing the cow herd by roughly 25,000, representing 440 million pounds of milk when all the removals are completed later this summer.
Through its herd retirement program, CWT gives dairy producers the chance to collectively tweak the dairy supply, and improve their margins accordingly. Other factors will continue to affect producers’ balance sheets, ranging from the price of feed concentrates to the cost of a gallon of diesel. Other factors, from the value of the dollar to the success of restaurant menu promotions, will affect the marketing environment and demand for dairy. But CWT remains a vital tool that our members expect us to use at the appropriate time.
In addition to its herd retirement program, CWT also has an active export assistance program. Lately, we’ve exported significant quantities of butter products, along with some cheese – representing more than 700 million pounds of milk equivalent. Both the export and herd retirement programs complement each other and help improve the economic picture facing dairy farmers.
Catfish farmers, or others who raise poultry, cattle or swine, have little choice but to buckle down during the current economic storm and hope they can ride it out. Some, obviously, will not. They’ll be sunk by today’s unrelenting high costs. Thanks to CWT, more dairy producers will be able to keep swimming in the future.
