Farm-level milk prices way up but so are production costs

By Sean Ellis

Idaho Farm Bureau Federation

POCATELLO – Farm-level milk prices in Idaho are flirting with record territory but so are production costs for the state’s dairies.

The average price that Idaho producers receive for their milk hit a sky-high $26.10 per hundred pounds (cwt) in March, according to USDA’s National Agricultural Statistics Service. That’s compared to $17.60 per cwt in March of 2021.

But Idaho dairy operations’ production costs are also sky-high.

That poses some challenges for Idaho’s dairy industry, which is the No. 1 sector of the state’s agricultural industry in terms of farm-gate revenue.

Idaho dairies brought in more than $3 billion in farm-gate revenue last year, according to NASS.

When the hay, corn and other crops needed to feed milk cows is factored in, the dairy industry’s total economic impact on the state is considerable.

According to the U.S. Dairy Export Council, Idaho’s dairy industry has a $9.1 billion economic impact on the state, contributes 5.7 percent to Idaho’s total gross domestic product, and supports more than $400 million in wages.

Very recently, the average Idaho dairy needed to receive about $16 to $16.50 per cwt for its milk in order to break even. That break-even point is now closing in on $20 per cwt.

The cost of virtually all dairy inputs is up significantly but much higher feed costs especially are presenting serious challenges to Idaho dairies, said Idaho Dairymen’s Association Executive Director Rick Naerebout.

He said increased feed costs alone have pushed up the cost of production for the average Idaho dairy by about $3 per cwt over the past year.

“We’re seeing record high feed costs,” Naerebout said. “Every indication is that feed will become more and more expensive as we get into new crop feed. We expect to see all-time highs on hay prices and corn silage prices this year in Idaho.”

Feed costs are way up compared with a year ago and regardless of how high they are, “cows have to be fed,” said Twin Falls dairyman Willie Bokma.

The average Idaho milk cow eats about 50 pounds of dry matter feed each day, he said.

“Contracting feed is a nightmare right now,” he said.

Feed costs typically account for about 50 percent of the total cost of production for an Idaho dairy, said Caldwell dairyman Bernie Teunissen.

He said part of the problem is that the cost of every dairy input, including feed, is rising rapidly. He said his operation gets a letter from a vendor nearly every week notifying it of a price increase for an input.

“Our costs have been accelerating so rapidly that we don’t have a strong handle on what our costs are right now,” he said. “It’s been a runup in costs like there has never been in my lifetime.”

He said the overall increase in the cost of production is very concerning but there are multiple hedging tools producers can use to lock in the price of some costs.

“We are certainly going to do some hedging,” Teunissen said.

“If you’re a wise producer, you use those tools,” Bokma said. “God gave us brains. If we use our God-given talents to use the tools available to us – hedging when you can, contracting when you can – we’re probably going to be OK. Everyone in the world still has to eat.”

Idaho ranks No. 3 in the nation in total milk production and most of Idaho’s milk is used to produce cheese. That milk is known as Class III milk.

Class III milk futures are currently over $24 per cwt through October, which is above the cost of production for dairies.

Naerebout said one of the major concerns Idaho dairies have right now is that the farm-level price of milk will drop but the cost of production won’t go down nearly as quick.

“Dairymen are very apprehensive about how long these prices will sustain and being able to cover feed costs,” he said. “That part really has our dairymen nervous.”

University of Minnesota dairy economist Marin Bozic, who has presented to Idaho dairymen in person before, said developments in New Zealand and Europe, two of the United States’ major competitors when it comes to milk production, could present opportunities for U.S. dairy operations.

The dairy herd in New Zealand tripled from the mid-1990s to about 2016 but it has stopped growing the past few years, he said.

“That has presented a tremendous opportunity for other milk producers,” Bozic said.

At the same time, Europe is committed to its version of a New Green Deal, which targets reduced emissions from the agricultural sector. That will mean reduced cow numbers.

Between the developments in New Zealand and Europe, the market signal is that more milk is needed and the opportunity is opening up for U.S. producers to capture some more overseas market, Bozic said.