Cows feeding at bunk.
December 18, 2017

Northeastern Dairy Farmers Need to Plan Cash Flow For Below $17.50

 |  By: Jim Dickrell

With 2018 milk price forecasts in the doldrums with little good news to bolster higher prices, Pennsylvania and northeastern dairy farmers need to plan budgets for less than $17.50/cwt.

“For some months, we have been recommending that 2018 cost of production on Pennsylvania dairy farms would need to be below $17.50 in order to cash flow, and even that cost of production will not provide much profit margin at the current forecast of 2018 Class III prices,” says Dave Swartz, interim assistant Director of Programs, Animal Systems, with Penn State University.

“So even though there are glimpses of positive trends—U.S. cow numbers not growing, total U.S. milk production only growing at a bit over 1% instead of 2% or greater—this positive news is not seen as denting supply enough for the markets to anticipate future price increases,” he says.

In 2017, Pennsylvania’s all-milk price will average $18.70, resulting in a milk/feed margin of $12.54. The three-year average breakeven milk-feed margin (2014-2016) was $12.41, meaning the 2017 number was just above average. The problem is that the Pennsylvania milk price forecast for the first 10 months of 2018 is $16.86/cwt. (Note: Pennsylvania’s feed costs to produce 75 lb of milk per cow averaged $6.16 in 2017, down about 5% from last year.)

Because of low commodities prices in virtually all ag sectors, farm debt has risen almost 20% nationally over the past four years. “Eventually, if commodity prices do not rise, debt levels can’t continue to rise because there will not be the cash flow to service the increased debt,” says Swartz.

Rising interest rate, however slight, will increase the burden, particularly on short-term variable rate loans and lines of credit.