Turbulence that has shaken the dairy industry the past few years could subside in the second half of this year if feed prices fall or at least stabilize, a Purdue Extension dairy specialist says.
Although the first part of 2013 likely will be stressful for producers, Mike Schutz said those who hold on should benefit from a relatively neutral economic outlook for the remainder of the year.
"The dairy industry is highly dependent on what happens with feed prices," he said. "We're hopeful that feed prices will be reduced or stabilize with the planting of the 2013 crop, which will also hopefully help producers get back to approaching at least break-even or somewhat profitable prices."
The 2012 drought hit the dairy industry hard by decreasing availability of feed while also increasing feed prices. Most dairy producers grow their own forages, but with drought-induced short supplies, many had to buy expensive forage from other growers.
Some producers are still short on forage supplies, so Schutz recommended that they keep a close eye on feed prices and check inventories frequently.
Farmers with low inventories can consider planting an early spring forage crop, such as spring oats. Spring oats can be sown in very early spring, giving farmers the opportunity to double-crop and produce more forage before next winter. Other options are sorghum-sudangrass, sudangrass or pearl millet, which can be sown in mid-May and ready for harvest by early July. Alfalfa can be sown by mid-April and also would produce a first harvest in July, followed by subsequent harvests for many years.
High prices and the lack of feed forced some producers to cull and sell cows. In October 2012, a total of 285,400 U.S. dairy cows were slaughtered under federal inspection - the highest monthly total since 1997, Schutz said.
While cull rates have now slowed, the number of dairy producers in Indiana continues to decrease.
"We lose about 5% of dairy farms per average year, but cow numbers remain remarkably stable and milk production continues to increase," Schutz said.
One of the challenges the industry faced in the last year was the dairy "fiscal cliff," he said.
The expiration of the 2008 farm bill in October and a lack of new federal farm policy heading into this year had many producers concerned that the industry would default to federal policy passed in 1949. The antiquated price structure would have caused milk prices to increase to levels bottlers, processors, and budget-strapped consumers couldn't afford.
"While double the price of milk sounds great right now to dairy producers, the consumers would not have been able to afford milk," Schutz said. "Certainly the milk processors would have stopped buying as much milk, and it would have caused a great dilemma for the dairy industry.
The problem was averted with a one-year extension of the farm bill, which bought time for Congress to write new farm policy.
"Fortunately, lawmakers extended the farm bill, which means the MILC - milk income loss contract program - is also still in effect," Schutz said.
The MILC program, administered by the U.S. Department of Agriculture's Farm Service Agency, compensates dairy producers when domestic milk prices fall below a certain level. The monthly payments can help supplement producers' incomes if they are losing money at current milk prices. Dairy farmers should check with their local FSA offices for more details.