Economics 101 for a dairy farmer isn’t all that complicated. For instance, when your income falls by 30 percent, your economy isn’t very good.
By: Steve Vied
John Kuegel, who milks 155 cows on 250 acres on Old Lyddane Bridge Road west of Owensboro, is worried about a potential price drop that could be right around the corner, with milk flooding the market and the price for a gallon of 2 percent milk in grocery stores well under $2.
As recently as December, Kuegel was fetching $20 for 100 pounds of top quality milk from his buyer in Murray. But some are predicting prices to be as low as $13 this year, he said.
«As a manager of a business, you have to find places to cut,» Kuegel said. «When you pull 30 percent of your revenue, there’s only so many places to cut.»
In a recent edition of MILK Magazine, produced by Farm Journal Media, Editor Mike Opperman wrote that milk prices are projected to bottom out in the first half of 2018 in the high $13s to mid $14s, but are expected to rise in the second half of the year as production and inventories start to balance.
The U.S. Department of Agriculture has a more optimistic outlook. The USDA said in December that with recent price declines in dairy products and continued high stock levels, the all-milk price for the fourth quarter of 2017 was $17.75-$17.95 per 100 pounds, a reduction from the November forecast of $17.85-$18.15. The 2018 all-milk price forecast is $16.65-$17.45 per 100 pounds, a reduction from the previous forecast of $16.90-$17.80.
To Kuegel, a veteran of 30 years in the dairy business, there are too many cows and too much milk being produced.
«Right now, on the Facebook group I follow, the last two months there have been a lot of posts on milk prices,» Kuegel said. «Some of the discussion is very divisive, with different opinions. (Some think) we need to control our production, which I think we should do, if we want an affordable, reliable milk supply and successful farmers. Other groups say no controls on how much is produced.»
Kuegel said the trend is toward larger dairy farms, and going away from family farms such as his.
«They (large dairy operations) are shipping a lot of milk,» Kuegel said. «The whole setup is evolving.»
Kuegel said he recently checked with a Kentucky dairy official, who told him that in 2005 there were just under 1,500 dairy farms in the state. «Yesterday (Jan. 15) there were 582,» he said. «I got a call last night from a guy who said a neighbor was hauling his cows off today …. Typically what’s happening is a lot of cows are going to other farms.»
«Now we’ve got a system where there’s way too much milk out there,» Kuegel added. «Because there is so much, some co-ops are not accepting milk, and dairies that want to expand can’t. It’s just kind of a different time. At meetings I go to, there is a certain degree of ‘I’m tired of the cycle.’ You eat up capital to make it through the hard times. Right now, we’re about to go down the hill.»
Kuegel, who gets paid monthly for the milk that is picked up from his farm (20,000 pounds, every other day) said he wishes he could lock in the price he was paid for his December milk, because he fears the price he will receive for his January milk will be much lower. «I wish I could lock that (December) price in, but it won’t stay there,» he said.
«As a dairy farmer, I want people to know our product is healthy, safe and nutritious and I am producing a good product,» Kuegel said. «But I also want to get paid.»
The dairy industry has changed a lot in Kuegel’s career, he said. In 2005, the average annual production from one cow was about 13,000 pounds of milk. Today, that average is more than 18,000 pounds, thanks to improved genetics that have led to bigger, hungrier cows. Kuegel frequently sells cows to other farms when they need replacements, and also sells registered bulls for breeding purposes. All of Kuegel’s cows are artificially inseminated, and he doesn’t often buy calves.
What is needed, Kuegel said, is price stability in the dairy industry.
«To me, food and what we feed people is a security issue,» Kuegel said. «I still love what we do and working around animals. But it gets harder to hold it together when the income is shut off.»