The December 2016 final milk check, which will be deposited in cash-starved farm checking accounts this week, brings some small relief to Ohio’s dairy farmers.
With the Class III milk price announced at $17.40 per hundredweight (cwt.), the negative 61-cent Producer Price Differential brought the Statistical Uniform Price (SUP) in at $16.79 per cwt.
The good news is that both the Class III price and the SUP were record highs for 2016. The bad news is that both the Class III and SUP were record highs for 2016.
The Statistical Uniform Price represents the dollars per hundredweight received by all dairy farms shipping Grade A milk with 3.5% fat, 2.99% protein, and 5.69% other solids, also referred to as milk “at test.” We have to go back to 2009, when the SUP averaged $12.11 per cwt. to find a lower annual statistical uniform price.
2010 had a lower average Class III price at $14.41 per cwt., but a generous Producer Price Differential brought the SUP up to $15.84 per cwt. for the year.
Times have changed
Looking at the annual average milk prices (see chart), it is clear that dairy farmers are now operating in a very different market place than their parents or grandparents did.
Milk prices in Federal Order 33, 2009 through 2016
We have moved from an industry where the actual milk price might be plus or minus 15 cents from an announced support price, to an industry with no support price and price fluctuations of more than $8 per cwt. in the past five years.
Grim bottom line
2015 was a challenge for the majority of Ohio’s dairy farms. 2016 was a bitter blow to everyone.
The net return per cow for all farms in the Ohio Farm Business Summary was $36.42 for 40 dairy enterprises in 2015. While the net return was positive in 2015, it was not sufficient to pay the owner/operators for their labor and management, as well as make principal payments on farm debt, causing farms to use up cash reserves and lines of credit.
Net return per cow will clearly be negative when the 2016 financial analysis numbers are in.
On average, farms cut costs $2 to $3 per cwt. in 2015. While 2016 encouraged even more cuts, substantial savings were difficult to find.
Know your numbers
Looking at 2016 numbers can be discouraging. It certainly doesn’t seem like a good time to start Farm Business Analysis.
On the contrary, I would say it is a critically important time to really look closely at your farm’s numbers, especially if you have not been able to do so in the past. Knowing where you are will give you have a better chance of getting where you want to go, and the resources to help figure out how to get there.