At that time, the BFP was $9.90. When the price for November was announced it was just $9.79, and that dropped to $9.63 for December. "The farmers are suffering dramatically because these are prices they haven't seen in 20 years," said Matt Quade, manager of the Associated Milk Producers Incorporated (AMPI) plant in Paynesville.
Even with some premiums added to that price, local farmer Ken Schefers, who milks cows in partnership with his brother, Ralph, said those prices are the lowest they've received since they started their partnership in 1979.
The BFP is used as a basis for milk pricing. The price for Grade B milk, used in manufacturing dairy products, might be very close to the BFP. AMPI in Paynesville paid 21 cents above the BFP for Grade B milk in December. They paid $1.11 extra for Grade A milk.
Milk prices have been very unstable for the past year. In November and December of 1998, the BFP reached highs $16.84 and $17.34 respectively. A year later the price was down over $7, a drop of more than 40 percent.
After a down period last spring, by last September, the BFP was up to $16.26 again, but it proceeded to drop $6 in two months.
A dairy expert at the University of Wisconsin-Madison, Bob Cropp, attributes the drop in the BFP to a corresponding drop in cheese prices. A 40-pound block of cheddar sold for $1.9725 per pound in August, but was down to $1.12 per pound by November, a similar drop of over 40 percent in price.
Quade said cheese prices have been volatile for the past year. They were at an all-time high last January at $1.90 per pound for a 40-pound block of cheddar. Then they dropped, as low as $1.19 per pound in May, before rebounding to a new all-time high in August at $1.9725.
Since then, they dropped to government support-price levels of $1.10 per pound in November. (When the commodity reaches the support price, producers have the option of selling to the government at that price.) The 40-pound block reached $1.22 per pound in mid-December, but have fallen back to $1.11 currently.
Quade said cheese used to be traded once a week in Green Bay, Wis., but the trading was shifted to the Chicago Mercantile Exchange, where it's now traded daily. The idea was to stabilize the price. "That hasn't happened," said Quade. "We've actually seen as much volatility or more as Green Bay, in my opinion."
A record amount of cheese was produced in 1998, and production through November this year is up 6.2 percent, according to statistics from Quade. "When consumption is not keeping up with production, these are the problems we have," said Quade.
Milk production is also up this year, a key factor in the falling milk prices. "We have a lot of milk on the market," explained Pat Kearney, University of Minnesota extension educator in Kandiyohi County. "All the plants in Minnesota are running at full capacity. Right now, we're at a high production rate nationwide."
Schefers, who serves on a Family Dairy USA committee, said a recent meeting in Madison, Wis., focused on how production has affected price. Weather-related problems hindered production in other areas of the country over the past couple years, but now everyone is back at capacity. Plus, the trend in dairy is growth in capacity in Sun Belt states.
Kearney said he knew of nine new dairy plants in the northwest: California, Oregon, Washington, and Idaho.
"We did quite well when every farm down the road had 30 cows," he explained. The trend is for factory-style dairies, which he said follows similar patterns in beef, hog, and poultry farming.
"Even if demand were strong," said Schefers, "there's so much milk on the market. There's something wrong with how we manage supply when something like that happens."
Gary Reeck, another local dairy farmer, said the milk market is difficult to predict. In 1998, they were surprised by record highs, but that's been followed with record lows. "Now it's swinging the other way," said Reeck. "The swings are getting more extreme."
Reeck has a contract for part of his milk, which gives some stability, but most of his milk is dependent on the market price. "I don't know how long it'll last," he said of the low prices. "I hope it won't be too long."
The impact on each farm depends on its finances, but low prices can strain finances. "Most everybody can weather the ups and downs for awhile," said Reeck. "We need to keep all the milk we can in the area to maintain infrastructure."
A counterpart in processing, Quade agreed about the importance of keeping the local dairy segment strong. "Dairy plants should be concerned. If these prices continue, there'll be more sellouts (of farms)," he said. "It's going to make it very difficult for any dairy farmer to stay in business at this level."
Schefers said the overall price for 1999 was okay, due to the highs earlier in the year. Continued levels like this could cause cash flow problems for farmers, depending on their finances. "We're going to average out the year with not a bad price, but it's scary when it goes up and down so fast," he said.
No one knows when milk prices will rise, but the Secretary of Agriculture Dan Glickman announced recently that small- and medium-sized dairy producers would get $125 million in direct cash payments in 2000. Payments in the Dairy Market Loss Assistance program will be based on an operation's milk production in 1997 or 1998 up to the first 26,000 hundredweight of milk produced, according to a news service report.
Payments will be done like a similar federal program in the summer of 1999, where $200 million was distributed, as a result of prices hanging around the $11 mark per hundredweight for five months last spring. Farmers who received payments last summer will automatically receive them this time. The average payment is expected to be around $3,600.
Farmers who need to sign up for the program should contact the Farm Service Agency or USDA service centers before Feb. 28.
Return to Archives