Financials: better but not good

Hoard's Dairyman: 

Financials: better but not good

Date: 
Thu, 07/01/2010

Last winter, things were looking up milk price wise, but rising milk production, sluggish demand, and climbing dairy product inventories caught up with us. Now, it looks like 2010 is going to be better financially for many operations but still is not going to be good.

We just received first-quarter financials for a sizable group of large dairies served by the accounting firm Nietzke & Faupel based at Pigeon, Mich. Compared to the first quarter of last year, the numbers looked much better. During the first quarter this year, a group of herds that averaged just more than 900 cows had net losses of 53 cents per hundredweight or 35 cents per cow per day. That compared to losses of $5.63 per hundredweight or $3.40 per cow per day during January, February, and March of 2009.

Looking at expense items, there was a big drop in cull cow (or replacement) costs from $3.48 per hundredweight during the first quarter last year to $2.79 this year. This reflected higher cull cow values and lower replacement prices. First-quarter feed costs dropped from $8.29 per hundredweight last year to $7.68 this year. This likely is a result of slightly lower feed values and fine-tuning of rations to eliminate extra expense.

Wages per hundredweight actually went up by 20 cents from $1 to $1.20. Breeding costs dropped from 17 cents per hundredweight to 10 cents. Supplies slipped from 56 cents per hundredweight to 45 cents. Total operating costs and expenses were $18.48 per hundredweight during the first quarter of this year compared to $20.18 last year.

The big difference was milk price. Average price received per hundredweight during the first quarter of last year for the dairies was $13.39. This year, the average was $16.62.

However, milk prices were pretty good during January and February. The average U.S. All-Milk Price during those months was $16.50 and $15.90. During the first 10 months of 2009, the nation's All-Milk Price averaged $12.20. Then it jumped to $15.40 and $16.50 in November and December. The average for all of 2009 was $12.83.

By March of this year, the All-Milk Price was back down to $14.80, and it was $14.60 in April. It did bounce up to $15.80 for May. Still, the point is that even though costs are down this year and milk prices will be up some, margins still will not be healthy for many dairy operations.