Written by The Business Journal Staff
In early June trading, prices for the three key dairy commodities all showed strong gains on the Chicago Board of Trade, and dairy industry officials are hoping the summer rally will hold and reverse what has been a painful, multi-year downtrend.
Commenting on the recent dairy rally, Annie AcMoody, staff economist for Western United Dairymen, said dairy markets were “heating up faster than a black car in the sun.”
In recent months, milk prices had fallen to lows not seen since late 2009. The prolonged downturn combined with increased regulatory mandates from the state have driven hundreds of dairies out of business around the Central Valley.
Many dairy farmers have fled to states like Wisconsin, Texas and New Mexico, which have less expensive land and less rigorous regulations regarding everything from labor and minimum wage laws to controlling methane emissions.
And just this week, the California Department of Food and Agriculture announced it was boosting its quarterly inspection fees for Golden State dairies. CDFA officials said the rate hike, the first since 2012, was necessary to maintain required dairy farm inspection and sampling activities.
But at least for now, California dairy farmers are cheering the nascent rebound in commodity prices.
During the second week of June, butter prices leaped to an average $1.27 per pound, ten cents higher than the previous week while block cheese prices gained three and a half cents, bringing the price to slightly more than $1.47 per pound, a level not seen since late March.
AcMoody noted that U.S. butter exports “continue to suffer” from price discrepancies between U.S. and non-U.S. markets, “which makes it difficult for U.S. products to make their way outside our borders.”
Butterfat exports this spring were down 42 percent from the same time last year. “Fortunately, butter imports were also down to the lowest level since September 2015,” AcMoody said. Still, butter imports continue to surpass exports, contributing to growing U.S. butter stocks, AcMoody added.
Prices of both fluid and nonfat dry milk have also joined the recent rally, though not rising as high — or as fast — as Golden State dairymen would like.
During the second week of June, sales volume for nonfat dry milk leaped 10 million pounds — to 19 million pounds. While April 2016 powder exports were still down 19 percent year-over-year, in large part due to big cutbacks from buyers in China and Southeast Asia, U.S. dry milk exports are still at their highest levels since October 2015.
“Sales volume to Mexico, the U.S.’s largest market for nonfat dry milk and skim milk powder, was fortunately up 22 percent from last year,” AcMoody noted.
While the recent price action is encouraging, dairymen across the Valley have not begun ordering champagne. With the milk price still stubbornly below the $16-$17 per hundredweight level that most need just to break even, many dairy operators continue to scale back their operations or consider moving to greener out-of-state pastures.
Andy Zonneveld, a third-generation Laton dairyman, said he is encouraged by the recent uptick in dairy prices. “Maybe we have seen the bottom and some big buyers are picking up inventory now,” he said.
With some input costs like feed dropping in price recently, Zonneveld said, “I see the second half of 2016 coming back to reality a little bit.”
But the hard times in dairyland are far from over. Zonneveld said he is still getting notices every week for dispersal sales at Valley dairies going out of business and has relatives who’ve recently decided to close up their Valley dairy operations.
Zonneveld said he is constantly looking for “more efficient ways” to operate and recently made a big investment in solar to power his dairy. “You’ve got to stay competitive,” he said. In recent years, Zonneveld has also begun farming walnuts, pistachios, walnuts and canning tomatoes.
“In the dairy business, we see extreme highs and extreme lows,” he said. “If you can survive times of over supply, you’ll eventually see good times again.”