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1208 PD: GUEST EDITOR’S OPINION: Highs in the mid-70s

Darren Olsen Published on 15 August 2008

Forage and feed costs may soon exceed 70 percent of the operational costs of your dairy.

Considering the feed portion of a dairy’s operating budget was in the mid-40 to 50 percent range just two years ago, this figure scares a lot of dairymen. To be honest, it scares a lot of forage producers, as well.

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Forage producers are dealing with four major headaches. No one is excluded from them, although good management practices help in some areas:

• Fertilizer – Right now, potash and phosphate are averaging prices that are double a year ago. Nitrogen fertilizer is up even more. If prices trend the way most analysts predict, it will cost about $215 to fertilize one acre of corn. That is more than an acre of corn grossed just five years ago.

• Fuel – Diesel fuel prices are at levels that make teams of oxen look like valuable purchases, and although everyone is hoping for a decrease, don’t count on much of one. This cost is especially bad for alfalfa producers since they have to make so many passes over a field per season. While they save on nitrogen fertilizer, they lose in the fuel arena.

• Seeds – Although seed improvements generally lead to higher yields and justify the cost of better hybrids, they aren’t keeping up with the rising cost of inputs. Seed prices are up around 30 percent over last year and are expected to be up 10 to 15 percent again next year.

• Loans – Here is the dark horse no one wants to deal with, including financial institutions. The cost of doing business has risen dramatically in the past year, and many growers who are lining up to finance their business next year are finding it very difficult to secure low-cost loans. It isn’t something anyone feels good about, especially for growers who are not used to dealing with such huge numbers. There is the opportunity to do very well, but there is the same opportunity to incur significant debt and loss. The cost of being in crop production is no longer for the weak and timid.

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I haven’t stated the above facts and figures to draw out feelings of pity for forage producers. Everyone is dealing with rising costs, and it isn’t going away. In fact, the problem could be getting worse.

In California, forage producers and dairy owners are playing a stalemate game of ‘chicken’. Dairies are holding back on purchasing hay at current prices, while alfalfa growers are not wanting to budge, knowing their costs are continuing to rise. This, coupled with slowly declining milk prices, is starting to create friction between the two groups. Dairymen are now looking to bring in more hay from Nevada and other outlying areas, feeling it is better to pay higher fuel surcharges than current local prices.

There are no easy answers here. No one wants to pay more than they have to, but no one wants to operate in a negative cash flow situation, either. My concern is this trend is starting to develop in other areas around the country and neither side – forage/feed producers nor dairy owners – is going to win. It is going to require some give-and-take on both sides of this issue to help everyone come out with their businesses and dignity still intact. Here’s hoping we can all survive highs in the mid-70s. PD

Darren Olsen
Progressive Forage Grower
Editor

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