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The dairy economy – Where do we stand today?

Andrea Bloom Published on 19 January 2010

Every dairy producer knows that 2009 was a tough year for the industry, but 2010 can be a good year for those willing to stay on top of their financial planning and management practices.


Gary Sipiorski, dairy development manager with Vita Plus, recapped the last year in the dairy economy and gave his recommendations for financial recovery at the Vita Plus Dairy Summit in Green Bay, Wisconsin.

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Sipiorski said that out-of-control credit card spending was responsible for the nation’s economic depression as people were spending more than they were saving. Although the average American has begun to save 3 percent of his or her paycheck, the economic situation still remains challenging. Among the biggest worries is that the U.S. is looking at a 10.2 percent unemployment rate.

“Why does this matter?” Sipiorski asked. “Because these are your customers. Instead of having steak tonight, they’re having noodles.”

However, it appears that a stronger economy is on its way. Sipiorski said the U.S. government recently announced the national recession is over, but was quick to remind Dairy Summit attendees that recovery is not a fast process. He pointed to the 1987 farm crisis and the fact that it took until 1992 for the dairy industry to recover. Sipiorski predicted it will take about three to five years for producers to recover from the 2009 challenges.

So what should dairy producers do to start the recovery process? Sipiorski said the first thing is to look at your current financial situation and plan accordingly for the year ahead.

“Before you go out for New Year’s Eve, put together your balance sheet,” he said.

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It’s important to be honest when creating that balance sheet. Be realistic about your liabilities or the money you owe and compare that to your assets. Look at your 2009 crop expenses that you haven’t paid and get a firm grasp on your 2010 cropping needs. Then make projections for your assets and liabilities in the upcoming year.

The next step is to take all of this information with you when you meet with your lender in early March. Sipiorski, a former banker, said lenders are much more willing to work with producers when they have a firm grasp on their financial situation. He also noted it’s a two-way street and producers need to work with lenders who have a strong understanding of the dairy industry.

Sipiorski was optimistic about what lies ahead for dairy producers. As of now, the average cost of production is about $14 per hundredweight. Futures prices are showing the breakeven point coming in the next few months. According to market information collected just before his presentation, futures prices are at $15.30 for March and $16.10 for July. However, Sipiorski warned that “futures are futures” and low milk prices may extend further into the next year than predicted. The pork industry is a good example, as hog producers have suffered through three years of low prices.

The forecasted upswing in dairy prices is closely correlated to the number of cows in the U.S. Sipiorski showed that historically, milk prices fell when the U.S. herd grew above nine million cows. The industry is currently at 9.126 million cows.

“That’s why you’re starting to see some of the futures prices coming back,” Sipiorski said.

Although finances are his specialty, Sipiorski said that producers won’t be successful by focusing solely on the numbers. Instead, the cows need to also be a top priority.

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“Cows don’t understand the checkbook,” he said. “They understand comfort.”

Superior cow comfort – and successful dairying – includes good bedding, high-quality forages and good feed choices. These efforts, matched with sound financial management, set apart the great producers from the rest of the industry, according to Sipiorski.

“We need you,” he said. “We need you to be those top producers.” PD

Andrea Bloom works for Vita Plus in Madison, Wisconsin.

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