Dairies in the Dakotas are getting squeezed like no other enterprise.
Milk prices are low and feed and nearly every other input is still high.
J.W. Schroeder, NDSU Extension dairy specialist, says a consultant described the situation this way:
"Our company has been working on 2009 budgets for our dairy producer clients in the U.S. since November. We are seeing some alarming cash flow shortages and much of that was before the most current round of price declines in the futures markets. During past price dips, profitable farms would cash flow but be less profitable, average farms would see some run up in payables and the lower-tier farms would have to pull out all the stops to survive, including interest only, recapitalizing short-term debt and increases in payables until suppliers resorted to cash-only deliveries. This time around, our more profitable clients are looking at the strategies normally employed by lower-tier producers and we're still not showing positive cash flows."
Locally, the observation is that futures contracts for the first half of 2009 are dismal at best, Schroeder says.
"This is due partly to the increase in the cowherd, partly to export competition and, most importantly, to the weakening economy. The increase in the cowherd will correct itself rather quickly at these prices. Who knows about exports? However, the weak economy is the biggest factor, and when that turns around is unknown."
Source: NDSU Extension Communications