In the last year, about 75 Indiana dairy farms were forced to close their doors because they didn't make enough money to survive or lost too much, coupled with having to meet increased regulations, says Purdue University dairy specialist Mike Schutz.
After a wet spring and extremely dry summer, silage, hay and other forages are expensive but low in essential components, such as energy. That means producers have to supplement the already pricey feed supply with corn, a crop now bringing record-high prices.
"In Indiana we've already seen per-cow milk production decline, partially due to feed quality issues," Schutz says. "Another big factor in the milk production decline was the summer's extreme heat and humidity; and delayed breeding cycles may affect production for some time."
Some farms also struggled to comply with tighter regulations on somatic cell counts. Somatic cells can lower dairy product yields and reduce shelf life. The new regulations brought Grade B milk - manufacturing grade - cell counts down from 1 million per milliliter to 750,000 , the same as for Grade A.
The one saving grace has been strong milk prices. But even at prices above $20 per hundredweight, milk producers haven't been turning much of a profit. Milk prices producers receive have risen substantially since the average $11 per hundredweight price they saw during the worst of 2009.
"Milk prices will probably stay in the $19-$20 range for the remainder of 2011, but the average cost of production is $17.50 per hundredweight," Schutz says. "Margins are small, and they aren't off-setting the high feed prices or the losses producers experienced back in 2009."
The best thing dairy farmers can do is to manage feed costs as well as they can by forward-contracting feed costs when fair returns are available. Schultz also suggested focusing on risk-management when it comes to milk production.
"When producers find milk prices that guarantee a reasonable return, they should take advantage of those to protect against loss," Schutz says. "They also should make the best use milk quality premiums."
Other ways producers can protect profit margins are to store feed properly to avoid shrink losses or spoilage, or to look at opportunities to sell culled cows and extra replacement heifers.
"Replacement heifers are bringing really good prices right now," Schutz says.