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Falling prices skim profits from Idaho family dairies

How volatile prices affect Idaho farms

University of Idaho agriculture economist Garth Taylor explains why Idaho is insulated from some of the market factors working against farmers in other parts of the country.
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University of Idaho agriculture economist Garth Taylor explains why Idaho is insulated from some of the market factors working against farmers in other parts of the country.

One by one, 3,700 milking cows at Beranna Dairy marched into stalls on a slowly turning rotary parlor, forming a spinning circle of cow butts. Workers cleaned the teats, clamped mechanized milking devices to udders and completed pumping milk from each cow in the 10 minutes before the rotary completed one rotation. Once milked, the cows ambled back to the snowy yard.

Idaho dairies recorded near-record-high revenues and profits in 2014, but collapsing milk prices have cut profits by 60 percent at Beranna, a family-owned dairy about 14 miles south of Caldwell, owner Bernie Teunissen said. Dairy revenues across the state have fallen by 27 percent. If prices remain low — and experts predict milk profits will keep falling, perhaps another 20 percent from today’s level — dairies could fall into the red, said Derek Teunissen, operating partner and son of Bernie Teunissen.

“We’d be looking at paper-thin margins at best,” he said.

If USDA numbers hold in 2016, we will be down 50 percent for farm profits in two years.

University of Idaho agriculture economist Garth Taylor

DAIRIES DRIVE AG

Idaho is the nation’s third-largest milk producer after California and Wisconsin, with 934 dairies in 2012, according to the U.S. Census.

In 2014, Idaho farms earned nearly $2 billion in profits, according to the U.S. Department of Agriculture, nearing a record high set in 2013. (The USDA had earlier reported that 2014 was Idaho’s best year before revising its numbers to reflect revenue drops late in the year.)

The strong year was due to milk prices, said Garth Taylor, University of Idaho agriculture economist. Milk brought in nearly $3.2 billion in revenue in 2014, or 37 percent of all of the state’s agriculture receipts. Potatoes, the state’s largest crop, brought in 10 percent.

So when milk prices plunged in 2015, the losses to dairy rendered negligible the gains in barley (up 7 percent in revenues) and sugar beets (19 percent) and losses in crops such as potatoes (down 3 percent) and hay (12 percent).

Consumers are benefiting. Nationwide, the average price for a gallon of whole milk fell from $3.82 at the end of 2014 to $3.33 in November 2015, the last month tabulated by the Bureau of Labor Statistics. The average cost of a gallon in Boise in January was $2.10, according to the data aggregator website Numbeo.com.

“Our license plates should read, ‘Famous milk,’ not ‘Famous potatoes,’ ” Taylor said. “We’ve changed from a crop state to a livestock state.”

As a result, Idaho agriculture revenues fell 9 percent in 2015, returning the state to 2012 levels, he said.

CAUTION BEHOOVES DAIRIES

The Beranna Dairy has been in the Teunnisen family for three generations and has operated in Canyon County since 2000. Its name, said Derek Teunnisen, 26, came in a “fit of creativity” by joining the names of his parents, Bernie and Anna Teunissen.

Bernie Teunissen, 55, said dairy veterans expect volatile prices. The family invested 2014 profits into equipment, buying three tractors and a dump truck. He bought the equipment outright so he would not be saddled with payments when profits inevitably fall.

“We invested in the future knowing leaner times will come again,” he said. “The first thing you do in down times is cut back on repairs and maintenance. Instead of an overhaul, you might do a Band-Aid fix to get through the narrow times.”

The Teunissens declined to disclose revenues.

The downturn is probably not costing workers jobs. Agriculture employment holds steady during downturns, including at dairies, Bernie Teunissen said.

“Some buisnesses can shut down, like oil fields,” he said. “We can’t do that. Everything is in a consistent, day-by-day-routine.”

In 2015, Idaho milk production grew by 2 percent, but milk prices fell an average of 28 percent. University of Idaho

Taylor said dairies are much better situated than in 2009, when falling prices and revenues drove about half of Idaho dairies into bank oversight.

“We’re not approaching that now,” Taylor said. “Bankers are still pushing money on farmers, saying, ‘Please borrow from us.’ 

Derek Teunissen said established dairies such as Beranna have the equity to weather downturns like the 2009 crisis, when the family borrowed money to keep the rotary parlor turning. Dairymen paying off expansions struggled or failed, he said. Today, younger dairies heavily in debt could be at risk of folding if prices remain low. Prices are now around the break-even point now and are expected to rise only slightly into the black in the second and third quarters of 2016.

“(2009) was definitely a wake-up call to tighten management,” he said. “ At this point, we’re less exposed. We’re better prepared to handle it.”

OVERSEAS PROBLEMS HIT HOME

Economic and political turmoil overseas are driving down prices for Idaho farm commodities, including milk, Taylor said. The value of Idaho farm exports fell by a quarter in 2015 after nearly doubling since 2006.

Trade embargoes designed to punish Russia for invading Crimea are causing an oversupply of milk and other products, Taylor said. The U.S. didn’t trade much with Russia, but the European Union nations that did are now competing with U.S. exporters elsewhere on the globe.

579,000 Dairy cows in Idaho

1.6 millionPeople in Idaho

“The world is awash in farm products,” Taylor said. “We’ve had record-high grain productions, and we have huge stocks overhanging the market.”

U.S. agriculture exports are still trying to catch up after a labor dispute at West Coast ports slowed shipping to a trickle during late 2014 before being resolved early last year, said Laura Johnson, bureau chief of the Idaho Department of Labor’s Market Development Division.

Unable to receive farm products before they spoiled, some overseas buyers turned away from the U.S. and did not return when the port dispute ended, Johnson said. She does not expect exports to increase in 2016.

“It’s difficult to get those customers back,” Johnson said. “In the case of hay, when buyers turned somewhere else, they created a glut of product here.”

Most Idaho milk goes to cheese, and the global cheese market has 20 percent more inventory than a year ago, said Brent Olmstead, executive director of Milk Producers of Idaho. That oversupply coupled with a strengthening U.S. dollar and a big production year from competitors New Zealand and Australia combined to help depress U.S. milk prices.

“New Zealand and Australia are much closer to the Asian markets than we are, and they are having a good year” Olmstead said. “In agriculture, your success depends on somebody else’s failure.”

OFFSETTING COMMODITIES

But record-high beef prices have buoyed Idaho dairies, Bernie Teunissen said. Male calves and old milk cows are sold to ranchers and meat processors. Cattlemen in Texas and Oklahoma trimmed their herds when prolonged droughts drove up feed prices, creating a beef shortage and driving up prices.

Cattle and calves were one of Idaho’s few bright spots for 2015, bringing in $2.2 billion in sales, an 8 percent growth over 2014. But cattle and calf prices have fallen or leveled since November, cutting rancher profits.

“Beef prices were holding things together,” Bernie Teunissen said. “Not only were slaughter cows helping pay the bills, but day-old calf prices helped as well. That collapsed. We’re looking at red figures now.”

A bad year for grain and hay farmers helps dairies cut feed costs. Many hay farmers have a two-and-a-half-year supply, a glut that drove revenues for Idaho’s third-largest cash crop down 12 percent in 2015, Taylor said. Hay problems could become potato problems next year, he says.

“Farmers are breaking off alfalfa land to put in spuds because it’s the only crop that will make money,” Taylor said. “That spells disaster for prices.”

We have a great teeter-totter effect: If hay prices go up, the margin on milk goes down.

University of Idaho agriculture economist Garth Taylor

The Idaho economy can take consolation in the fact that the poor agriculture year doesn’t hurt agriculture employment or the industries supporting farming, such as food processing, Taylor said.

“Volatility doesn’t transfer to volatility in farm communities,” he said. “Regardless of the price of milk, the cows still have to be fed and milked. No matter the price of spuds, they still have to be planted, watered and harvested.”

Bernie Teunissen doesn’t expect prices to fall to 2009 lows, but if they do, he said Beranna is ready.

“Dairymen are tough people,” he said “We’ve been through ups and downs before.”

Idaho ag’s 2015 report card

In millions of dollars

Commodity

2015 cash receipts

Change from 2014

Milk

$2,348

-27%

Cattle and calves

$2,213

+8%

Potatoes

$871

-3%

Wheat

$506

-17$

Hay

$485

-12%

Sugar beets

$300

+19%

Barley

$286

+7%

Other livestock

$226

-3%

Dry beans

$71

-1%

Other crops

$571

4%

TOTAL

$7,877

-9%

Based on University of Idaho projections

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