Local, National Pressures in Play at Milk Marketing Meeting

12/8/2012 7:00 AM
By Charlene M. Shupp Espenshade Special Sections Editor

HARRISBURG, Pa. — Gary Truckenmiller said economics show that his farm could be more viable if he sold the dairy cows and focused on grain marketing.

Richard Ebert said he has cut feed ration ingredients and is constantly re-evaluating his ration while costs continue to rise.

Matt Espenshade said his dairy’s income over feed costs is historically low.

On the other side, Earl Fink of the Pennsylvania Association of Milk Dealers said processors are being shut out of dairy contracts because the state milk price is too high compared with out-of-state milk.

Carl Herbein, an accountant testifying on behalf of the milk dealers, said fluid milk sales have declined more than 2 percent in the past year.

Members of the Pennsylvania Milk Marketing Board have the challenging task of finding a balance between the harsh economic reality for the state’s dairy farmers and the difficult economic conditions for the state’s milk processors.

The three-member board listened to testimony Wednesday from dairy farmers, dairy economists and accountants on the condition of the dairy industry during the first day of a hearing at the Pennsylvania Department of Agriculture.

The board will consider the testimony when it sets the over-order premium for Class I (fluid) milk produced, processed and sold in Pennsylvania for six months, starting Jan. 1.

Both sides of the production equation for Pennsylvania milk faced challenges in 2012. Organizations representing dairy farmers asked for a continuance of the current over-order premium of $1.95 per hundredweight and the fuel adjuster. Organizations representing the state’s milk processors asked for a reduction of 60 cents per hundredweight.

Pennsylvania milk prices were higher the second half of 2012, but as Ebert of Will-Mar-Re Farms of Westmoreland County cautioned, higher prices do not mean profitability.

“When looking at some of the higher milk checks we’ve received in 2012, it’s easy — on the surface — to say $20.78 is a good price for milk, but for Will-Mar-Re Farms and dairy farmers across the state, the real truth lies in the margins,” he said.

Ebert, who was testifying on behalf of the Pennsylvania Farm Bureau, said rising input costs are adding stress on farm margins weakened by the challenges of the past six years. He cited the rising costs for diesel fuel and feed, saying his feed costs have risen 28 percent.

Sixth-generation dairy farmer Truckenmiller operates a 90-cow dairy farm in Northumberland County with his son Alex.

Testifying on behalf of the Greater Northeast Milk Marketing Agency, an association of cooperatives, Truckenmiller said many farmers refer to milk prices as a roller coaster ride, however he said he believes it is much more dramatic than that.

“Today, it’s shut your eyes and hold on to your hat and brace for an impact type of ride,” he said. “Those of us that have lived through these dynamic times have learned to manage the ups and downs, and live within the constraints of the margins we have left. We don’t focus on what the price is, because we can’t control that.”

Truckenmiller said his family was fortunate because it has enough of a land base to grow most of its forages, and that provides some insulation from feed-price fluctuations. He said about 15 percent of his feed is purchased, and those costs have risen in the past couple of years from $40,000 per year to $100,000.

Espenshade, testifying for the Pennsylvania State Grange, said his Lancaster County farm has also taken action to cut costs. He has discontinued purchasing heifer pellet feed, instead using a higher portion of forages in the ration.

Michael Evanish, manager of MSC Business Services, spoke about the Dairy Herd Analysis report his staff prepares about the state’s dairy farmers and their profitability.

“Taking away anything will dramatically impact profitability,” he said.

A study of the financial records of MSC’s clients shows feed costs taking a larger share of the milk check and cutting into profits, he said.

Fink testified that several of his processor members are getting more vocal about the need to reduce the over-order premium. He said his members have seen retailers such as Aldi, Save-A-Lot, Bottom Dollar, Costco and Wegmans build new stores in Pennsylvania, but they are not placing Pennsylvania milk in their dairy cases, opting instead for milk from surrounding states.

“We need to shock our customers” to encourage more Pennsylvania milk processor contracts, Fink said.

He said he recognizes that milk contracting does not change instantly. But a reduction, he said, could cause customers and potential customers “to give us a second look.”

The Pennsylvania Milk Marketing Board will make a decision on the premium later this month. The new order will take effect Jan. 1.

Editor’s note: Matt Espenshade is the husband of reporter Charlene Shupp Espenshade.

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