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Milk prices keeping dairy industry afloat

Despite high-priced feedstocks and declining production in some areas, higher milk prices are helping dairy farmers get by, and one specialist sees the profit margin -- albeit a tight one -- to remain in the black through the end of 2011.

"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," says Purdue University dairy specialist Mike Schutz in a university report. "Margins are small, and they aren't off-setting the high feed prices or the losses producers experienced back in 2009."

It hasn't been a simple equation for the dairy industry; feed is expensive, but because of the summer weather and resulting grain quality issues in places like Indiana, that's caused some production issues, Schutz says.

"In Indiana we've already seen per-cow milk production decline, partially due to feed quality issues," he 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."

If you're right on the line of profitability, Schutz says there should be a couple of opportunities to make an extra few bucks in the dairy sector, at least in the near term. First, look at forward-contracting milk into a relatively strong market right now.

"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 of milk quality premiums."

Secondly, look at ways to trim potential losses down the road, be it through paring back herd numbers or doing more to protect feed in storage to reduce shrink or spoilage, Schutz says.

"Replacement heifers are bringing really good prices right now," he adds.

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