Milk prices paid to dairy farmers are going down, and the trend is sending some tremors through the industry.
Strong milk prices since late last year generated substantial pressure for dairy expansion, but an Agriculture Department report says this momentum will "collide with the effects of dramatically lower milk prices" in the coming months.Total 1990 milk production is projected to be almost 148 billion pounds, up more than 2 percent from last year. It also would exceed the previous record output of 145.1 billion pounds in 1988.
Despite the uncertainties, agency economists think 1991 milk production will rise again, perhaps by 1 percent to 2 percent to another record.
Last month the USDA reported the October all-milk price average at $13.60 per 100 pounds, down from $14.20 in September and $14.80 in October 1989.
The report by the department's Economic Research Service said that despite the downturn, overall milk prices in the October-December quarter "still will be relatively favorable" in relation to feed costs.
Milk cow numbers in 1990 probably will average about the same as last year's 10.1 million head, the report said.
"Most dairy farmers probably will enter 1991 on a fairly sound financial footing," it said.
The ratio of debt to assets has declined since the financial crunch of the mid-1980s, and economists said that will help some producers consider expanding their herds.
"On the other hand, producers generally have been conservative about taking on new debt in recent years," the report said. "Although 1990 milk prices have been high, they have also been unpredictable."
According to the report, the decline in milk prices will put pressure on profit margins as feed costs remain fairly constant.
"If milk prices fall as much as currently expected, returns over concentrate (feed) costs will fall about a fourth from 1990's near-record to the lowest level since 1978," the report said.