By Vicky Boyd
Although milk topped San Joaquin County’s 2022 agricultural crop report, today’s picture is far different as dairy prices have fallen significantly and production costs exceed revenue in most cases. Producers have responded by making some tough decisions, including deferring maintenance and repairs, keeping lower-producing cows they’d normally replace, and in the worst cases getting out of the business entirely.
“This is probably a lot worse than ’09 in that you can’t make budget,” said Hank Van Exel, a third-generation dairy producer and owner of Van Exel Dairy near Thornton. He was referring to the financial crisis created by the 2009 global recession, when export demand for dairy products plummeted, the world market was awash in milk and dairy producers were faced with historically high feed costs.
While today’s milk prices are more than they were in 2009, overall production costs are proportionally higher than 15 years ago.
Van Exel said one of the few things keeping many dairy producers afloat is what’s known as beef-on-dairy crosses. Dairy cows must be bred yearly for them to freshen or start producing milk for the new calf.
Instead of using dairy bulls or dairy bull semen to breed their cows, producers use beef bulls or beef semen. The resulting beef-on-dairy cross calves are in high demand and typically net better prices from feeders than traditional dairy calves. Meat packers also like the crosses because they create more uniform carcasses and more uniform cuts of meat.
“It’s more than a fad,” Van Exel said, adding he’s doing it with both his Holstein and Jersey breed cows.
Milk prices drop since 2022
The 2022 crop report ranked milk as the county’s No. 1 commodity with a total farm-gate value of more than $626.4 million. That compares to 2021, when milk had a farm-gate value of about $445.6 million and came in as the No. 2 crop behind almonds, which were valued at $453.7 million.
The crop report credited the 40% rise in milk value from 2021 to price increases provided by the Federal Milk Marketing Orders. For 2022, Class I milk with 3.5% butterfat averaged $25.74 per hundredweight in California, according to USDA figures. Most of the milk produced is Class I – also called fluid milk – that is directly consumed.
This year in April, Class I milk was running $20.88 cwt compared to $21.27 cwt for the same time in 2023, according to the California Marketing Area Federal Milk Marketing Order 51 report.
Class II, which is used mostly for cottage cheese and yogurt, was $21.23 cwt, according to the report. Class III, used for cheese, was $15.50 cwt, and Class IV, used for butter, was $20.11 cwt.
Lucas Fuess, senior dairy analyst with Rabobank, said he has seen milk prices begin to inch up. But it’s not the bullishness one might expect with the current situation of 100,000 fewer cows nationwide producing less milk year over year. Along with lower milk production has been sluggish demand for dairy, both in the United States and globally, he said.
The soft market isn’t due so much to competition from plant-based beverages but from the vast array of choices consumers now have. In addition to dairy and plant-based beverages, sports drinks, coffee, energy drinks, flavored waters and other beverages vie for their pocketbooks.
“The good news is our outlook has a little bit better news through the remainder of the year,” Fuess said of milk prices. “We’re seeing slow but steady increases and a bit of recovery from domestic and global demand.”
Demand for cheese remains strong and set an all-time record for exports in April, Fuess said. In addition, sales of non-fat dried milk, particularly to Southeast Asian countries, has been promising.
San Joaquin Farm Bureau Executive Director Andrew Genasci said he hoped that the current supply and demand situation signals a turn-around for the industry.
“The silver lining for dairy is for the first time we’re seeing total cow numbers and total milk production drop,” he said. “There’s a chance we’ll see prices bounce back. Whether that will be in time to save these family dairies in San Joaquin County, I’m not sure.”
Lower feed prices
Another bright spot has been feed costs, which are expected to drop to some of the lowest since 2020, Fuess said.
Van Exel said he’s begun to see feed prices decrease. Because of the close relationship between dairies and feed producers, alfalfa growers unfortunately will be on the other end and feel the effects of those lower crop prices, he said.
Rick Staas, president and CEO of the San Joaquin Valley Hay Growers Association, said his members are already feeling the pinch. “Everything is very tight dollar-wise on the dairy side,” he said. “Guys aren’t ordering as big as they usually do. A lot of guys are just buying hand to mouth because of the lower milk prices.”
Demand for high-test alfalfa hay used for high-producing dairy cows remains strong, but Staas said sales of low-test hay used for dry stock continue to struggle.
Some of his members also grow corn for dairy silage, but prices currently are running $20 to $30 per ton lower than they had been the past few years. And almond hulls, used as part of a mixed dairy ration, are bringing some of the lowest prices per ton that hullers can remember.
Costs continue to climb
Outside of a possible reprieve on feed prices, Fuess said other production costs are on the increase. While labor costs continue to climb, particularly with California’s minimum wage and overtime regulations, other expenses have risen as well.
Van Exel said the state’s minimum wage and 40-hour overtime laws has also hurt workers by reducing their take-home pay. Many employees would like to work 50-hour weeks like they used to. But he said employers don’t have the budgets to pay time-and-a-half for the additional hours.
“In California especially, but producers in other states are dealing with them as well,” Fuess said of labor expenses. “It’s just one of many costs: energy or interest rates or repairs and maintenance, vet bills. All of these things, generally speaking, are contributing to the cost of production.”
With milk prices typically being below the cost of production, San Joaquin County continues to lose dairies as owners try to sell their operations or close down altogether. In May 2024, San Joaquin County was home to 71 active dairies, according to the county’s Environmental Health Department, which conducts dairy inspections. That compares to 74 active dairies at the same time in 2023 and 86 dairies in 2021.
Dairy remains a huge industry in the state, making California the top dairy state in the nation, Genasci said. It also supports a number of other ag products, such as hay and forage, almond hulls, winegrape pumice and processing tomato waste.
And the economic malaise being felt by the dairy industry trickles down to nearby communities, Genasci said. Unlike some commodities that are seasonal, dairies run year-round. “These multi-generational businesses have a large number of year-round employees, and these are employees who set down roots and raise families in our communities,” he said.
When operations cut back, reduce employees or close their doors, that may have long-term effects on local machine shops, parts stores, veterinarians, refrigeration services, eateries and other small business that serve them, Van Exel said.
