Minn. dairy farmers squeezed by high drought-related feed prices

The dairy cows on Marshall Korn's farm can be an impatient bunch. Korn and his wife are generally in the barn by 4 every morning. If they're behind schedule, they know there's a price to pay.

"If you're late in the morning the cows know it," said Korn, 29. "And you're going to have trouble."

That's because the cows are ready to be milked, then ready to eat. And they don't like to wait. But grumpy, uncooperative cows are probably the least of Korn's headaches right now. The last two months have been especially stressful, given the high cost of cow feed.

"We're losing money at this moment," Korn said.

The Korns aren't the only ones. Minnesota dairy farmers these days are watching corn and soybean prices almost as closely as the price of milk. High costs for cow feed brought on by drought have made some farms unprofitable.

The drought and the threat of grain shortages have dramatically boosted prices for corn and soybeans, two primary sources of feed. Corn prices have increased more than 50 percent this summer. Soybeans are up by about the same amount.

"Our grain bill has went up roughly 25 to 30 percent," Korn said. "And our milk prices aren't no better."

Korn said he's living month to month. When he catches slightly lower feed prices or a slightly higher milk price, he might eke out a profit. He said what's keeping the operation going is the money he makes selling the occasional cow for beef.

The economic pressure Korn and other farmers face is expected to have a significant impact on the U.S. dairy industry.

"Milk production is slowing down," said Bob Cropp, the University of Wisconsin's dairy marketing professor emeritus.

Cropp said milk production is dropping because high feed costs are forcing some farmers out of business. Others will reduce the amount they feed their cattle to cut costs. That will reduce a cow's milk output slightly.

The combination of fewer milk cows and lower output should reduce U.S. milk production in the latter part of the year below that of the same period last year, but overall 2012 will is still expected to be stronger than 2011. Cropp said that lower production is giving dairy farmers who stay in business an important benefit.

"Milk prices are increasing," Cropp said. "And that's helping a little bit to offset high feed costs to the dairy farmers."

That's especially good news for Minnesota dairy farmers. The fortunate have the best of two worlds.

Dairy lender Greg Steele, of AgStar Financial Services, said most Minnesota dairy farms were able to grow enough crops this summer to provide much of their own feed. As a result, they'll buy less high-priced grain. Because they also can cash in on higher milk prices they have a good shot at making money this year, despite the tough times.

Steele said the Minnesota producers hurting the most are those like Korn, who buy most of their livestock feed. He said they're probably losing money, and that situation could force some difficult choices.

"It's generally in their best interest to make a decision, such as liquidating their herd, because that's their best option at that point," Steele said.

For his part, Korn said he'll survive, even though he buys 95 percent of his dairy cow feed. He made it through an even worse downturn in 2009, and he predicts he'll do so again.

"Dairying is a heavy dedication, and you just keep plugging away," Korn said. "This isn't going to be so fun, buying the expensive feed for a while. But at least we have the prospects that milk prices are looking good."

For Korn, plugging away at dairy farming means long hours in the barn. He has taken just three days off in the four-plus years his family has been on this farm.

But he said the effort will pay off when the economics of milk production swing in his favor again. He just doesn't know when that will happen.

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