Oregon Small Business Association,
7-11-09,

Oregon dairy farmers are in a bind.  The cost of producing a gallon of milk is higher than what farmers can sell it for.  This has forced dairy famers to live on credit and hope milk prices increase soon to stave off potential bankruptcies.

A number of factors have contributed to the current situation.  Increased cost of production beyond the farmer’s control doesn’t allow farmers to cut costs enough to remain profitable.  It is more expensive to feed cows due to competition from ethanol producers for food stock.

The dairy market in recent years has become a global market.  Prices are down as all dairy exports and demand from other countries has fallen significantly.  United States dairy farmers had been exporting milk into Asian markets as a result of dought in Australia and New Zealand.  Conditions have improved and those industries have partly recovered and are competing again in the Asian market.

In anticipation of increased demand farmers built up herds to meet that demand.  Now with falling prices farmer are stuck with the higher costs of maintain expanded herds and milk production that can’t be easily reduced.

How long will these conditions last?  It is hard to say, changes in the industry and markets have made historical cycles less reliable as predictors of the future.    U.S. milk production went up .01%percent despite having 43,000 less cows in the country from a year ago.