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Dairy Farmers Take Advantage of Upswing
By Gretchen Lehmann
November 20, 1998
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At a time when many Minnesota grain farmers are hurting from record-low crop prices, the state's dairy farmers are enjoying the highest milk prices they've ever seen. Demand is high and dairy processors in Minnesota can't get enough of it. Farmers say they're not taking the good prices for granted; instead, they're preparing for what many believe could be an uncertain future for the Minnesota dairy industry.

Jerry Jennison: This pen here is dry cows; we have heifers at the end.
WHEN JERRY JENNISEN WAS 14 YEARS OLD, he knew he wanted to be a dairyman. For years he watched his father and grandfather milk the cows and run their farm in central Minnesota. In 1971, when he was in his mid-twenties, Jennisen bought his own dairy farm just south of Sauk Centre. He says at the time he had high hopes, but he never expected a year like this one.
Jennison: Oh, it's absolutely great. Feed prices are low, milk prices are high, and our production is great.
Like most Minnesota dairy farmers, Jennisen has grown used to an average price of $12 to $13 for every 100 pounds of milk. Today, the price is more than $16. That's a $200-a-day difference at an operation like Jennisen's, where he milks 60 to 70 cows a day.

Jerry Jennisen admits he's a bit giddy over the current prices, but he hasn't lost his head.

Jennison: These are really bonus times. And I think you run your business during these times ... that's when you can make your improvements, you retire your debt. But you don't plan on this price for forever. That's just poor business.
Industry analysts predict the high milk prices will last through the end of the year and gradually drop to normal levels by June. The reason prices jumped in the first place is something of a fluke, says Clint Fall, president of First District Association, a dairy-processing plant in Litchfield. Last year, he says, bad weather and heavy rains seriously damaged dairy operations in California. At the time, the state was one of the country's largest dairy producers. The loss of a major-milk supply made prices jump. But now, says Fall, dairy farmers in the western U.S. are getting back up to speed.
Fall: As milk production increases in various areas of the country, we will ultimately see more pressure being put on prices in the Upper Midwest. My understanding is California currently has more heifers on this date than they did a year ago. And as a result of that, California, as well as other states like New Mexico and Idaho - which appear to be growing at extremely rapid rates as far as production - are also causing an influence.
Increased supply is actually good news for processors, because more milk means the prices go down. The dilemma for local processors is whether to keep buying milk from Minnesota farmers, or look for better deals elsewhere. There is a steady supply of milk in Minnesota, but it's not growing to meet the increased demand. Local farmers can command higher prices right now because processors need all the milk they can get. But University of Minnesota Extension Agent Pat Kearney says this situation can't last. Ultimately processors have to go where the milk is the cheapest.
Kearney: They can buy milk out West, ship it to Minnesota, process it into cheese and butter, truck it back over to New York, cheaper than we can make the milk, process it, and ship it to New York. And that's a scary thought.
Kearney predicts the dairy industry will undergo a complete change in the next two years. Minnesota will still be in the picture, he says, but not in the way it is now. The older dairy farmers will be gone and remaining dairy operations will be bigger. The farmers who stay small will have to run their farms more like a business, with computers and mechanization.

Dairy farmer Jerry Jennisen isn't flustered by Kearney's predictions. He says he's a firm believer that today's dairy farmers can keep the industry strong. He's been experimenting with better feed and milking practices to increase production from each of his cows. He doesn't want to increase the size of his herd, but he's open to it. Jennisen says he does agree with Kearney, however, that Minnesota dairy farmers can't just ride the wave of high prices.

Jennisen: We need to turn around the exit of dairy farmers from here, and we need to expand our dairy industry in Minnesota, at least slightly, to keep those plants here and to keep them from closing. And we will probably have to bring our prices down.
For now, Jennisen says he will keep saving the extra money he's making, and he says his neighbors are doing the same. He has his own predictions for the future of Minnesota's dairy industry. Jennisen predicts milk prices will stay high for a while. He also thinks there will be a few new people getting into the business - farmers in the western part of the state who are struggling to make a living in corn and soybeans.