MONROE — Dairy prices are hitting record highs nationally but don’t assume your local milk producer is banking all of that extra revenue as profit.

Far from it.

“We don’t get to see that much of the profits, the diesel prices are what’s killing us now,” said Jim Winn, who milks an 1,800-cow herd at his Cottonwood Dairy near Wiota in Lafayette County. “The price of diesel is outrageous.”

So even as consumers pay more at the grocery this holiday season for milk products like ice cream and butter, the high cost today of farm “inputs” like fuel are negating any profit windfall at home on the farm.

That goes for cheese too, experts say, which is a huge industry in both Lafayette and Green Counties. Indeed, the record prices at the grocery store for most milk-based products have been nearly wiped out by increases in production costs, say those who closely track the dairy markets.

In fact, compared to last year dairy prices are up anywhere between 30-47%, depending on the measures used to gauge pricing. But diesel and feed costs — even with some recent declines in prices — remain well above average. What’s more, lingering unease worldwide surrounding crop supply expectations globally continue to apply upward pricing pressure on raw milk.

And that’s something most people forget — milk is produced locally but the market is global and vast.

“There is a lot of factors contributing to milk prices but these days milk is priced on the world market,” Winn said, taking a moment out of his work day to speak to The Monroe Times.  “We try to stay ahead of the markets as much as we can.”

The global nature of the market — like other commodities — also means that when there’s a glut or a shortage somewhere else, it can have a cascading effect on the markets here. 

Helping ease price volatility and cushion the blow a bit are programs administered to the dairy industry by the USDA, according to Charles Nicholson, an associate professor of agriculture and applied economics at the University of Wisconsin-Madison.

Such programs include the federal Dairy Margin Coverage Program, which the government calls an important “safety net” program for small and mid-sized producers primarily.

The program essentially offers protection to dairy producers when the difference between the “all-milk price” and the average feed price — the margin — falls below a certain dollar amount selected by the producer.  

So far in 2022, DMC payments to more than 17,000 dairy operations have triggered for August for more than $47.9 million.

“The margins of milk less feed costs were high by historical standards earlier in the year but are now down in the range where the DMC program would trigger indemnity payments to covered producers,” Nicholson said.  “So, for the moment at least, we’re not in a particularly high-margin period despite the higher milk prices.”

The USDA initiative has been bolstered recently by offering a new supplemental DMC program and updating its feed cost formula to better address “retroactive, current and future feed costs,” says the agency. These changes continue to support producers through this year’s signup, which ends soon on Dec. 9, 2022. 

“Dairy producers are the backbone of many agricultural communities across rural America,” FSA Administrator Zach Ducheneaux said in a statement touting the DMC offering. “Dairy Margin Coverage provides critical assistance to our nation’s small- and mid-sized dairies, helping make sure they can manage the numerous and often unpredictable uncertainties that adversely impact market prices for milk.”