While income prospects have improved in recent months, California dairy producers still face many uncertainties in the year ahead, according to a spokesman for the state’s largest producer-processor cooperative.

“Things are definitely better for dairy producers here than they were a year ago,” notes Eric Erba, senior vice president of administrative affairs for California Dairies, Inc., Visalia. “But you really can’t say much beyond that. Overall, we’re still in recovery mode.”

Stronger-than-anticipated milk prices over the last several months have been the major bright spot. Erba points out that producers received a California overbase price of $13.72/cwt for milk in December and could see that price improve to around $17/cwt in March. “That’s a pretty dramatic increase in just four months’ time and one that really wasn’t expected at the end of last year.” He adds that prices will likely stay strong through at least the first half of 2011.

Even so, producers remain edgy about what’s likely to happen with the milk price long term. “(They) really got pummeled by low prices in 2009 and saw a tremendous amount of equity eroded,” Erba says. “A few good months of higher prices like we’ve been seeing help, but won’t totally make up for what was lost. For that, we’ll need prices to stay on the high side for a sustained period of time.”

Prospects for continued high feed prices are also a concern. “Forage prices have been pushing up, and corn prices are just going crazy,” he says. “Dairy producers who weren’t expecting that just a few months ago are definitely paying the price now.”

Many lenders are now encouraging, if not requiring, their dairy-producer customers to use a variety of risk management tools for grain inputs and milk prices, Erba notes. “It’s something that a lot of dairy producers haven’t made use of in the past, so they’re still getting comfortable with it. In general, though, producers who have (used futures contracts, options or other tools) are seeing the benefits of managing risk compared to buying on spot markets.”