YAKIMA -- Bill Scheenstra's dairy cows eat everything from corn silage to alfalfa hay. But the diet is less about giving cows variety and more about dealing with sky-high corn prices over the past year.
Along with feeding cows different types of grains, Scheenstra, owner of Sun Valley Dairy in Sunnyside, grows his own corn silage and alfalfa hay, which makes up about half of the feed he gives to the cows.
With feed costs making up an average 60 percent of a dairy's overall costs, growing his own product is a less expensive and necessary alternative.
"When those prices get up there, you start getting creative," said Scheenstra, who is also president of the Yakima Valley Dairy Federation.
Such creativity from local dairy farmers like Scheenstra may have contributed to a downward trend for corn prices.
After peaking at nearly $8 per bushel in June on the Chicago Mercantile Exchange, prices of corn for December delivery have been hovering in the $6 dollar range so far this month.
Prices began to drop sharply last month as the supply of corn was greater than expected.
Corn stockpiles from last year's harvest in the U.S. was about 1.13 billion bushels on Sept. 1, according to report from the U.S. Department of Agriculture, nearly 20 percent more than commodity traders expected.
While a USDA report released earlier this month shows that the current corn crop was revised downward, the larger stockpile should offset the decline in current production.
The larger stockpile mainly reflects a decline in demand from foreign markets, but a reduction in demand domestically from dairy farmers may have played a small role.
"The price did get high enough that it discouraged people to buy corn," said Mark Stephenson, director of dairy policy analysis at the University of Wisconsin.
Bill Wavrin started growing and harvesting his own corn to feed his cows about 15 years ago.
Today, he plants 1,500 acres of corn to feed the 4,000 cows at his Mabton dairy, Sunny Dene Ranch. Wavrin estimates that he saves about 40 percent in feed costs by growing it himself.
He has noticed that other dairy farmers are looking to grow their own feed too.
"You can have a good idea of what your feed is going to cost instead of waiting for the market to tell you how much your feed is going to cost," he said.
Despite high corn prices, dairy growers have been able to better weather those costs this year as milk prices have been relatively strong.
"The best cure for high prices is high prices," Wavrin said.
But milk prices have been volatile.
Just two years ago, the average price for 100 pounds of milk was $13.50, according to the Washington Dairy Products Commission. It costs between $17 and $18 to break even.
Average prices rose to $17.25 in 2010 and are expected to remain in the break-even range for 2011.
But prices may drop next year as milk production from countries such as Australia and New Zealand could create extra competition in key export markets, Stephenson said.
For every month of milk delivery in 2012, prices are in the $16 range, just below the break-even point.
"In the last five years, feed prices have been moving around as much as milk prices and they don't always move together," Stephenson said.
Indeed, while prices have been trending downward, prices have increased slightly as the market decides what is the right price for corn, Stephenson said.
Another key question is how much corn will continue to go toward ethanol in gasoline for trucks and cars. Government mandates for higher corn-based ethanol are a key factor in higher corn prices.
"You can't ignore ethanol," Stephenson said. "Ethanol is claiming more corn than animal feed right now."
But like other users of corn, such as dairy farmers, high prices may cut into the profitability for ethanol producers as well.
With all this uncertainty, most local dairy farmers are cautious and are still constantly looking for alternative methods of feeding their cows.
"The biggest key for the dairy (farmer) is to grow as much of their own feed as possible," Scheenstra said. "The more you can grow of your own, the less you're at the mercy of the market."