We all know dairy farmers are struggling to make a profit these days. Federal and state governments and dairy producer associations are scrambling to find ways to keep dairy farmers in business, but right now, nobody sees a quick turnaround.
Just two years ago, half of the equation, at least, was working for dairymen; although the cost of production was at an all-time high, so was the price of milk. In September 2007, according to USDA’s Agricultural Marketing Service, Class I milk averaged $21.91/cwt. But by March 2009, the average price was down to $9.43, a victim of rising production (up 11.4 percent in April compared to April 2007, according to the National Agricultural Statistics Service) and sharply reduced demand due to the recession. Meanwhile, USDA’s Economic Research Service estimated the national average cost of production in 2008 at $16.07/cwt, up more than 22 percent from 2007; and it’s not getting any cheaper.
“It’s an extreme time, and our dairymen are under extreme stress,” Joe Horner, University of Missouri Extension dairy economist, told Ozarks Farm & Neighbor. “I think that’s a question all dairymen are asking themselves – ‘How long can we survive this crisis in profitability?’” He believes Missouri’s 1,200 dairy producers, most of whom milk 200 head or fewer, have an advantage over larger operators; smaller producers can delay expenditures, substitute unpaid family labor for hired help and cut back on other costs.
They also have full access to the Milk Income Loss Contract program, which was renewed in the 2008 Farm Bill. Producers currently receive 34 percent of the difference between $16.94/cwt and the Class I price in Boston, Mass., which was $13.33 as of June. There’s also a feed adjuster in the new formula; with grain prices still at historic highs, the payments will be even larger. However, producers only receive payment for their first 2.985 million lbs of annual output, roughly the equivalent of a 150-cow herd. Horner concluded, “Those things are helping, but I will also tell you that all dairymen are feeling financial stress right now.”
USDA has been using the tools available to it to try to improve the situation. Christopher Galen of the National Milk Producers Federation said the co-op group met early on with new Agriculture Secretary Tom Vilsack, who followed through on a couple of NMPF’s recommendations. “They announced back in March that they were going to take 200 million lbs. of surplus nonfat dry milk,” Galen said, “and basically give it away through government feeding programs, and some overseas donations. The reason that’s important is by getting that product out of government warehouses in a way that doesn’t compete with commercial sales, you remove that large stock of milk solids from the marketplace so it doesn’t compete and help extend the price trough that we’re in right now.”
In addition, over the protests of U.S. export competitors, Vilsack reopened the Dairy Export Incentive Program, which had been idle for five years; USDA will offer marketers subsidies to sell 68,000 tons of dry defatted milk, 21,000 tons of butterfat, 3,000 tons of cheese and 34 tons of other dairy products overseas. NMPF has also revved up its own program, Cooperatives Working Together; participating co-ops and individual farmers pay 10 cents/cwt, and the money is used in times of poor returns to “retire” herds. In the latest round, CWT accepted bids to cull 103,000 cows, the equivalent of two billion lbs of annual production.
But while he said all of these actions will reduce the oversupply, Galen acknowledged, “Obviously, none of it’s happening as fast as we would like, and given the extent of the price depression that we’re facing, it’s going to have to be coupled with some additional actions in the future.”
NMPF has formed a strategic planning task force to look at potential long-term solutions – most of which, Galen said, involve either voluntary or mandatory government control over milk production.
Legislation introduced by Pennsylvania’s two U.S. Senators would make cost of production adjustments in the basic dairy support price; Galen said that’s one of the ideas that will be considered, but Congress has a full plate and won’t pass a complete revamping of the dairy program in 2009. “We’ve got to focus on both the long term and the short term,” he said, “recognizing that there aren’t going to be any quick ways that we can all of a sudden restore prosperity to the dairy business.”
Some states, though, have moved ahead with their own programs; the Arkansas legislature this year adopted a measure that will pay dairy farmers up to $2 million each of the next two years if prices fall significantly below the cost of production. Missouri producers lobbied for a similar program this year, said Horner; it passed the House, but never came up for a vote in the Senate. The problem, he said, is Missouri has eight times as many milking cows as does Arkansas, and “fairly small support to dairymen ends up being a fairly large fiscal note in the legislature.”
Missouri does have other programs targeted to dairy producers. The state offers Dairy Business Planning Grants of up to $5,000 to help them plan for the startup, modernization, expansion or increased production of their farms. And Horner said there are actually opportunities now for expansion. Although “it’s a horrible time to be in business,” he said, “it’s a good time to be looking at getting contractor bids; it’s a good time to be looking at getting heifers, because we do have a three-year cycle in milk prices. The cycle will turn, and we will see better milk prices for those people who are able to remain in business.”
Producers can also, in a sense, get smaller; Extension will host its first Dairy Grazing Conference in three years at Joplin from July 8-10, giving farmers a chance to look at lower cost, lower capital investment alternative systems. Although grass-based dairies produce fewer pounds per cow, Horner said, they only need 25 percent of the grain of conventional operations.
Galen said although there’s a sense of urgency, there’s no silver bullet that will solve the crisis. “This is not just a U.S. situation; it’s just like the global recession. It’s a worldwide phenomenon.”
