Dairy farmers backed into a corner as costs rise, prices fall
April 15, 2010 at 6 a.m.
Updated April 14, 2010 at 11:15 p.m.
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By Bethann Stewart
BOISE, Idaho - Third-generation Nampa, Idaho, dairyman Joe Stewart has 700 cows, a modest dairy by Idaho standards. His grandfather started the farm in 1939 with 25 cows.
Since February 2009, Stewart has lost an average of $100 per month per cow, and he's still paying off the silage he bought in September to feed them.
"You can't starve your animals," he said.
While milk and cheese prices have remained stable at the store, since the end of 2008, dairy farmers have been paid less for milk than it costs them to produce it. At the same time, feed and fuel prices hit the roof. And now, lenders are less willing than before to offer credit.
The economic squeeze threatens the livelihood of farmers in Idaho's largest agricultural industry, which brought in $2.1 billion in cash receipts in 2008.
Losing a farm isn't the same as losing a job, Stewart said. It's losing a legacy. All but one Idaho dairy is family-owned, according to the United Dairymen of Idaho.
Six members of the de Winkle family operate Moo-Riah Dairy in Melba, Idaho, and they've done everything they can to lower the cost of production.
"Every dairy in Idaho has lost a lot of money," said Rudi de Winkle. "You lose money, but you stay in business because you do it for your children and because you love your business."
The dairy crisis is a national issue.
"When the world economy changed, we lost 8 percent of our exports. That's like an 8 percent increase in production," Stewart said. "The sentiment was (that) we could last it out ... (that) by July it'll turn around. That didn't happen."
The dairy industry is vulnerable because the downturn can snowball, said Marv Patten, dairy bureau chief for the Idaho Department of Agriculture. Many of Idaho's processing plants are designed to run at capacity. If more dairies close and the volume of milk declines, milk will have to be shipped out of state to be processed, which will cost the remaining dairymen more, he said.
"The potential is there for the bottom to fall out," Patten said.
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Milk prices in Idaho are driven by the price of cheese because so much of Idaho's milk goes into cheese production, Patten said
In 2009, Idaho ranked third in total cheese production nationwide, trailing Wisconsin and California, according to trade publication The Cheese Reporter. The U.S. Department of Agriculture will release final numbers for 2009 at the end of April.
This year, about 35,000 fewer cows are being milked in Idaho than in late 2008, Patten said. That's not much of a reduction.
"You can't just whittle the herd down if your loan is on your herd," he said.
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The industry's inability to respond is partially to blame for the duration of the crisis, Stewart said. But he's not looking for a lifeline from the federal government.
"If you take away our ability to be independent and creative, you take away our incentives," he said. "We'll fix it eventually."
For more than 15 months, milk prices have remained below the cost of production.
Most Idaho dairy farmers need to earn $15 to $16 per hundred pounds of milk to break even. At the bottom of the market last year, Stewart got $8.80 for 100 pounds of milk.
There are 11.5 gallons in 100 pounds of milk. At $2.75 a gallon, it would cost $31.63 for 100 pounds if you bought it at the store.
"I have no control over what the market does," Stewart said. "I can only lock in the price that's available, and that price is not profitable."
In 2008, the average price for 100 pounds of milk was $17.11; in 2009, it had dropped to $11.80, according to the United Dairymen of Idaho.
De Winkle can't remember the last time his 1,200 cows made a profit.
In this downturn, size doesn't matter. The crisis is hitting everyone, said United Dairymen of Idaho Executive Director Rob Naerebout.
"I wish I could say, 'Yes, the worst is over,' but I think the answer is no," Naerebout said. "I've had a lot of dairymen in their mid- to upper-50s call and say, 'I've gone through my equity. I've gone through my retirement, and I'm lost and I don't know what to do.' "
Dairy farmers are gamblers, betting the price of milk will rise before they run out of equity to borrow against.
The farmers who will weather the crisis best are the ones who have the most equity. If a herd is paid for, a farmer can borrow against it. But that's piling more debt on their operation, which will make it harder for them to survive in the long run, said Dave Stout, vice president of the commercial lending group of Northwest Farm Credit Services in Twin Falls, Idaho.
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"We've seen some bankruptcy filings in our local area, but generally they're allowed to put together a plan to work out their situation," he said.
But in addition to the low price of milk, the value of dairy cows also has declined.
Farmers who want to leave the industry have no buyers for their cows or their equipment, Stout said.
The value of a dairy cow to a bank used to be $1,500, Stewart said. Today, it's $1,100. It used to cost $1,200 to raise a heifer. Now it costs $1,500 to $1,600, he said.
"If I wanted to sell some animals, I'd get less than the cost to raise them," Stewart said. "That goes back to the cost of feed." Last year, Stewart bought 11,000 tons of corn silage at about $10 more per ton over the historic price.
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Even if dairymen got a break-even price this month, and that doesn't seem likely, it would take three to five years for most of them to recoup their losses, Stout said.
Being the third generation to run a farm gives Stewart a sense of obligation. The economic swings of the past five years have gotten progressively worse for the dairy industry, he said.
"You don't want to be the one to let the farm go," he said.
(c) 2010, The Idaho Statesman (Boise, Idaho).
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