Monday, August 31, 2009

Low Milk Prices Hurting Farmers

Those of us who like to eat, talk and write about funky cheese have a pretty good gig in Wisconsin. With 88 of the state's 127 cheese plants today making at least one type of specialty cheese, (600 in all), there's never a shortage of material.

Meanwhile, down on the farm, times aren't so good. In fact, our dairy farms are folding up shop, dispersing cows, and moving to town to try and find jobs, one by one. A colleague at the Department of Agriculture told me last week - his head in his hands - that Wisconsin may lose 1,000 dairy farms by spring.

Ouch.

Since mid to late 2008, the price to produce the milk we all drink, eat in cheese and enjoy in ice cream, yogurt and various dairy products, has far outweighed what farmers are getting paid for it. This is not new news. Historically, milk prices paid to dairy farmers have always fluctuated - sometimes hitting peaks of more than $20 per hundredweight like they did in 2007, and then sometimes hitting $10 a hundredweight, where prices are hovering around now.

But never has the price paid to the farmer stayed this low for this long, and never has the price of input materials - food, fertilizer and fuel - stayed so high. Farmers I talk with say they're losing $100 per cow every month. That means Farmer Wayne and his family down the road who are milking 80 cows are losing $8,000 a month. I can't imagine working 18 hours a day only to dig myself deeper into debt.

Farmers are a hardy bunch. For the most part, they're not complainers. They take the lumps as they come. But low pay prices, partnered with high cost prices, combined with never-changing relatively high retail prices are really beginning to stick in the craw of the average dairy farmer.
Why? Because retail prices for dairy products haven't dropped in accordance with the prices paid to farmers, so consumers on average aren't even aware of what farmers are being paid. No matter the price, only about 23 percent of the price of a gallon of milk ever makes it to the farmer. That means for a $3 gallon of milk, the farmer gets only 69 cents.

Pat Skogen, a small organic dairy farmer near Loganville, Wis., emailed me this week. (You know dairy farmers are getting desperate to get out information when they even track down the cheese bloggers for help). Pat says they sell their milk to a small local cheese plant and she's thinking of starting a butter/cheese arm to the farm "because dairy prices really STINK right now."

Pat says that milk prices paid to farmers today are at 1975 levels. A lot of things have changed in the last 30 years. In 1975, Pat started teaching school at $8,000 a year. A new Ford F250 for the farm cost between $7,000 - $10,000. Today, she's a retired schoolteacher and a new farm truck can cost up to $40,000. Yet, the price being paid to a farmer for 100 pounds of milk is the same, at around $10.

"The cost of production of milk is around $18 per hundredweight. For a family living wage, we should be receiving $25 - $35 per hundredweight of milk. We are losing thousands of dollars each month. It is not the weather, floods or poor business sense. It is not supply and demand. If we received HALF of the $3.69 you might spend for a gallon of milk, we would be at over $21/hundredweight. So where is the other half going?"

Good question, Pat. I am not an economist, so I don't know or pretend to know the answer. But a quick Google search shows the following:

1. Dean Foods Inc posted a 31 percent increase in quarterly profits this month, "helped by lower costs for raw milk." -- according to Reuters, Aug. 5, 2009.

2. Kraft Foods Inc reported a higher-than-expected 11 percent rise in quarterly profits this month as "the largest North American food maker benefits from price increases and cost cuts" -- according to MSN Money, Aug. 4, 2009.

3. ConAgra's consumer foods business is growing. In June, ConAgra said "earnings from continuing operations rose to 41 cents, compared to 18 cents last year, as the food maker benefited from lower manufacturing and supplier costs." -- according to the Wall Street Journal, June 25, 2009.

As the suits in corporate America and Wall Street reap the profits of low milk prices paid to Wisconsin dairy farmers, the farmers themselves are not the only ones suffering. The rural businesses who depend on dairy farms are already feeling the loss of farmer cash flow and payments.

Ralph Reeson, Pat's husband, recently told the Reedsburg Times Press: "What happens out here impacts what happens in town. When we don't have money, we don't buy new trucks, we don't buy more feed, and some stop even paying their insurance." Even though Reeson, like most every dairy farmer is losing money right now, still plans on farming and milking as long as he can. His neighbor, Darrell Myers, agrees: "Most of us care enough where we don't want to give up. We'd like to hang on. That's the question a lot of us are asking. At what point do I give up?"

Let's not make our dairy farmers give up, people. Talk to your farm neighbors and friends. Imagine what Wisconsin would look like without our farm green spaces and grazing bovines. Talk to your legislators and ask them to support Wisconsin dairy. Let's do whatever it takes to keep families on their farms, milking cows, and producing the product most of us take for granted every day.

4 comments:

Lucybeercook said...

Fair trade starts at home!

Break Dancing Worm said...

To begin, it is probably safe to say that those who read your blog are passionate about cheese and the dairy industry, especially in Wisconsin.

The low prices we are seeing is nothing new, just longer than usual. If you look at the past 20 years, when there have been peaks of high milk prices there have been huge falls shortly thereafter. There have been seven of these occurances over 20 years. Without policy changes, this will continue. There will be $30 milk at some point, just not sure when.

Many I speak with look at value-added dairying -organic, farmstead cheese making, or grazing as alternatives. This is great! It is important for dairy producers to look at alternatives to what they are doing. But not because milk prices are low! This is not a good enough reason. There is also huge risks and additional financial and human capital to achieve a value-added operation. It could position the farm and family in a worse position. With assistance and a thorough understanding, it can be an opportunity.

I also contend that Pat doesn't need a new Ford and a used one will work just fine. Part of the problem is many confuse what they need and what they want.

Good luck on being able to get $25 - $35/cwt. See, here again is a problem. No offense, but it doesn't matter what the farmer wants, it is what the consumer will pay. This is the case for any good.

Another point, Wisconsin dairy farmers along with the rest in the US are competing on a global level, whether we like it or not. We cannot compete with NZ with the current system we have in this country. NZ cost of production is in the $7 to $8 range and their milk production is respectable.

While I also wonder where a lot of that money goes too, condeming major US firms won't solve the problem because it is not something we control in the immediate future. Perhaps with a changed dairy policy, we can achieve greater market power, but right now that is not the case. It is important for people to understand how to make it through these times, right now!!! I hate to see dairy farmers go out of business. It really is tough, especially when it is part of my job to keep them in. We have to be realistic and understand that milk prices will continue to fluctuate violently, we will continue to be a player on the global stage, and dairy producers will have to find their competitive advantage in order to survive.

William said...

Farmers have chosen to sell a commodity and the problem with that is that you have no pricing power. You take what they will give you. A dairy farmer takes a look at his financial needs. Divides that number by the $ per cwt and that is the amount of milk he must produce. If the price is low then he keeps a bunch of the heifers and produces more milk. The problem with the price is generally oversupply. Right now the export market has dried up due the the world wide recession so we have to much milk which drives the price down. The solution for a dairy farmer is to produce more milk which will make the problem worse. You want to find a villain take a look at the farms milking over 1000 cows with illegal or legal but poorly paid labor. Corporate Americas goal is to make as much money as is possible and if the farmers over produce their product they are competing with one another and driving the price down. If we make to many TV's the price goes down. We made to many houses and the price went down. Where was the cry for a government sponsored price support for builders. They went out of business in droves. The government and university have encourage large corporate farms for years, promoted high chemical useage and increasing farm size which needs more and bigger equipment running on expensive chemicals.

Farmers produce huge quantities of milk and buy their milk, if they drink milk, in town. This is capitalism. The state governments goal is one farm next to one cheese plant and they may have their way. Number of dairy farms has dropped from 168,000 to less then 12,000. Great policies.

Jennitasia said...

You are most definitely right! Let us group together. I am trying to spread the word about this issue! I have a blog as well about my Dad's Farm and the under cut milk prices. I have got to figure out a way to save them from foreclosure! It is not fair!Please continue to write such wonderful articles! I hope that this grows to be a circumstance that our government looks at.