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Dairy in Crisis - Part 1: Milk price crash puts squeeze on county dairy farmers

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Posted on March 12, 2009 |
By Kathryn Flagg



robertsmithwithcow.jpg
ADDISON DAIRY FARMER Robert Smith is one of many local farmers struggling to make ends meet now that the cost of production is exceeding the low price being paid by processors for milk. He and several dozen farmers traveled to Montpelier last month to testify to legislators about the challenges facing dairy farmers. Independent photo/Trent Campbell

Editor’s Note — You’ve doubtless heard the news: Vermont’s dairy industry, the backbone of agriculture in the state, is foundering. Projections from the Vermont Agency of Agriculture estimate that this year’s downturn in milk prices — which threatens to bankrupt many farms — will have a $200 million impact on the state.

For the next few weeks, the Independent’s “Dairy in Crisis” series will explain the economics behind a complicated milk pricing system, introduce you to farmers’ struggle to get by, and explore some of the creative solutions that some dairy farmers hope will save their farms. We’ll bring you legislators’ perspectives and snapshots of dairies that range from small organic operations to large conventional farms.

And we want to hear from you. Do you have a story about the dairy industry that you think deserves to be told? E-mail tips and ideas to kathrynf@addisonindependent.com, or call 388-4944.

 

By KATHRYN FLAGG

ADDISON COUNTY — No one ever said dairy farming was supposed to be easy — and so Robert Smith, like all Addison County farmers, is accustomed to hard work.

But a notoriously tough job got tougher earlier this year, when milk prices sank to levels not seen for any sustained amount of time in more than 25 years.

Now, with dairy farmers spending more to produce their milk than they can get selling it, many farmers — in an industry that accounts for nearly 80 percent of the state’s agricultural sales — are teetering on the brink of collapse.

Consider Smith. The 71-year-old farmer has owned his Addison farm for 43 years now. A heart bypass surgery a few years back left him unable to do the milking, but he still keeps the books and manages a 135-head herd with his son, Peter. They’re losing money hand over fist.

“We’re going behind about $10,000 a month,” Smith said, hunkered down at a table in the cafeteria at the Statehouse in Montpelier late last month. The cafeteria reception followed dairy farmers’ wrenching testimony to the House Agriculture Committee on the state of the industry.

Farmers asked representatives to refrain from imposing more regulations on farms struggling to get by, and expressed frustration with workers’ compensation fees. Some voiced their concern that older dairy farmers, burdened with staggering debt loads, can’t sell their family farms to the next generation of farmers, and others asked that the Legislature invest in more places for farmers’ milk to go to be processed locally.

But the most common complaint at the hearing boiled down to the volatile milk pricing system and unfair returns on the milk farmers produce.

Following the session, about 25 Addison County farmers and others from throughout Vermont milled about the cafeteria and chatted with their legislators. The farmers looked like fish out of water: men and women reluctant to leave their barns with more work yet to be done on the farm.

But milk prices in February came in at roughly $11 per hundredweight (cwt) — a price that comes in well below the $25 per hundredweight that the USDA estimates Vermont farmers spent producing milk in January. Feed costs alone eat up $11 per cwt of milk produced. Discounting the value of major capital investments, and setting aside the cost of their own labor, county farmers themselves estimated that they would have to make between $17 and $18 per cwt just to break even.

So about two dozen local farmers met up in Middlebury, piled onto a bus, and sidled into the well of the Statehouse to speak their piece to the House Agriculture Committee.

“We have to do something,” said Middlebury dairy farmer Nicole Foster. “I hope they know that we really need change.”

MILK PRICES PLUMMET

Milk prices last year were relatively high, going as high $20 per hundredweight last summer.

But prices are notoriously unstable, and even several months of high profitability sometimes isn’t enough for farmers to get ahead.

When prices were high last year, Foster explained, many farmers were making up for the previous two years of low milk prices. 

“It’s constant catch up,” Foster said.

The forecast for the months ahead is a gloomy one for farmers according to Glenn Rogers, a farm business management specialist with the University of Vermont Extension.

Rogers said that March’s milk prices are predicted to sink lower still, to roughly $10.70 per cwt. While prices will likely creep up over the next few months, that upturn will be painstakingly gradual.

“If you look at the Agri-Mark prices, they’re tending to slowly move up through June and July and August, but up to $13, $14,” Rogers said. “But that’s a very slow haul, and also it’s real hard to predict what’s going to happen beyond three or four months.”

Just why are farmers being paid so little for their milk? As it turns out, that’s a tough question to answer — in large part because the system that determines milk prices is a complicated one.

But the price crash boils down to a few factors. First, understand that dairy farmers, unlike most businessmen, can’t set the price of their own product. Instead, farmers are paid a federally set commodity price.

That price is determined nationally, in a system some Vermont farmers argue is “broken.” The federal milk market order, which sets ­prices, doesn’t factor in regional differences in production or demand, or the cost of farmers to produce milk.

Art Provencher is a retired Bridport dairy farmer who joined the farmers’ delegation in Montpelier to tell legislators just that.

“It’s an old antique system,” Provencher said, just before testifying on the very subject. “It’s broken, and nobody’s fixed it.”

Federal commodity prices are also based on international supply and demand. According to Rogers, the growth of the world market for milk products has slowed to a crawl, and is projected to grow just 1 percent in 2009. (That market grew roughly 4 percent last year.) Competition from the European Union and other dairy-producing regions of the world, like Australia and Brazil, is up.

Meanwhile, buyers are cutting back. The melamine scare in China, following the appearance of the chemical in some Chinese milk supplies, and the global economic downturn have both bruised the large Chinese market for imported milk products, Rogers said.

Domestically, consumers are also cutting back on dairy purchases.

“Consumers are not buying as much cheese, and they aren’t going out to eat as much,” Rogers said.

Take fast food chain McDonald’s as a case in point. McDonald’s announced recently that it was cutting the second slice of cheese from its double cheeseburger to save money. (The two-slice, two-patty sandwich is still available, but at a higher price.)

Those slices add up, Rogers said.

When it comes to milk — a highly perishable product — Rogers said it doesn’t take a large degree of change to seriously damage the market.

“Everything came together, and it just created this scenario,” he said.

FACING TOUGH CHOICES

Rogers said that the next few weeks will be the make-or-break ones for farmers, when they’ll be faced with the decision between planting spring crops and forging ahead with the business, or selling their cows. Planting crops is a big expense, he pointed out.

Farmers will also have to decide whether to fix or sell equipment, repairs being expenses that are now being carefully weighed against the prospect of months of operating at a loss.

“The next six weeks are going to be critical,” Rogers said.

For now, it looks like none of Addison County’s farms are immune to the pain inflicted by low milk prices.

Foster was born into one of the county’s oldest dairy families — the Ouelettes — and married into another.

“My parents are dairy farmers, my grandparents are dairy farmers,” she said — and the same is true of her husband’s family. “I come from two of the most long-lasting, stable farms there are … When those two are talking about it being tough, you know that it’s not a good situation anywhere. It’s scary.”

Foster said that every week she gets calls about auctions around the region as farms liquidate and sell their herds.

But at last month’s hearing in Montpelier, farmers like Foster and Robert Smith turned out precisely because they want to avoid that fate.

Smith said he’s never been one for quitting — and he’s not about to start now. He’s borrowing from the bank some of that $10,000 he’s losing every month, and the rest he’s “juggling.”

“The (creditor) that squeaks the loudest gets paid,” Smith said.

He said his son is discouraged by the business these days — but both he and Peter are bound and determined to keep the farm in the family, and have set up a partnership to pass on ownership eventually.

“I don’t want to make (my son) pay for it, because there’s no money,” Smith said. “I don’t see how a man can buy a farm today and pay for it. It costs too much.”

Smith said he’s thought of getting out before — something most farmers in Montpelier admitted doing as well — but that he loves the work.

“I gotta keep trying,” he said. “I don’t think I’d ever quit.”

Smith isn’t alone.

“It’s a life you don’t know you have until you’ve left,” said Phil Livingston, a New Haven farmer with a 310-head herd. Livingston left the farm for two months when he was younger, but after two months he “wanted to come back in the most passionate way.”

Like Smith, Livingston said he loves being a dairy farmer — but he wishes he could get out of it what he puts in. Up until this point, he’s been able to get by.

“I’ve never not paid the bills,” Livingston said.

But his milk check arrived on the same morning of the Statehouse hearing. Off it went to the bank, Livingston said, but that’s when grim reality set in: for now, at least, some of those bills will have to wait.

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