Dairy farmers caught between historic prices
The Wisconsin Farm Center provides legal services and financial advice to Wisconsin farmers and agribusinesses.
If you need services, call 1-800-942-2474 or visit www.datcp.state.wi.us.
Volunteer opportunities are available. Retired accountants, attorneys or dairy farmers would be well qualified to help, spokeswoman Donna Gilson said.
To read the article “Current Dairy Situation FAQs” by Ed Jesse, an emeritus professor with the UW-Madison College of Agriculture and Applied Economics, go online to http://ecals.cals.wisc.edu/.
LAFAYETTE TOWNSHIP It’s a picture just about as quaint as one can find on a Walworth County dairy farm.
Three little girls play with a calf on a halter in the driveway. Dad feeds the cows by hand and milks one cow at a time into a bucket.
Mom carries the pails one by one and pours them into the milk tank.
“We’re almost Amish,” Breck Ward says with a grin.
Ward milks 20 Brown Swiss cows on a small farm just outside Elkhorn in LaFayette Township near the campus of Walworth County government buildings. He doesn’t milk by hand, but he doesn’t have a milking parlor or even a pipeline to carry the milk from the cows to the tank.
He straps the 50-pound bucket around the cows’ “waists” with a belt. Ward often does the milking alone, and it takes a few hours each day.
Dairying isn’t a full-time job for Ward. He squeezes in farm chores around his day job as an insurance salesmen.
“I like it. It’s fun when you raise your animals,” Ward said. “That’s a responsibility my grandpa had, too. “I enjoy the animals, paying the bills and getting a small check.
“You’ve (all workers have) got things in your job you don’t care for. It’s just another job.”
For many dairy farmers, it’s a job that costs more than it makes. The average Wisconsin farmer is losing $47 per cow per month, said Ed Jesse, an emeritus professor with the UW-Madison College of Agriculture and Applied Economics.
Record-low milk prices combined with the high cost of feed and other inputs is creating financial stress like farmers haven’t seen since the 1980s, UW Extension dairy and livestock agent Randy Thompson said.
“When the milk price was good, things were tight,” Thompson said. “Now, they’re bleeding red ink and have been for much of 2009.”
The Wisconsin Farm Center provides legal assistance, financial advice and understanding ears to farmers. The Wisconsin Department of Agriculture, Trade and Consumer Protection operates the hotline and help center.
Workers are taking 25 to 30 calls per week from financially distressed farmers, said department of agriculture spokeswoman Donna Gilson.
That’s about three times more than they took a year ago, she said.
Dairy farmers certainly aren’t the only group of workers feeling the pain of the economic recession.
“Being in Janesville, a lot of readers know more than anyone else how this feels,” Gilson said. “They’re in pretty dire straights, too.”
But farmers are unique in many ways, Gilson said.
If a farmer loses his or her business, chances are they also lose their home and their retirement plans, Gilson said.
Farmers don’t get to apply for unemployment benefits if they lose their farm, she said.
Farmers considering a second career or a second job could have a hard time studying or working part-time around their farm chores. Farmers always are on call for sick animals or cows giving birth, Gilson said.
Also, living in the country means a lack of high-speed, broadband Internet connection, Gilson said.
That makes online studying or research just as hard as the drive into town to take classes.
And asking for help isn’t much easier, Gilson said.
“Farmers are very proud people,” Gilson said. “They don’t want to admit when they need help. To have to go to a food pantry … I don’t think anyone likes to do that. For farmers, it’s maybe a little more difficult for them to admit. And it’s also a terrible irony.”
Another irony is looking around and seeing vendors that charge $50 an hour for services that cost $10 an hour the last time milk prices were so low, Ward said.
That’s left a lot of farmers to repair equipment or buildings themselves, he said.
Or, not repairing them at all.
“People are keeping their machinery longer, so it’s wearing down,” Ward said. “They’re keeping animals, and they’re wearing down. When they have auctions … they’re expecting cows and machinery to pay off debt. It’ll help. But a lot of people are so far under that it might just get them a little out of debt.”
When farmers have a bad day at work, many of them don’t get to go home, Thompson said. Home is right there on the farm.
In some cases, farmers work alongside their spouses, siblings or children.
“There’s very little way to shield the kids from what’s happening,” Thompson said. “They’re there. They see. They know.”
Not since the 1980s have dairy farmers suffered so badly.
They are bleeding red ink.
Ed Jesse, an emeritus professor with the UW-Madison College of Agriculture and Applied Economics, is author of the article “Current Dairy Situation FAQs,” which explains the global factors affecting American milk prices.
He talked to the Gazette about his article:
Gazette: How bad is it?
Jesse:“The first 6 months of 2009 were perhaps the worst that U.S. dairy farmers have experienced for at least several generations.”
Straight milk prices are as low as they’ve been since 2003. If you adjust prices for deflation, they’re the lowest they’ve been since record keeping started in 1913.
Gazette: Wow. It sounds bad when you put it that way.
Jesse: “The number is maybe a little inflammatory.”
Cows make much more milk in 2009 than they did in 1913. But near record feed prices as well as high prices for other inputs have created major cash-flow deficits.
Gazette: How much are they losing?
Jesse: Using rough Wisconsin averages for milk per cow—20,000 pounds per year—and herd size—95 cows—it boils down to a cash-flow deficit of $47 per cow per month and a monthly loss of about $4,500 per herd.
For comparison, in 2003, which was a bad year, return over cash costs for the first six months was 68 cents per hundredweight—$3.49 more than 2009.
For the first 6 months of 2008, which was a great year, returns over cash costs averaged $3.86 per hundredweight—$6.67 more than in 2009.
Gazette: How did the price get so bad?
Jesse: The short explanation is a loss of export markets.
Until 2004, U.S. dairy exports were small—usually less than 5 percent of total U.S. milk production.
Exports in 2004 jumped to 7.5 percent of production and increased to nearly 11 percent in 2008.
At the same time, U.S. milk production increased at a slightly lower rate. Domestic markets tightened and milk prices ran up in 2007 and 2008.
Then, the global economic crisis hit in the fall of 2008. Worldwide demand for dairy products plummeted.
As an example, U.S. exports of butter shrank by 80 percent in 2009.
Gazette: Ooof. Since exports increased so fast through 2008, does that mean we’re back to normal now?
Jesse: “I don’t know what normal is any more.”
The U.S. Dairy Export Council estimates that exports through April were 8 percent of production. If this holds, the supply of milk or milk equivalent that needs to clear domestic markets will be 5.7 billion pounds—“a small ocean.”
Gazette: So, how do we get through all that milk?
Jesse: “The three principal avenues to higher milk prices are market forces, government market intervention and private market intervention.”
-- Market forces—Supply is being reduced as farmers go out of business or cut feed costs. Cheaper feed leads to less milk.
In California, Idaho and Arizona, farms reported less milk per cow in June.
But … Wisconsin milk per cow was up 2.4 percent in June and almost 6 percent in July compared to last year. A combination of high-quality hay and nice weather could explain why Wisconsin cows have been going “gangbusters.”
On the demand side, lower prices for milk and dairy products should boost consumption. In June, the U.S. Bureau of Labor Statistics reported the price of dairy products was down 7.1 percent from last year.
The use of American-style cheese was up 4.6 percent for the first five months of 2009. But the use of Italian-style cheeses was up only 0.7 percent—probably because fewer people are eating pizza away from home.
-- Government intervention—So far, the only government intervention in dairy markets has been through the existing MILC program, which has yielded payments as high as $2 per 100 pounds. The Commodity Credit Corporation has augmented purchase prices for cheddar cheese and nonfat dry milk for August through October.
The Commodity Credit Corporation is a government-owned and operated entity that was created to stabilize, support, and protect farm income and prices, according to the U.S. Department of Agriculture Web site.
-- Private market intervention—The Cooperatives Working Together herd retirement program earlier this year reduced the U.S. dairy herd by more than 100,000 cows—about 1.1 percent. A second round initiated immediately following the completion of the first is expected to remove 87,000 dairy animals from 294 herds.
Cows bought through the program must be slaughtered.
Gazette: Why is recovery taking so long?
Jesse: Like I said before, the loss of 2008 exports adds up to 5.7 billion pounds of milk. Through June, U.S. milk production was down by only 195 million pounds.
Some blame the MILC program and others blame the herd retirement program.
“More likely, the slow adjustment in milk supply is related to farmers’ ability to absorb losses, either through cash reserves or borrowing capacity.”
Gazette: When are things going to get better?
Jesse: “Many crystal balls have proven dysfunctional in addressing this question.”
Early this year, many analysts expected fluid milk prices to be between $14 and $15 per hundredweight by August.
Analysts (including this one) and traders were wrong.
“Recovery has been painfully slow in coming, but there are encouraging signs.”
Milk cow numbers have been falling every month since December 2008.
Demand growth is sluggish but positive. Markets are beginning to tighten.
The temporary increases in support prices will help boost milk prices in the short run, as will legislation that has passed and is being considered.
“There is light at the end of the tunnel. The length of the tunnel remains somewhat in doubt.”
Gazette: I like the way you put that.
Jesse: It’s a cop-out.