California dairies shut as milk price stayed below production cost
By Anne GonzalesSacramento Bee Correspondent
Published: Sunday, Jul. 17, 2011 - 12:00 am | Page 1D
© Copyright The Sacramento Bee. All rights reserved.
Case Van Steyn, a Galt dairyman, has two sons. One works with him on the dairy farm started by his father in 1956, while the other found a job off the farm. These days, Van Steyn wonders if he should even keep one son working with him.
"I'm not sure I should counsel him to stay on the farm," he said. "This has been a very, very volatile marketplace, it's very unpredictable and we're facing serious challenges. It's kind of like we're waiting to see the last man standing. If enough dairies go broke, prices will come up high enough to cover our costs of production."
Milk is touted as a healthy food that promotes strong bones, but the California dairy industry itself has been weakened by the recession, ethanol subsidies and high feed prices. Like a calf with wobbly legs, dairy farming is struggling to rise above tough times with lean profit margins.
In three years, the state lost 250 independent dairies, many of them family-operated for generations.
The winter may bring more hardship to dairy operators, as they buy up feed to nurture their herds, and heat and drought in the south could dry up crops and drive up feed prices.
The price farmers are paid for their milk is up from last year, but production costs have escalated, too, negating some of the gains, Van Steyn said.
"Some people think that because prices are better, we're doing better, but commodity prices are ludicrous, they're so off the charts," he said. He said feed for livestock, such as alfalfa hay, silage, corn, barley and wheat has doubled in the last year and a half.
"Hay that normally runs $125 to $150 a ton is now $250 to $300," Van Steyn said.
Consumers can expect a 5 percent to 6 percent increase in dairy products such as milk, cheese, butter or ice cream over the course of 2011, according to the U.S. Department of Agriculture's Economic Research Service.
The spike is being driven by a growing demand in foreign markets, mainly Southeast Asia, for U.S. dairy products.
Michael Marsh, executive director of Western United Dairymen, said the biggest chunk of production costs in a livestock operation is feed. With corn-based ethanol production claiming nearly 50 percent of all the corn grown in the country, Midwest farmers are replacing soybeans with corn, he said. The ethanol policy not only drives up demand and prices for corn, but reduces the acreage of soybeans, which forces up the cost of soybean meal for cattle.
Alfalfa prices also are increasing as acreage is replaced with corn and soybeans and alfalfa hay exports to China, Saudi Arabia and Southeast Asia for livestock feed reach record levels.
"Dairy farmers are caught in a whipsaw effect," Marsh said.
Conditions are even tougher for the many dairy farmers who borrowed heavily to make it through the recession.
"Dairy farmers are trying to backfill the hole dug into their equity in the recessionary years of 2008 and 2009," Marsh said. "They're finally getting a good price for their milk, but they're having trouble paying off debt built up in past three years."
Marsh said farmers had to extend lines of credit in those years to make up the gap between depressed prices and expensive feed. During the global recession, worldwide demand for milk slackened because people didn't have money. That led to an oversupply in the marketplace and prices fell.
In 2008, the average milk price to California farmers was $16.02 per hundredweight (100 pounds), according to Western United Dairymen figures, but in some months prices tumbled to less than $10. The average cost of producing milk in 2008 was $18.35, with some months even higher.
"You can see how quickly that would erode the equity in a farm, as month after month, you lay out twice as much as you're bringing in," Marsh said.
The number of California dairies fell from 1,850 in 2008 to 1,600 currently. The number of dairy cows in the state declined for the first time in decades. In Sacramento County, five dairies closed and one opened since 2008. There were a total of 34 dairies in the county at the beginning of 2011.
"In many cases, these were family-owned operations, some in the family for many years," Marsh said of the closures. "They just went goodbye. Some of those dairies had been in existence for four or five generations, and all the equity they had built up over 100 years was disappearing in a few months."
The financial trouble caused emotional stress to dairy operators, and Marsh found himself referring farmers to mental health professionals. The industry was on alert after two dairymen committed suicide, reportedly because of financial problems.
"We received a number of calls in our office, where farmers were just on the edge," he said. "Folks were just so desperate, the economic situation was so dire. It's frightening when someone on the other end of the line says this may be their last day on earth."
In 2009, prices averaged $10.81 per hundredweight, while production costs averaged $16.86. The gap narrowed in 2010, as prices had bounced to $13.92 and costs fell to $15.23.
In the first quarter of 2011 farmers were getting $16.66 for milk that cost $16.37 to produce. By June 24, the price to farmers, driven by increasing demand, had soared to $19.45. Production costs also are rising, though a corresponding figure was not yet available.
"Finally, in about March of 2011, they may have started making a few cents," Marsh said.
Marsh and Van Steyn expect to see more dairies shuttered in 2011.
Van Steyn worries about his operation and those of his friends and neighbors when it comes time to ask the bank for credit to buy hay for the winter. He feels trapped by the financial situation.
"You could quit altogether, but no one will buy a dairy and no bank would touch one," he said. "There's a whole bunch of dairies that are in trouble. I'm on the list, but I just hope I'm far enough down the list for my name not to come up."
"I'm not sure I should counsel him to stay on the farm," he said. "This has been a very, very volatile marketplace, it's very unpredictable and we're facing serious challenges. It's kind of like we're waiting to see the last man standing. If enough dairies go broke, prices will come up high enough to cover our costs of production."
Milk is touted as a healthy food that promotes strong bones, but the California dairy industry itself has been weakened by the recession, ethanol subsidies and high feed prices. Like a calf with wobbly legs, dairy farming is struggling to rise above tough times with lean profit margins.
In three years, the state lost 250 independent dairies, many of them family-operated for generations.
The winter may bring more hardship to dairy operators, as they buy up feed to nurture their herds, and heat and drought in the south could dry up crops and drive up feed prices.
The price farmers are paid for their milk is up from last year, but production costs have escalated, too, negating some of the gains, Van Steyn said.
"Some people think that because prices are better, we're doing better, but commodity prices are ludicrous, they're so off the charts," he said. He said feed for livestock, such as alfalfa hay, silage, corn, barley and wheat has doubled in the last year and a half.
"Hay that normally runs $125 to $150 a ton is now $250 to $300," Van Steyn said.
Consumers can expect a 5 percent to 6 percent increase in dairy products such as milk, cheese, butter or ice cream over the course of 2011, according to the U.S. Department of Agriculture's Economic Research Service.
The spike is being driven by a growing demand in foreign markets, mainly Southeast Asia, for U.S. dairy products.
Michael Marsh, executive director of Western United Dairymen, said the biggest chunk of production costs in a livestock operation is feed. With corn-based ethanol production claiming nearly 50 percent of all the corn grown in the country, Midwest farmers are replacing soybeans with corn, he said. The ethanol policy not only drives up demand and prices for corn, but reduces the acreage of soybeans, which forces up the cost of soybean meal for cattle.
Alfalfa prices also are increasing as acreage is replaced with corn and soybeans and alfalfa hay exports to China, Saudi Arabia and Southeast Asia for livestock feed reach record levels.
"Dairy farmers are caught in a whipsaw effect," Marsh said.
Conditions are even tougher for the many dairy farmers who borrowed heavily to make it through the recession.
"Dairy farmers are trying to backfill the hole dug into their equity in the recessionary years of 2008 and 2009," Marsh said. "They're finally getting a good price for their milk, but they're having trouble paying off debt built up in past three years."
Marsh said farmers had to extend lines of credit in those years to make up the gap between depressed prices and expensive feed. During the global recession, worldwide demand for milk slackened because people didn't have money. That led to an oversupply in the marketplace and prices fell.
In 2008, the average milk price to California farmers was $16.02 per hundredweight (100 pounds), according to Western United Dairymen figures, but in some months prices tumbled to less than $10. The average cost of producing milk in 2008 was $18.35, with some months even higher.
"You can see how quickly that would erode the equity in a farm, as month after month, you lay out twice as much as you're bringing in," Marsh said.
The number of California dairies fell from 1,850 in 2008 to 1,600 currently. The number of dairy cows in the state declined for the first time in decades. In Sacramento County, five dairies closed and one opened since 2008. There were a total of 34 dairies in the county at the beginning of 2011.
"In many cases, these were family-owned operations, some in the family for many years," Marsh said of the closures. "They just went goodbye. Some of those dairies had been in existence for four or five generations, and all the equity they had built up over 100 years was disappearing in a few months."
The financial trouble caused emotional stress to dairy operators, and Marsh found himself referring farmers to mental health professionals. The industry was on alert after two dairymen committed suicide, reportedly because of financial problems.
"We received a number of calls in our office, where farmers were just on the edge," he said. "Folks were just so desperate, the economic situation was so dire. It's frightening when someone on the other end of the line says this may be their last day on earth."
In 2009, prices averaged $10.81 per hundredweight, while production costs averaged $16.86. The gap narrowed in 2010, as prices had bounced to $13.92 and costs fell to $15.23.
In the first quarter of 2011 farmers were getting $16.66 for milk that cost $16.37 to produce. By June 24, the price to farmers, driven by increasing demand, had soared to $19.45. Production costs also are rising, though a corresponding figure was not yet available.
"Finally, in about March of 2011, they may have started making a few cents," Marsh said.
Marsh and Van Steyn expect to see more dairies shuttered in 2011.
Van Steyn worries about his operation and those of his friends and neighbors when it comes time to ask the bank for credit to buy hay for the winter. He feels trapped by the financial situation.
"You could quit altogether, but no one will buy a dairy and no bank would touch one," he said. "There's a whole bunch of dairies that are in trouble. I'm on the list, but I just hope I'm far enough down the list for my name not to come up."
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