Bill Rowell, VT, Vice President of Dairy Farmers Working Together (DFWT), spent three days with Julie Walker, TN, Doug Maddox and Steve Maddox of CA, Rob Vandenheuvel, Milk Producers Council, CA, meeting with members of the Dairy Caucus and Agriculture leaders including House Agriculture Committee Chairman R. Colin Peterson of Minnesota.

National Milk Producers Federation voted this week to support, among other provisions, supply management as a key component to an overhaul in the nations dairy policies. “We are excited and pleased that there is such strong consensus from our dairy leadership moving forward on this concept. We are determined to continue with this effort to ensure that our dairy interests, from farmer to consumer, across the nation are represented at the table as details of these plans are worked out.” Bill Rowell stated in a brief telephone interview.

Julie Walker of TN, a new team member for DFWT, observed “The Southeast United States is a growing population center, and dairymen in our area believe consumers and the environment are benefited when milk is sourced from local farms in any region. Growth Management, properly implemented, should reduce the enormous amount of fossil fuels currently used to transport milk into the southeast from other areas of the country. The growth management concept enables southeast dairy farms to not only be preserved today, but to grow in a financially sustainable manner that lenders appreciate. There is increasing support in the southeast for responsible growth management, and we are willing to work with dairy farmers from across the country to accomplish that goal.”

Walker’s cows are milked on a fourth-generation family farm, and her family’s farm grows grains that end up in feed supplies for dairy farmers. She owns AgriVoice Enterprises, a communications provider that serves progressive agribusinesses.

A national study commissioned by various groups is set to produce analysis on the variations of management programs out there in the coming weeks.

“We are anxious to see the results of those studies as are the other contributors and industry representatives. This has been a long process. Last week Dr. Mark Stephenson, Cornell University, announced that they have completed the model that will be used to analyze the various growth management programs that have gained interest. The next step will be to meet as a national stakeholder group and review those results determine which components prove to be the most beneficial to the industry ” stated Amanda St Pierre, Dairy Farmers Working Together. “It is imperative that with the national consensus we now have behind growth management that we work together to implement solid legislation that performs effectively with the right margins and triggers for our regions”

The dairy industry in Vermont is facing challenging financial times with the combination of low milk prices and a tightening credit supply. “It is the impact this has had on the family farms and the effect it will have to the Vermont landscape and economic viability of the rural communities which is our greatest concern” stated Amanda St Pierre.

More information on these proposals can be found at www.stabledairies.com or www.dfwt.org.

VTDigger

Cowherd

Eric Clifford runs a skidsteer on his farm in Starksboro.

Vtdigger.org interviewed Agency of Agriculture Secretary Roger Allbee about an uptick in milk prices this summer that may stem the number of anticipated dairy farm bankruptcies this spring. Recently, Allbee public announced that he expected as many as 200 farms to go out of business this year. He reversed that dire prediction on Wednesday, and said he thinks most Vermont farmers will survive the devastating 18-month price decline that has caused many to go further into debt. At the nadir of the crisis, prices reached 30-year lows. From Jan. 1, 2009 to the present, Vermont has lost 62 farms.
What follows is a Q and A with Allbee from June 9, 2010.

Allbee: Right now we’re not seeing a lot of bankruptcies in dairy. I think a lot of it has to do with the fact that the prices have come up a little bit. There’s a little more optimism. And I think the other fact is that to some extent the price has come up enough on cattle and alternatives that those who are in it, and may be thinking of going out, don’t have any alternative these days. There’s a third combination, and that is that many of the lenders like Vermont Economic Development Authority and (the federal) Farm Service Agency have been good about extending terms and interest-only loans and those kind of things for those who are under financial stress. These factors are keeping farmers from exiting dairy at this time.

Allbee: Yes, for a while. Even those who are thinking about getting out will hang on for a while because of all those factors I just outlined.

A. It’s about $15 per hundredweight depending on where somebody is located. That’s still below the cost of production for some farmers. (The average cost of production is $17 to $18 per hundredweight, or the equivalent of 11.6 pounds of milk.)

Agri-Mark is estimating it will be in the high $16 to $17 per hundred weight range by July or August. Prices are rebounding, but as you know, there was so much equity loss over the last two years. The average dairy farmer lost more than $130,000 in equity. That’s going to take a long time (to pay off).

Vtdigger.org: Do you expect any people to go out this summer?

Allbee: We always have people go out in the summer and fall, so we do expect to see some, but I think at this stage, we don’t expect to see an exodus. In the worst-case scenario, I had said we could lose up to 200, but I think at this stage, we don’t see that number happening right now.

Allbee: 1,017. We’ve lost 50 farms over the last year. Right now it seems to have plateaued for a while.

Allbee: It’s not by size. It’s basically by debt load. It could be a larger size as well as small. Those with the most debt are the most vulnerable.

Allbee: I would say for the time being (prospects) are more encouraging than they have been in the last several months.

We’ve been very eager to see changes in policy that better helps the Northeast farmers in each state in terms of pricing going forward. We’d like to see a floor (price), or some kind of decoupling of Class 1 milk prices from the other milk classes (2, 3 and 4), so we can take advantage of regional markets for fluid milk.

(The other classes of milk are sold at a much lower price for cheese, butter and powdered milk. Farmers are currently paid a lower, “blended” milk price for Class 1, or the highest quality milk that is bottled and sold for liquid consumption.)

The problem is that Class 3 and 4 pull the Class 1 price down because the farmers get a blended price (instead of a higher price for Class 1).

We’ve got over 60 million people within a day’s drive of our markets, and we’d like our farmers to take better advantage of that pricing. Consumers want to know where their food is coming from.

Allbee: Whether you call it growth management or supply management, we support some sort of program that can better compress the cycles the dairy industry faces, which means some kind of management program that better controls the oversupply of milk in this country.

It only takes a 2 percent (oversupply) for the price to go down 20 percent to 30 percent.

We would like to see some kind of risk management program for dairy farmers going forward. We would like to see some better way to control the large price swings … so they’re not as long in duration and as steep.

We are looking to Dr. Mark Stephenson and Dr. Chuck Nicholson of Cal-Poly (in San Luis Obispo, Calif.) who have been hired to evaluate all these various proposals from Dairy Farmers Working Together, National Milk Producers Federation and the Holstein Association. They’ve been asked to analyze these proposals and to look at what is the impact on the price to dairy farmers.

We’re all looking to see what that analysis shows, so that we can get behind those proposals that are most beneficial to our dairy farmers.

(Dairy Farmers of America and Agri-Mark, along with the aforementioned groups, are sponsoring the project, Allbee said.)

Allbee: That’s a huge deal.

VTDigger

In answer to Jane Lindholm’s questions on VPR’s Vermont Edition on Feb. 16, Roger Allbee, secretary of the Agency of Agriculture threw up a maze of seemingly limitless complexity, listing the standard canards that are colloquially thought to be at the root of the farmers’ problems: the antiquated and unfair federal milk marketing orders pricing system, an outsized milk processing company, Dean Foods, that controls 70 percent of the milk supply, and an uneven distribution of the retail price for milk.

Allbee offered no relief the farmers can rely upon. It is distressing that our officials cannot speak more plainly. I think at this point the farmers would prefer to be told that they seek relief from elected and politically appointed officials who, without impugning them, neither can, nor ever will, deliver the fix they want: more money for their present level of production. The secretary might have said that raising farm prices in New England cannot be achieved without cutting production all across the U.S., which, as he did say, western and midwestern farmers have the political and commercial power to prevent; or, which he did not say, without raising the price of milk for consumers, who are 99 percent of constituents. Higher prices will not come out of thin air. If farmers want a higher price, they must give consumers a very good reason to pay it and that reason cannot be more cheap milk that in the making pollutes the lake.

Allbee did say three things that caught my ear:

1. If, as he says, there is a milk shortage east of the Mississippi, there must be a tremendous glut on the other side sufficient to fill western and eastern demand at prices our farmers, even irrespective of the cost of shipping, cannot match. The only way to turn the tables on the western farmers would be to produce a bigger glut here at a still lower cost that would completely meet eastern demand with enough left over to meet part of western demand. This is virtually impossible.

2. He twice plugged his Keep Local Farms Program http://www.keeplocalfarms.org/. Allbee knows or should know that in order to raise the New England milk price, consumers would have to double their per capita consumption just for farmers to break even; they would have to triple consumption in order to restore farmers to middle class. He will make virtually no dent in the problem by asking college kids for their spare change (I think the program has raised something like $5,000). Even worse, to whatever extent the program does raise cash, the farmers would invest the money into new capacity to make more milk, creating a new, higher level of excess supply that cannot be sold. And the cycle unchanged begins anew.

3. Allbee seemed to be interested in supply control, although I think his department has taken no position on it. But in the interview, he said he supported “guest workers” on Vermont farms since “Americans do not want to do farm work.” Vermonters are welcoming to Mexican workers in our communities. But “guest workers” are one of several modalities that make milking three times a day and 800 cow herds possible. Huge herds and manure methane digesters are regarded as “Accepted Agricultural Practices” by the Vermont Agency of Agriculture, Food and Markets. Mega farmers receive official approbation, not to mention tax breaks, to be high production oriented. Rapid exit milking parlor systems, sexed semen, antibiotics, artificial fertilizers, petroleum-based herbicides, high protein supplement feeding, rBST and Lutalace etc. all contribute to over production, which, as the secretary seemed by his tacit approval of supply management to understand, is the main driver of low milk prices and the root of the dairy farmers’ problem. The fix cannot be to disregard the various modalities that make over production a reality.

USDA chief Tom Vilsack knows or should know that western farmers want to push eastern farmers into ruin so they can send their growing supply of cheap milk to fill eastern demand.

There was no mention at either the Hilton meeting with Sens. Bernie Sanders and Patrick Leahy and Rep. Peter Welch or in the VPR interview of what role the business model for conventional dairy farming has played in creating the farmers’ dilemma. That is because the model is predicated upon surplus production, low prices, farm attrition and lake pollution, exactly the metrics they face. In fact, conventional dairy farming cannot be practiced without inviting these results.

It bears mentioning that Vilsack is the U.S. Secretary of Agriculture; he cannot take any action to shift the economic balance between farmers in one part of the country to the disadvantage of farmers in another. The fix that would be equitable to both regions must adjust U.S. food production systemwide, such that eastern and western farmers make only enough food for their (pre-defined) communities and draw out of the earth no more resources than the earth can replenish. That is the meaning of “sustainable agriculture” and there is in New England and other parts of the U.S. an inchoate organic food movement working to achieve it. That said, conventional agriculture is deeply rooted in the U.S. and the alternative, no matter how devoutly to be wished, is still a very long way off.

Vilsack is, however, not being entirely forthright when he says that it is time for the dairy farmers to settle their differences and agree on a unified plan of action. He knows or should know that western farmers want to push eastern farmers into ruin so they can send their growing supply of cheap milk to fill eastern demand. They will not bargain away the advantage they now enjoy for no greater advantage to themselves. Furthermore, Vilsack knows or should know, that it is illegal under the Capper Volstead Act of 1922 for farmers to cartel to limit production in order to raise prices. To whatever extent supply control plans like those being circulated by Dairy Farmers Working Together or the Holstein Association gather any support, they will invite either federal scrutiny or a challenge from processors.

VTDigger

We rely on history in our search to move forward, it recounts lessons of our success and failure and is littered with the many experiments, which put us here today. Some of the problems we face today result from yesterday’s solutions and literally at us waiting for a response in order to move forward, a lack of response confines us to facing the result of our current dilemma in a repetitive cycle of crisis after crisis.

Let’s talk about survival of the fittest, the process of natural selection observed by our friend Charles Darwin which reminds us: It is not necessarily the strongest or most intelligent who survive, but those most capable of adapting to a changing environment which prove to be most fit and ultimately survive. The argument suggesting survival of the most fit as an efficient means of achieving balance is our first recognition of a need for balance, and that’s exactly where our focus should be if we expect to stabilize the U.S. Dairy industry. Balance.

In early January 2009 milk prices began a dramatic decline; in short order, milk checks were cut to less than half those of 2008. Today, we recognize volatility as a threat and an obstacle in the dairy business, resulting from a continued effort to produce milk beyond market demand and of our failure to observe signals indicating market need.

Our reluctance to recognize the role played by surplus milk, which determines the price for all milk, has reduced the number of operating dairy farms in this country from 648,000 in 1970 down to 78,000 in 2006 and today only 54,000 remain. In 2006, economists predicted a dairy crisis would occur in 2009, the next to follow is expected during 2012 and was forecast then as well.

Dairymen largely ignore information which in retrospect proves to have been valuable; the economic forecasts, the trend analyses and market signals, are not observed in a business-like manner which comes at the expense of producers. After nearly a year of crisis on the farm, the price of milk is showing an increase but remains below the cost of production. Economists expect milk to continue its upward trend and remain high until 2012. The upcoming year will see an influx of 300,000 heifers join the national herd, a result of sexed semen breeding. During 2012 milk prices are expected to decline back to $11 per hundredweight (cwt) for lack of a management plan, and once again rely on survival of the most fit to provide balance.

There is an inherent conflict of interest between dairy food processors and dairy producers, the group controlling the milk controls the industry and producing beyond market demand results in the farmers’ loss of control. During the present crisis, processors are enjoying profit and market control while producers are depleting equity at a rate of $800 million per month in order to produce milk well below the cost of production.

Dairy food processors make significant contributions to stimulate political interests, they employ lobbyists and rely on industry experts to maintain a control over the dairy industry which is closely held and fiercely protected.

Those who profit from cheap milk maintain control of the dairy industry relying on the dairyman’s inability to achieve consensus and speak with a unified voice, they will resort to divisive measures among the co-ops and National Milk signaling Washington of the discord. The loss of industry control amounts to billions of dollars, maintaining control requires big money and political influence – control is profit.

Dairy farmers are in a desperate situation and their voice lacks an effective means of communication, they are not represented with any sense of urgency for several reasons:

1) They do little to stimulate political interests

2.) They remain relatively complacent during crisis

3.) They pose no immediate threat to anyone except themselves

Dairy co-ops were organized to represent the interests of their producer members and, for the most part, do a fine job. However, the dairy co-ops are at a disadvantage in the marketplace representing the producer’s voice; they operate in fear of political ramifications, retribution, or ultimately the loss of market share. During times of milk surplus cooperatives maintain a cautious relationship with processors and rightfully so.

National Milk Producers Federation (NMPF) serves as a lobbyist organization working on behalf of dairy cooperatives to ensure adequate markets for a burgeoning supply of milk. Our Congressional Delegates are concerned for the stability of an adequate food supply in this country and prior to calling for corrective action to improve the system they demand consensus, warily protecting their political capital before venturing forth. The working relationship of such groups is reminiscent of the legislative process, taking too long to produce results, often not representative of the dairymen’s real interest.

Oversupplying the market with cheap food at their own expense creates no sense of urgency for anyone to help the farmer. Remember, everyone in this picture is enjoying profit, business as usual, everyone except the farmer.

Ensuring an abundant supply of fresh food on a regional basis is of vital importance to the well being of our country. While allowing the market to determine our needs we appear to be inadvertently off course and headed in a direction most of the country will later find unacceptable. The demand for milk products in the United States could be supplied by 800 farms milking 10,000 cows each, farm numbers are decreasing with each cycle, dairymen need a management plan and a voice.

The Dairy Price Stabilization Plan is a budget neutral management tool capable of stabilizing the dairy industry. The Dairy Price Stabilization Plan would save billions of dollars in government funding and spare farmers the anguish of relying on survival of the most fit.

Find your voice, join the effort to stabilize the U.S. Dairy industry and protect our food supply. View the plan at www.DFWT.org.

VTDigger

The U.S. Department of Agriculture began processing payments under the Dairy Economic Loss Assistance Payment program just prior to Christmas. Farmers have already begun seeing deposits.

Sen. Patrick Leahy (D-Vt.), a senior member of the Senate appropriations committee, and Rep. Peter Welch (D-Vt.), cochairman of the Congressional Dairy Farmers Caucus, helped guide the measure through the congressional appropriations process.

This funding will result in a payment of about $8,000 to the typical Vermont farmer.   The Sanders dairy assistance measure provides $290 million for direct support to dairy farmers and another $60 million set aside nationwide to purchase cheese for food banks and nutrition programs.

The county-specific funding levels as calculated by the U.S. Department of Agriculture are $1,206,542 for Addison County; $89,328 for Bennington County; $378,141 for Caledonia Country; $241,599 for Chittenden County; $113,441 for Essex County; $1,505,072 for Franklin County; $114,982 for Grand Isle County; $161,587 for Lamoille County; $371,581 for Orange County; $730,752 for Orleans County; $273,943 for Rutland County; $143,378 for Washington County; $139,186 for Windham County; and $114,225 for Windsor County.  In total, Vermont farmers will receive $5,783,757 in emergency aid.

Sanders said; “At a time when family-based dairy farmers in Vermont and across the country have received the lowest milk prices in 40 years, these emergency payments will be a real help in keeping many Vermont farms viable and in business.  The truth is, however, that we need long-term solutions to the dairy crisis in order to create a situation where farmers receive fair and stable prices for their product.  My office is now working with dairy farmers and their organizations in Vermont and around the country to examine how we go forward – including the need for supply-management.”

Leahy said, “Slumping revenues have pushed dairy farmers to the brink, and these payments will help many to hang on.  Secretary Vilsack pledged to promptly get these funds into farmers’ hands, and we appreciate his efforts.  We also commend the Farm Service Agency county staff for working so hard to get these payments out to farmers so quickly during the holidays.”

Welch said, “2009 has been a tremendously difficult year for Vermont’s hardworking dairy farmers. While this emergency assistance will be helpful to many farmers struggling to hold on until prices rebound, it is clearly just a drop in the barrel. I am hopeful that, working with Vermont farmers and the Congressional Dairy Farmers Caucus, we will make great strides in 2010 toward building a dairy industry that is sustainable in the long term.”

The average price farmers received for their milk fell this year to as low as $11.30 per hundredweight, down from $19.30 in July 2008.  Prices have recently rebounded to $15 per hundredweight. It costs farmers at least $18 per hundredweight to produce milk. As prices plunged, family dairy farms in Vermont and around the country went out of business.

For farmers who may not have participated in the Milk Income Loss Contract or MILC program, sign-up for this aid remains open until January 19, 2010.  They should go to their local FSA County Office and submit their production numbers for February through July 2009.

Contacts:

Will Wiquist (Sanders): 202 224-5141

David Carle (Leahy): 202 224-3693

Paul Heintz (Welch): 202 577-7970

VTDigger

Senators say dairy industry consolidation hurting farmers

Sen. Patrick Leahy and Sen. Bernie Sanders listen to testimony at the Senate Judiciary Committee hearing on antitrust issues in the dairy industry on Saturday in St. Albans. Photo by Terry J. Allen.

A lack of competition may allow dominant dairy processors to “exert power” and depress the price farmers receive for raw milk, according to Christine Varney, the assistant attorney general for the Antitrust Division of the U.S. Department of Justice, who spoke at a congressional hearing held in St. Albans on Saturday.

The largest dairy processor in the country, Dean Foods, buys 70 percent of the milk produced in the Northeast. Sen. Bernie Sanders, I-Vt., has asked the Department of Justice to investigate the Dallas-based corporation’s alleged anti-competitive market practices.

Sen. Patrick Leahy, D-Vt., who called the hearing as part of a congressional investigation into “anti-competitive” dairy industry practices, asked Varney if that level of industry buying power “bothers” her.

“Competition is not very well served when you have one player in the market who controls 70 percent of the market,” Varney said. “We look very carefully at the activity in a market when you have that kind of dominance.”


Varney explained to the audience of 100 people in the St. Albans City Hall that some dairy processors have become “vertically integrated.” These manufacturers not only process raw milk, but also may own parts of the supply chain “such as distribution of its products or supply of its inputs.”

“Vertical relationships in dairy markets would include, for example, a processor entering into exclusive agreements with a specific cooperative to buy raw milk,” Varney testified.

Varney said her division would pursue an investigation of anti-trust violations allegedly perpetrated by dairy processors and would examine complaints about a lack of transparency in the industry as a whole.

“Transparency is something we all need in order to understand how we can improve the production, the health and life of the dairy industry in the United States,” Varney said.
Leahy and Sanders reiterated that Dean Foods has reaped enormous profits this year at a time when dairy farmers are facing a rip tide of red ink and going deep into debt to stay afloat.

Milk prices, which have reached 30-year lows, hovering in the $11 per hundredweight range are not expected to reach $15 per hundredweight until next summer according to USDA economists.
Meanwhile the cost to produce raw milk in Vermont has remained high – at around $18 per hundredweight – partly because farmers must buy more grain here due to the state’s short growing season.

As a result of this whipsaw of low prices and high costs, agricultural economist Bob Parsons at UVM Extension has said Vermont could lose 150 farms in the coming year.

Willard Rowell, owner of Green Mountain Dairy in Highgate, testified on Saturday that his farm will likely lose $1.6 million this year. He and his family milk 900 cows. Last year their income was $2.5 million.

Paul Doton, who milks about 60 cows with his wife and son on their 200-acre farm in Barnard, says he is scraping by because he sells maple syrup, vegetables and does some custom mowing and snowplowing.

“Without this income, I would already be out of business,” Doton said. “Doton farm, much like many other Vermont farms, cannot hang on much longer. How long can we go on losing $4,500 per month? My answer is – not long at all.”

Dean Foods reported first quarter profits of $76.2 million this year, up 147 percent above its reported earnings in the same quarter in 2008, Sanders reported at the hearing.

Sanders said the corporation paid its CEO, Gregg Engles, $116.38 million over the last five years.

“What we are seeing in recent years is a growing concentration of ownership, specifically in dairy processing,” Sanders said. “According to the dairy industry press, one company, the largest milk producer in America, Dean Foods, controls approximately 90 percent of the milk market in Michigan, about 80 percent of the milk market in Massachusetts, 80 to 90 percent in Tennessee, over 80 percent in northern Alabama, over 70 percent in northern New Jersey and in New England about 70 percent.”

In 2001, Suiza Corp. bought Dean Foods, adopted the company’s name, and formed the largest dairy manufacturing corporation in the United States. The company sells milk and other dairy products under 50 “well-known local and regional brands and a wide array of private labels,” according to its web site.

Sanders asked Varney if she would pick up an investigation into the “far-ranging anti-competitive practices” of Dean Foods and Dairy Farmers of America. The 26-month probe, conducted by career investigators at the Department of Justice, was dropped in 2006.

“It is my understanding that in August of 2006 that team recommended action against some of the dairy industry’s biggest firms, including Dean Foods, Dairy Farmers of America and National Dairy Holdings,” Sanders said. “Unfortunately, under the Bush administration it was kicked over to the political people and they decided not to pursue that investigation or take any action. Can you give us assurance that you in fact will continue that investigation and if it leads you to the conclusion that action should be taken that in fact you’re prepared to take action?”

Varney replied, “I can give you every assurance that any investigation I undertake that leads us to believe there is evidence sufficient to prosecute will be prosecuted. There is no doubt that we will prosecute that kind of activity should we find it.”

The Senate Judiciary Committee will accept written testimony from dairy farmers through Sept. 30 at Dairy_Hearing@Judiciary-dem.senate.gov.

Bob Wellington testifies

VTDigger

The recession has forced most of us to do some serious belt tightening. Buying frivolous stuff and eating out are somewhere on the top of the list of guilty pleasures these days. Many Vermonters face more serious sacrifices, such as putting off repairs to vehicles or giving up health insurance.

But what if you had hundreds of big hungry mouths to feed, in this economy? The kind that bellow and moo?

There’s no question that dairy farmers are in a bigger pinch than most of us because of record low milk prices, but there’s another factor to consider, too — the escalating costs of production.

Cows eat a lot. High producing milkers eat a lot more. And grain is a dairy farmer’s biggest expense.

Each day, a cow consumes 110-120 pounds of wet feed (silage) or 55-60 pounds of dry matter (hay and grain). More if she’s producing milk, according to the UMass Extension service.

In slightly warmer climes, such Pennsylvania, farmers can grow enough corn, soybeans and hay to feed livestock through the winter. Vermont’s climate constrains the nutritional value of grain crops, and so though dairymen (and women) here do grow corn – largely for silage – they have to buy supplemental corn and soybeans to feed their cows.

This means the “input” costs, or the expenses farmers incur for day-to-day operations, are higher here than they are in other dairy states like Florida or Ohio.

Grain expenses add significantly to the cost of milk production in Vermont and that makes it harder for dairy farmers to ride out the current milk price crash and compete with farmers in other states on the open market, according to Bob Parsons, an agricultural economist with UVM Extension.

Right now, farmers are losing $100 per cow per month, and many have eaten into their equity to survive. (See related story.) As they gear up for winter, one of the biggest challenges they face is significantly lowering the cost of producing milk.

The biggest ticket item on a farmer’s balance sheet is grain, according to data from the 2008 Yankee Farm Credit Northeast Dairy Summary, an analysis of the financial health of 500 New England farms.

Northeast Dairy Summary cost of production table, 2008, from Yankee Farm Credit.

Net Farm Earnings Per CWT, or hundredweight, from the 2008 Northeast Dairy Summary, Yankee Farm Credit

Last year, feed accounted for $6.19 of the cost of production per hundredweight (a unit of measure that translates to 11.6 gallons of milk), double the amount farmers paid out for hired help, and nearly a third of the total cost of production, $18.19 per hundredweight, on the farms included in the analysis. In 2008, the farmers brought in $19.59 per hundredweight.

This year, the average cost of production for farmers statewide is $17-$18 per hundredweight, and the milk price has hovered in the $11-$12 per hundredweight range since February.

Even when milk prices hit new heights in 2007 and 2008 (after a record slump in 2006), farmers saw short-lived profits because of the inflated cost of corn and soybeans.

Demand for ethanol drove up the wholesale price for corn, according to Don Blayney, an agricultural economist at USDA Economic Research Service.

“Feed inputs have gone up for dairy farmers over the last two or three years,” Blayney says, “mainly because of all the ethanol regulations and outside effects of ethanol on corn and soybeans. All that added demand, taking corn away from feed production immediately shot up feed input prices for all farmers. For quite a while, corn was so very, very cheap that people got used to it.”

Blayney says corn prices are expected to moderate slightly and that will blunt the cost of production losses farmers are enduring. It won’t be enough, however, to pull farmers out of the red ink this winter and next spring. Particularly since many farmers, especially those in Addison County will likely have poor yields for silage and hay this year because of the wet summer growing conditions.

Economist Bob Parsons says some farmers are looking at 30 to 40 percent crop yields in certain fields. Many, he says, will be forced to buy more grain than they normally would.

“You’d have to kind of wake up and think that the planets and stars are all lined up against you,” Parsons says. “A poor harvest at the same time you have low milk prices and high feed prices – that combination is like three hits in the gut in a row.”

It’s not just grain that’s gone up. Farmers are also being squeezed by higher prices for fertilizer, dairy supplies and fuel, according to Tom Gates, cooperative relations manager for St. Albans Cooperative Creamery, Inc. All of these expenses are cutting into their profit margins, Gates says.

“If they can’t find a way to reduce their cost of production significantly, that will be a big challenge for dairy farmers,” according to George Putnam, CEO of Yankee Farm Credit, a government-sponsored enterprise that provides loans to farm businesses in New England. “The situation is dire. In 2006, we thought that that was the worst it had ever been in the memory of anybody working. But this is considerably worse than 2006.”

VTDigger

Eric Clifford on his farm in Starksboro. Since the beginning of the year, Clifford says he's lost $250,000.

The Clifford Farm in Starksboro

In spite of what some in the industry are calling the worst ever returns on dairying, Eric Clifford is carrying on the family tradition come hell or high water. He’s determined to keep the land his forebears cultivated – all seven generations of them – in farming.

It hasn’t been easy. Since dairy prices plummeted to $11-$12 hundredweight  (the equivalent of 11.6 gallons of milk) last February, Clifford estimates he’s lost approximately $250,000 on his 215-cow dairy farm in Starksboro. He and his wife, Jane, are looking into refinancing their 498-acre property.

“We have made the choice to stay in business,” Jane Clifford says. “The dairy farm has been in operation since the late 1790s, and we’ve chosen to say, OK, we’re going to use some of the equity we’ve built up. Our strategy has always been when times are good you pay down debt, you work within your means, you try to be as efficient as you possibly can and you work really hard.”

This fiscal conservatism has enabled the Cliffords to ride out previous milk market crashes. They don’t buy new “toys,” i.e. tractors and equipment, or borrow money for big expansions. Frugality is a way of life for them.

The Clifford’s place, located on Route 116, is a modest working farm in a valley lined with fields along the banks of Lewis Creek. The clapboard house and low-slung barns sit near the road.  Wooded hillsides in the near distance bound the flat tracts of farmland.

Eric Clifford was on a skidsteer, moving silage from a concrete bunker to a steel dumpster when I stopped by recently. He took a good half-hour out of his day to talk about how the farm is faring.

Though the workload never bothers him, he says the constant worry about finances is getting to him. Normally, he says he usually has no difficulty working out solutions to the day-to-day issues that come up on the farm, but lately he finds himself aimlessly standing in the farmyard contemplating his finances for minutes at a time. The facile answers typically at hand aren’t coming to him. The only thing he’s counting on right now is doing everything he can to tough out the slump.

“When consumption in the United States is down for dairy products and the export market is just a fraction of what it used to be and production is up, it’s not a very rosy picture out there,” Eric Clifford says. “Believe me, I’d love to be telling you that by Christmas we’d be getting cost of production and things would be booming. But there’s farms out there that don’t have any more borrowing power and the financial institutions just aren’t going to be willing to lend them any more money.”

The Cliffords, who belong to Dairy Farmers of America, an 18,000-member national dairy cooperative, received $10.50 cwt, or per hundredweight, last month for their raw milk.

Like most farms in Vermont, the cost of production at the Clifford’s – the expenses the business incurs for labor, grain and equipment – is in the $17-$18 cwt range.

Because the milk price is far below the cost of production, losses are mounting for farmers every day.  According to Vermont Agency of Agriculture estimates, the state’s dairy farmers are spending roughly $100 per cow per month to stay in operation.

The Cliffords have lost more than $26,000 a month on average since the beginning of the year.

Eric Clifford runs a skidsteer on his farm in Starksboro.

“We’re looking at what the Farm Services Agenc y (USDA) has to offer,” Jane Clifford says. “We are in a position where we have built up equity over the years. We will be using that to get through this next downturn.”

The Cliffords don’t anticipate a turnaround in dairy prices anytime soon. It could be next summer before their milk check gets close to the cost of production. USDA predicts the average market price will be $14.65-$15.65 per hundredweight in 2010.

“Hopefully, the industry will make some choices that we don’t get hit this hard again,” Jane Clifford says. “It’s always going to be cyclical. Milk is a very perishable product, but it seems that the cycles are longer and lower than any of us can remember so we need to do something about that.”

Blue Spruce Farm in Bridport

Marie Audet, who helps to run Blue Spruce Farm in Bridport, is working to change the cyclical nature of the milk market. She believes farmers must find a way to control the supply of milk in order to stabilize prices over the long term. Audet is one of the organizers of Dairy Farmers Working Together, a nonprofit group with national reach that is lobbying Congress to pass the Dairy Price Stabilization Act, which is designed to give farmers an opportunity to manage the milk supply more efficiently.

Blue Spruce Farm is one of the state’s few large farms. The three Audet brothers – Earnest, Earl and Eugene – milk 1,200 cows. They have 25 full-time employees, half of which are family members.

“There used to be a misconception,” Marie Audet says. “People thought if you had a bigger barn that you were a business, but it’s still all farm families, it’s just some families have grown bigger than others.”

Audet declined to say how much money the farm has lost since the beginning of the year, but if you do the math — 1,200 cows at an average cost of $100 per cow per month, based on Agency of Agriculture figures – you get the idea.

Audet summed up the situation this way: “We’re losing money everywhere.

“We’re making the same amount of money we were 40 years ago per hundredweight,” Audet says. “Ask yourself how you could survive if you were making the same money you did 40 years ago for a whole year. You would have to borrow money off your equity as well to pay your bills and feed your family. “

Grain, fertilizer, seed, insurance and equipment are not selling at 1970s prices. In fact, what the dairy industry calls “input” costs have escalated over the last five years.

The combination of higher expenses and record low milk prices puts farmers in an untenable position.

“We can’t really fix things as they need to be fixed,” Marie Audet says. “Our employees can’t get raises, we can’t make improvements that we had planned on making for our housing for animals. Everything’s been put on hold and then you’re borrowing money just to pay the bills.”

Ryan Brothers Farm in Craftsbury

Willie Ryan of Ryan Brothers Farm in Craftsbury decided he couldn’t stomach borrowing money to keep his dairy operation going. He and his brother, Marvin, sold their milkers under the Cooperatives Working Together herd buyout program in June.  Up to that point, Ryan says they were losing $10,000 a month on their 197-cow operation.

“The way it looked, I was going to have to start borrowing money by September to keep the cows going,” Ryan says. “I’m 60 and my brother’s 63 and we decided we were too damn old to borrow money. Back when we were 35 we would’ve just slugged it out.”

Ironically, selling the herd turned out to be the best way for the Ryan farm to stay in business.  The brothers planted crops last spring and kept 160 heifers. They plan to start milking again next spring, about the time the market begins to pick up.

“Instead of losing $100,000,” Ryan says. “I’m probably going to bank $100,000 out of the deal.”

Ryan, who is president of the Orleans County chapter of the Vermont Farm Bureau, is worried, though, about his fellow farmers.

“It’s gone beyond depressing,” Ryan says. “Farmers are actually scared. They owe more than their equity. I don’t know if you could sell a farm at the moment. A lot of people who’ve been conservative, all of a sudden, they couldn’t have an auction tomorrow and clear up their debts.”

VTDigger