Milk prices are going up in December, and the federal government has said it will purchase $60 million worth of cheese and make $290 million in direct payments to the nation’s dairy farmers.
The crisis, however, isn’t over. Neither of these positive developments on the horizon may be enough to keep more Vermont dairy operators from going out of business.
Farmers say the one-time emergency aid payments of $5,000 to $25,000 per farm from the government will help, but it won’t be enough to compensate for a year’s worth of lost income that on the average 130-cow farm totals $106,000.
“Their stress level is so high. We have conversations with farmers every day who say we can’t continue, how do we go on?” says Diane Bothfeld, deputy commissioner of the Vermont Agency of Agriculture.
Dairy farmers are worried because after the last several down cycles, prices rebounded quickly and then reached record high levels, enabling farmers to pay off debt. This time, however, there is no boom predicted in the coming year. Prices will hover near break-even levels for Vermont farmers.
Amanda St. Pierre, a member of Dairy Farmers Working Together, who runs a dairy farm with her husband in Richford, says most farmers are banking on a sharp rise in prices in the coming year that will likely not materialize, even though there is a shortage of milk in Vermont. Typically, shortages spur higher prices.
“Milk prices have not bounced back as quickly as people need to have that happen,” St. Pierre says. “Futures haven’t responded at all. Those continue to be disappointing. Where is the dairy industry going to be in the next 6 months to a year? There’s been a milk shortage in the Northeast and in California. But it hasn’t affected the price of milk. I’m not sure what’s happening with that.”
In fact, the USDA Economic Research Service predicts milk prices aren’t going to rise above the cost of production in Vermont this year. The all-milk price is projected to be $14.70 to $15.60 per hundredweight or 11.6 gallons of milk. The average cost of production in Vermont is $17 to $18 per hundredweight. For seven months this year, farmers earned $11 to $12 for their raw milk.
“They’re not going to pay off the debts they’ve incurred,” St. Pierre says. “The most they can hope for is not taking on more debt.”
In October alone, 10 more (Vermont) farms went out of business, bringing the year’s total to 53, and Bob Parsons, an economist with UVM extension, has predicted 150 farms could halt production by next summer. At last count, 1,025 dairy farms remained in Vermont.
The question remains: How long can dairy farmers hold on?
Many have had to go hundreds of thousands of dollars in debt this year and they don’t know when they’ll be able to dig themselves out (of debt).
Come spring, St. Pierre is worried many farmers won’t have the money to buy seed. “Most people have borrowed to their capacity,” she says. “Vendors have capped out as much credit as they can. I just don’t know where they can go. If they can make it through the winter, let’s give them the spring.”
According to a Cornell University price computer modeling report, significant downturns occur in 33 to 36 month cycles. In that scenario, the next milk price drop cycle would occur in 2012, Bothfeld says.
In the 2006 downturn, farmers who took out loans because of low crop yields and low milk prices weren’t able to pay down debt when prices went back up in 2007.
“Some people never got paid off for 2006 when 2009 came upon them,” Bothfeld says. She says those carryover debts likely contributed to the demise of 53 farms in the state this year.
The extreme unpredictability of milk prices has driven Vermont farmers to support programs that would help them better control the milk supply and hence milk prices, Bothfeld says. The Vermont-based group Dairy Farmers Working Together has been rallying support for its supply management plan from dairy organizations around the country.
On Nov. 7, Vermont Farm Bureau members voted to support a mandatory supply management system (see the resolution at the end of this story).
The three biggest member-owned milk cooperatives that serve Vermont — St. Albans Cooperative Creamery, Agri-Mark, Inc., and Dairy Farmers of America — have all supported a voluntary growth management system. Organic Valley implemented a supply program this year.
In the first two weeks of December, DFWT will be pitching its supply management proposal to farmers in Georgia, Kentucky, Minnesota and Washington, D.C., and it is looking for support from farm bureaus in West Virginia, Pennsylvania, New York, Georgia and Kentucky. The group has also taken a proposed bill to Congress, but it could be months before it moves forward, St. Pierre says.
“The thing is, normally the cycle would tell us we’d have record high prices,” St. Pierre says. “But economists are telling us things aren’t reacting normally. So that’s where you’re getting $16 projections. If farms continue to go out, you might get higher prices. Unfortunately, it’ll be that kind of supply management structure.”
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Vermont Farm Bureau resolution
Vermont Farm Bureau supports dairy supply management initiatives such as the CWT program (Cooperatives Working Together). Vermont Farm Bureau supports dairy supply management initiatives, including mandatory (ones), that will assist in creating greater price stability. We support a state, national and industry-supported, long-term counter-cyclical program addressing the volatility in milk pricing that will provide for the viability of the dairy industry . Any program should recognize the need for regional production of milk for food security purposes.
More on dairy:
Got too much milk? Farmers look at supply management to stem price fluctuations
Desperate times for dairy farmers
How Vermont dairy compares with the rest of the nation
Pillar of rural economy teetering
