Dairy industry searches for solutions
By Doug Rich
Due to reporter error the Dairy Farmers of America spokesman referred to in the May 25 cover story is John Wilson not Larry Wilson as stated in the article.
There was a time when the Ozark region of southern Missouri was known as "Little Wisconsin." The rocky grass-covered hills were not suitable for corn and soybean production but they were ideal for small dairy farms.
"We have a good area for grazing livestock," Larry Purdom said. "We can pasture cattle even after a big rain, and we have a long growing season."
Still, that advantage has not been enough to keep the dairy business strong in Missouri. David Drennan, executive director of the Missouri Dairy Association, said there were 20,000 dairy farms in Missouri in 1975, but today there are only 2,000 dairy farms in the state. Drennan said that number reflects farms with one dairy cow or more. The actual number of permanent dairy farms is probably closer to 1,600. Slowly, Missouri dairy producers like Purdom are seeing the decline of "Little Wisconsin."
Purdom began selling milk from two Guernsey cows in 1957 from his home near Purdy, Mo. He has weathered many drops in the market over the years but there is something different about the most recent decline in the price of milk.
"We have had a little too much milk and worked through it to get prices to come back in the past," Purdom said. "This time the problem is multifaceted."
Last year, U.S. dairy farmers exported 10.8 percent of their milk supply. The worldwide economic crisis has reduced the flow of milk products out of this country to a trickle. Larry Wilson, senior vice president of marketing and industry affairs for Dairy Farmers of America, said milk exports this year could be down to 7 or 7.5 percent.
"That loss of exports--that really has caused us to have a surplus of milk supplies," Wilson said.
Competition for export markets is another facet of the problem facing the dairy industry. The Australian and New Zealand milk supply was down in recent years due to droughts in both countries.
"This created opportunities for U.S. producers to fill those sales," Wilson said.
Both of those countries are back on their trend lines as far as milk production is concerned. The grass-based dairy farms in these countries are just finishing their production cycle this year and milk production is up compared to last year.
"Our ability to export certainly is impacted by milk supply growth in other parts of the world," Wilson said.
There was a big market for powdered milk overseas last year. The price of powdered milk shot up to $2 in 2008 and then fell to 80 cents in 2009. Purdom said for the first time that he could remember, world prices were higher than domestic prices on some dairy products last year.
Purdom said another part of the problem is that there are too many heifers. The cull rate for dairy cows was up in January and February but we did not reduce cow numbers because of all the heifers.
"Sexed semen has been an issue," Purdom said. "People have been using sexed semen for about four years and we really have too many heifers."
It makes economical sense to use sexed semen and produce a heifer rather than a Holstein bull calf. A producer can grow a heifer or a steer on about the same amount of feed, but the heifer will be worth about three times as much as the steer.
In 2008, dairy farmers in this country experienced historically high milk prices but, like other commodities, the prices dropped dramatically this year. Dairy farmers have seen the price of milk drop from $20 to $10 in just a few months. Dave Drennan said the cost of production is between $16 and $20 per hundredweight of milk produced.
"I have sold milk for $3.20 in my lifetime, but this is worse because of the high inputs costs," Purdom said. "If a person is new to the dairy business or still paying on the farm, it is nearly impossible."
The dairy industry response to these problems is to buyout cowherds through the Cooperatives Working Together (CWT) herd retirement program. CWT is a multi-dimensional, voluntary, producer-funded national program developed by the National Milk Producers Federation to balance supply and demand. Producers who have their bid selected must liquidate their entire herd and stay out of production for an entire year. Purdom said about 67 percent of the dairy farms in the U.S., which represents about 70 percent of the nation's milk production, are supporting this voluntary program. The industry is taking a slow, systematic approach to buying these cows.
"We don't want to harm anyone's market," Purdom said.
There has been speculation that the dairy industry needs to take 300,000 cows out of the national milking herd. Larry Wilson said the number is probably closer to 150,000. In March, production per cow in this country was down for the first time in many years. Dairy farmers tend to change their feeding habits when feed prices get high and margins get squeezed resulting in lower production. Wilson said a combination of less production per cow and fewer cows would bring supply and demand back into balance.
There is a program for bidding on heifers, also. Purdom said producers who go out of the business for a whole year would probably submit bids for their bred heifers, also.
Purdom, who has been an active member of the Missouri Dairy Association, the Holstein Association, and Dairy Farmers of America, said they have tried to stop the continual decline in the number of dairy farms in Missouri. On the state level, Missouri is following the lead of Louisiana and South Carolina to create a statewide safety net for dairy farmers. The program, which has been approved by the Missouri House and is waiting for Senate approval, uses tax credits to support dairy farms.
The Missouri Dairy Stabilization Act would create a state income corporate franchise tax credit for milk production. The tax credit would be allowed based on milk production for any month in which the average of the USDA Uniform Prices in Federal Order Numbers 7 and 32 drops below the announced production price during the calendar year. David Drennan said there is a cap of $25,000 per farmer.
When Larry Purdom began dairy farming, his milk was hauled to Dallas, Texas. Today, Missouri is a milk deficient state and milk from large dairy farms in Texas is being hauled to Missouri.
Although the dairy industry in Missouri is depressed, the current situation is a national issue. Wilson said it seems that dairy farms in the western part of the country were hit by low prices earlier than the eastern part of the country. Most of these areas ship in their feed supplies from the Midwest, which puts an extra squeeze on them.
Wilson said one of the positive signs right now is the sale of American-style cheese. In a poor economy, people tend to eat more at home so retail cheese and milk sales are good. People also tend to eat at more fast food restaurants rather than casual dining establishments, which means people are eating more cheeseburgers and tacos.
"There are some positive signs on the demand side, domestically," Wilson said.
Ultimately in order for Missouri dairy farmers to stay in business, it will be vital that they reduce milk supply to fall in line with domestic and export demand. Only then will the Ozark region live up to it's nickname "Little Wisconsin," again.
Doug Rich can be reached by phone at 785-749-5304, or by e-mail at email@example.com.