Milk prices tank, more dairy cows headed for retirement

When rumors swirled of another government dairy buyout, the idea didn’t gain much traction, even among dairy farmers.
“That’s such a gimmick,” said Ron Crain, who runs a grass-based dairy in Northwest Oklahoma. After Crain decided several years ago that he couldn’t generate an adequate income to support his family as a commodity milk producer he started making and selling cheese and other dairy products into local markets. He also plans to ramp up his Wagon Creek Creamery website and make a national sales push.
“I haven’t sold milk as a commodity in quite awhile,” he reflected. “But with the prices I’m hearing on milk nobody’s going to make any money.”
Dairy farmers typically figure they need about $18 a hundredweight to cover their costs; milk futures have been trading at under $12 a hundredweight.
“If gas goes back up, those guys are going to be done for,” Crain said. “More and more small herds will go out of business. I think that’ll be the impact.”
The dairy industry, like many other ag sectors, is facing a very tough year. Democratic Senators Jeff Bingaman and Tom Udall, both of New Mexico, were among 35 Senators who recently sent a letter to new Ag Secretary Tom Vilsack asking him to support the dairy export incentive program and buy more packaged cheese for food and nutrition programs, in addition to other measures to help the dairy industry.
“Dairy commodity prices have crashed in the past two months, and farm-level milk checks will reflect that plunge in the months ahead,”said Jerry Kozak, president and CEO of Washington D.C.-based National Milk Producers Federation. “Even if the downturn is short-lived, we’ll be experiencing milk prices we haven’t dealt with in more than six years.”
Milk prices recently have dropped by half.
To the relief of the beef cattle industry, relief for dairy farmers won’t come in the form of a government-backed dairy buyout program, however, a notion that raised alarm after churning in the beltway rumor mill.
Responding with opposition to any effort to use the federal stimulus package to buy older dairy cows for slaughter, Heather Vaughan, a policy advisor in the National Cattlemen’s Beef Association’s D.C. office, said an effort to take about 6.5 billion pounds of milk off the market would involve purchasing 320,000 dairy cows that would then end up mostly likely as ground beef. Such an effort to help dairy farmers would reduce beef cattle prices by as much as 49 percent, she said.
Despite the initial uproar, neither the stimulus package passed by the full House of Representatives nor the version under consideration in the U.S. Senate contains a government-funded dairy buyout. And the National Milk Producers Federation said it isn’t pushing for one.
In practical terms, however, low milk prices do mean more dairy cows will be put out to pasture and enter the food chain as beef.
In 2003, the dairy industry started its own voluntary self-help program funded through a producer assessment on milk similar to a check-off program. About 70 percent of the nation’s dairy production is voluntary assessed 10 cents per hundred pounds of milk to fund the national federation’s “Cooperatives Working Together” program.
Not only is it a check-off program of sorts used to expand markets, it’s a retirement plan that helps dairy farmers permanently exit the business while attempting to manage supply-and-demand and stabilize milk prices.
Members can bid to have their cows purchased and taken out of production. Six rounds of cow retirement programs have been enacted in the past six years. The most recent — at the end of 2008 — involved 148 dairies, 38 of them in the Southwest region that includes Colorado, Kansas, Oklahoma and New Mexico.
“I think this is exactly what the industry should be doing,”said House Ag Committee Chairman Collin Peterson, heralding the “private voluntary self-help program.” Others call it the “envy of the whole commodity industry in agriculture.”
In addition to the herd retirement program, Cooperatives Working Together provides export assistance money to help seal the deal on international sales of dairy products. When the program began, about two percent of the nation’s milk production was exported. That figure has now risen to around 11 percent.
According to an analysis by Missouri’s Food and Ag Policy Research Institute, participating dairies and cooperatives have received a return on investment of roughly $16 for every dollar they’ve spent.
Kozak, the milk producers’ president based at the nation’s capital,said the program is now in the process of obtaining a line of credit with a major agricultural lender to expand its cow retirement and export assistance efforts in 2009.
Though more dairy animals will be headed to slaughter either way, beef groups like the Kansas Livestock Association support the program, preferring that alternative to a government-funded buyout.
For more information about the program (including the bid process to retire dairy cows) visit www.cwt.coop online.