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Dairy dilemma

Low price of milk may be costly for farms

February 15, 2009
By RICHARD NILSEN/The Leader-Herald

Dairy farmers are "hunkering down" in the face of sharp downturns in the price paid for their milk.

Ray Dykeman of Dykeman & Sons dairy in Fultonville said the February futures wholesale market for milk - before adjustments for things like butterfat content - was at $10 per hundredweight. Cost of production is in the range of $15 to $18, causing a significant loss for the farmer.

"We're looking at a possible loss of $3,000 per head of cattle this year," Dykeman said. "We currently milk 1,000 head. You do the math."

Article Photos

The Leader-Herald/Bill Trojan

Vinnie Danise, a driver for Skiff's Dairy, delivers milk products to Dean's Dogs in Gloversville Thursday.

New York Farm Bureau spokesman Pete Gregg said milk prices have dropped to half their level from last summer.

"It won't get better any time soon," he said. "All farmers can do is hunker down."

Gregg said milk prices have been up the past two years, as high as $22 per hundredweight at their peak.

"Those who could should have put some money by for times like these," Gregg said. "The last time we saw prices down like this was in 2006 and [the state] lost 500 farms."

Andrew Michael oversees the New York State Farm Bureau office for Fulton, Montgomery, Hamilton and Herkimer counties. He said there are about 175 dairy farms in Montgomery County, another 175 in Herkimer County, 28 in Fulton County and none in Hamilton County. He said there were three times that many farms 20 years ago in those counties.

He said he has talked with many farmers in the area, and although some made money the past two years when milk prices were higher, it may not stem the tide.

"Some farmers got up a little," he said. "But most don't have enough money put back to get them through this."

Perth Supervisor Gregory Fagan works a herd of 120 cows and said the dairy situation looks bleak for the foreseeable future.

"It's a scary situation," Fagan said Thursday. "It depends on the duration of the economic downturn how many farmers will be put out of business."

Fagan said the wholesale milk pricing formula is so complex, it is difficult to explain.

Classes of milk range from I to IV in quality. Due to contracts and cooperative bargaining agreements, three different farms can get three different prices for their milk, he said.

Besides market volatility akin to oil prices, butterfat and protein content can add to the price a farmer receives. Eastern U.S. farmers tend to get about $3 more per hundredweight than western farmers.

"But the cost of production is higher in the East as well," Fagan said.

Gregg said a big part of the problem is farmers have no control over how much they will be paid for their milk, nor how much fuel and feed will cost.

"They are price-takers, not price-makers," he said. "And New York is the most costly state in the U.S. to do business."

Property taxes, workmen's compensation rates and other factors, states like Idaho and New Mexico have a much more favorable business environment for dairy farms.

Then there is the Milk Income Loss Contract Program factor.

According to the U.S. Department of Agriculture Farm Service Agency Web site, "The USDA FSA MILC Program supports the dairy industry by providing direct payments to milk producers on a monthly basis when the Boston Federal Milk Marketing Order Class I price for fluid milk falls below the benchmark of $16.94 per hundredweight."

The wholesale price was above $16.94 in 2008, so no MILC payment subsidies went out to dairy farmers.

Dykeman said the price farmers get for milk lags a month behind the futures, so he will receive February pricing in March.

"That will be the worst month in a while," Dykeman said. "The MILC price supports only help the smaller farmers."

Dykeman said dairy farms receive support until they produce 2.9 million pounds of milk during the year, when they are cut off. While Dykeman might be eligible for just one month, Fagan said he might receive supports for 10 months due to his smaller volume of milk production.

Michael said the MILC Program price supports tend to have a break-even point of aid to farmers depending on the size of the herds.

"Those with 140 [cows] or more will cap out the supports before the year is out," Michael said. "Those with less than 140 head will make it through."

Jim Skiff of Skiff's Dairy in Johnstown said this is a case where being small is better. He said his dairy sold its herd last year and now has a young herd of only 50 cattle, having diversified by purchasing and running the Udderly Delicious ice cream stand in Johnstown.

Dykeman said he tried diversifying and cashing in on the rising price of corn for biofuel at spring planting time in 2008. However, by harvest time in the fall, corn had dropped in price and fuel had risen in price. He lost money on the effort.

"I could have bought corn cheaper than it cost to produce it," he said.

With his small herd, milk delivery business and Udderly Delicious ice cream business, Skiff said his downsizing and diversifying have helped.

"I don't feel putting all your eggs in one basket is a good thing anymore," Skiff said. "Those times are gone."

In looking at the coming year, Dykeman said he has never seen farmers so nervous.

"Larger farms are looking for the exit door," Dykeman said.

But getting out of the business with the devaluation of land, animals and equipment coming at the same time as a credit crunch and failing economy may be impossible. Even foreign markets have dried up, he said.

"The dollar got stronger, so overseas demand for milk is less," he said.

Broadalbin Supervisor Lee Hollenbeck said he no longer has a working dairy and feels he made the right choice.

"I'm out of it and glad to be," he said.

According to the New York Department of Agriculture and Markets Web site, milk is New York's leading agricultural product.



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