Milk glut hits dairies’ profits

2009-07-14T00:45:00Z Milk glut hits dairies’ profitsBy TOM LUTEY
Of the Gazette Staff
The Billings Gazette
July 14, 2009 12:45 am  • 

Milk profits have hit a 25-year low for dairy farmers, prompting a national kill-off of more than 100,000 cows with more to come.

With the sour economy, foreign markets once thirsty for U.S. milk have dried up, creating a dairy glut that has driven prices so low farmers are operating at a loss. Yet consumers aren't seeing steep discounts and might not as dairy cooperatives work to take 2 billion pounds of milk off the market.

"Up until a year ago, about 11 percent of the what's produced in the United States was going overseas," said Walt Wosje of Cooperatives Working Together, a national dairy group. "Today we're down to 5 percent, which means 6 percent is hanging around our necks."

Before the global economic meltdown, dairy exports were expanding rapidly. Foreign countries bought $3.82 billion of U.S. dairy products last year, according to the U.S. Dairy Council, a 16 percent increase from the year before.

That growth made the industry profitable even as the prices of corn and soybean feed skyrocketed. Dairy producers were expanding to meet foreign demand when the economy crashed.

Foreign sales in the first quarter were 50 percent of what they were for the same period in 2008 and have only gotten worse.

"Oh gee, we're operating at a loss. How can we do this?" said the Rev. Elias Wipf of New Rockport Colony in Choteau. "Corn is high, soybeans are high. You could say, what isn't high?"

The New Rockport Hutterite Colony belongs to the Montana Milk Producers Association, a dairy farmer group that sells milk to Meadow Gold.

New Rockport's milk is selling for $11.42 for 100 pounds, which is how dairy is measured at the production level. The price is set by the state Milk Control Board, which makes a modest adjustment to national rate set by the U.S. Department of Agriculture based on commodity market prices. Right now that price would have to increase $4.38 to cover the average costs of running an American dairy farm, according to the USDA.

It has been months since the market price was high enough to pay the bills, and many farmers have been dipping into savings or subsidizing their milk business with profits from the other things they raise.

Montana farmers say they're merely along for the ride.

There's no milk glut in the Treasure State, which produces enough milk for Montana consumers plus a little more for neighboring states. Dairy farmers here haven't participated in drives to rein in the milk supply by killing cattle.

Just over the border in Idaho, farmers are being paid 10 cents for every 100 pounds of milk taken out of production via slaughter. Western states account for nearly 40,000 of the dairy cows turned to hamburger so far.

Still, dairy farmers in Montana nervously wait for prices to rebound. They've heard stories about farms going bankrupt in other states.

At Mountain View Colony near Broadview, Mark Kleinsasser milks 150 cows twice a day no matter what the dairy payout is.

The black and white Holsteins lumber across the milking barn's clay tile floor and into stainless-steel milking stalls with little prodding.

After five minutes of milking, their udders no longer bulge, and the stalls open like racing gates at a horse track. Their white milk courses through through clear collection tubes and into a cooling tank next door.

"We ship 21,000 pounds of milk every other day to Meadow Gold in Billings," Kleinsasser says between milkings.

Eventually the milk is jugged and shipped to Albertsons or Wal-Mart. It's a point of pride in the colony that when Billings drinks milk, it probably comes from the colony.

There's also frustration that the retail price isn't lower, which the farmers reason would sell more milk.

Grocery store milk prices haven't reflected falling farm payouts. The Consumer Price Index indicates that retail milk prices have fallen just 13 percent since January, with an average price of $3 a gallon, while farmers make less than $1 a gallon, according to the National Milk Producers Federation.

Country Classic Diary Cooperative of Bozeman, which produces more than 60 percent of Montana's milk, said only one person in its organization could explain the price difference, and he was on vacation. Dean Foods, the nation's largest dairy supplier and owner of Meadow Gold, referred all questions to the International Dairy Foods Association.

The association contends that consumer milk prices have gone down roughly 68 cents a gallon in the last year.

The price drop is not as steep as dairy farmer profit declines, but farmers receive a blended price for various classes of milk. That blended price is less than the isolated price for Class I diary, which includes table milk. The Class I price and the retail price have experienced similar decreases, according to IDFA.

Jim Tillison, chief operation officer for Cooperatives Working Together, said another round of herd reductions could be in order if prices don't improve. He doesn't expect the number of cows culled so far to affect consumer milk prices.

"Retail prices have been slow to reflect the dramatic decline in dairy farmer milk prices," Tillison said. "We would expect that retail dairy product prices would be as slow to reflect positive changes in dairy farmer milk prices as they have been in reflecting the drop in farm milk prices."

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