LEXINGTON, KY - If the state's dairy farmers were patients in a hospital, they would be on life-support systems right now. The condition of the dairy industry has reached a critical level, according to industry experts, as revenues continue to fall with a lack of life-saving financial transfusions. Even in good times, it is an incredibly tough job, with 4 a.m. start times, milking at least twice a day, seven days a week, no matter the weather. Now, add in the fact that most small (100 cows or less) dairy farms are losing money daily due to low milk prices, high input costs and a saturated market.
Can this patient survive? Dairy producers are asking that question about themselves and many are opting out, if indeed they can even afford to do that. Cow prices are down, and almost no one is looking to get into the business, so selling equipment isn't easy either. In many aspects, it sounds like a no-win situation, but the government has stepped in to provide some relief. In July, USDA Secretary Tom Vilsack announced an increase in the amount paid for dairy products through the Dairy Product Price Support Program (DPPSP). According to the USDA, these increases, which will be in place from August 2009 through October 2009, will increase dairy farmers' revenue by $243 million.
"The price increaseÖwill provide immediate relief to dairy farmers around the country and keep many on the farm while they weather one of the worst dairy crises in decades," said Vilsack. Although the price levels were set by the 2008 Farm Bill, the USDA has the authority to make changes.
On August 5, the U.S. Senate passed an amendment as part of the Senate's fiscal year 2010 Agriculture Appropriations bill that will increase the Farm Service Agency's budget by $350 million for increased price supports. A statement from bill co-sponsor Senator Jeanne Shaheen from New Hampshire noted the move "complements" the action by Vilsack.
USDA figures indicate the increases will raise the price paid for nonfat dry milk from $0.80 per pound to $0.92 per pound, the price paid for cheddar blocks from $1.13 per pound to $1.31 per pound, and the price of cheddar barrels from $1.10 per pound to $1.28 per pound. The price support hike comes after a series of moves over the last several months by the USDA to sure-up the faltering dairy industry. Some of those moves including reactivating the USDA's Dairy Export Incentive Program (DEIP), to help U.S. dairy exporters meet prevailing world prices.
The agency is also in the midst of establishing a Dairy Industry Advisory Committee, which will "review the issues of farm milk price volatility and dairy farmer profitability," as well as offer suggestions on how the USDA can address the dairy industry's needs.
Maury Cox, executive director of the Kentucky Dairy Development Council (KDDC), said the moves by the USDA are welcomed but the state of the dairy business in Kentucky has reached the critical stage. "Right now, the local dairy farmers, as dairy farmers nationally, are in dire straits and I don't say that lightly," he said. "When you start having your feed companies putting you (producers) on a pay-as-you-go basis, when you start having your lending agencies calling in loans and when you see dairy producers selling off assets to stay in business simply because they can't afford to sell out right now, we're in critical times."
Cox said there are many reasons the industry is in the shape it is and he's quick to add that there is no reason to point fingers at any one cause. But one thing that has affected the input cost of dairy farmers as well as other livestock producers has been the high price of corn due to so much of the crop going to ethanol production.
"The problem at the farm level is, with the implementation of government programs to subsidize corn and different things for ethanol, we saw $80 corn, and this is a major expense to the dairy farmer," Cox said of 2007 and 2008 price levels.
During that same time period, producers were getting record milk prices but that increase in feed costs cut into their margins, a situation that has only gotten worse.
Other crops are now being examined and efforts are being made to counter the use of food stocks for fuel production. The state is involved in many projects designed to use such cellulosic biofuel stocks as miscanthus and switch grass for alternative fuel production. Cox said he is pleased with the action the government has made to increase milk prices on the farm, but the move won't last long enough to bring the crisis under control. "That's definitely going to give us a bump in the price; the problem is dairy farmers will not see any of that until their September check, and it will only be for about a three-month time period," he said. "I don't think it's enough to really pull us out of the hole." State government has recognized the need for action when it comes to the problems dairy producers are facing. Governor Steve Beshear has requested the USDA to "provide additional relief to help offset the losses incurred since March 2009." A letter sent to Vilsack from Beshear along with six other governors stated, "Specifically, we urge you to support the 'Dairy Fairness Act of 2009' sponsored by Congressman Peter Welch (VT), which would adjust the overall payment rate for the MILC (Milk Income Loss Contract) program from 45 percent to 79 percent of the difference between the price of milk and the target price." The Kentucky General Assembly has climbed on board as well with the passage of legislation to create a state Milk Commission. The group, recently appointed by Beshear, will look at issues concerning all segments of the dairy industry, Cox said. "What this commission is to do is take all of those sectors - the retailers, processors, producers and consumers - and look at some of the issues as a unit and try to come up with a plan to help Kentucky producers," he said. "But it cannot affect the price for those producers."
Cox added that perhaps the commission could help in finding programs to, for instance, inform the public of the importance of the industry. "There may be some program to possibly help consumers understand how important a dairy cow and a dairy producer are to the economy, to their community and the state," he said. "We have been quoting from a Minnesota study that says a dairy cow generates around $13,700 in economic value and rollover dollars to a local community in one year." While the solution won't be easy or quick, there are some reasons to hold out hope. The KDDC has a meeting in the works that will bring several dairy factions to the table to discuss ways to help producers through these tough times. Cox suggested perhaps a move toward diversification by producers, especially among smaller operations of less than 100 cows, which make up the majority of state dairies. "We believe there are great opportunities for those smaller dairies to make a living and sustain themselves. They may have to do some different things like looking at value-added, on-farm processes like making cheese or bottling milk," he said. "To speculate on this, I have heard of good times in 2010, but we'd rather see reasonable times in 2009 and for that to continue."