Plunging Prices Hammer Valley Dairy Farmers

theist · January 20, 2009

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BY: JIM DOWNING

Jan 19, SACRAMENTO, CALIFORNIA (BEE) —

The price farmers get for their milk is plummeting - and some of thedifference may show up in your pocketbook soon. The global dairy markethas crashed so quickly, however, that it's backing up the industry'ssupply chain - all the way to Galt, where farmer Bill Van Egmond had topour a day's worth of milk - 2,000 gallons - down the drain lastweekend.

"No creamery would take it," he said Friday.

Thebase price that dairy farmers get for their cows' milk is set to tumble35 percent - to 97 cents a gallon - on Feb. 1. Retail prices shouldfollow - first milk, then other dairy products - though analysts saythe drop likely won't be as quick, or as large, as the cut in farmprices.

"Retailprices will be a lot stickier," said Joel Karlin, market analyst atmajor San Joaquin Valley grain broker Western Milling. Few if any dairyfarms can turn a profit with milk at less than a dollar a gallon,several experts said.

Industrygroups are asking for federal help, even floating the idea of ataxpayer-funded buyout of 300,000 dairy cows to cut production, Karlinsaid. The buyout plan appears not to have gained traction.

Industryexperts tie the price drop to both a bloated U.S. dairy herd and thecollapse of export markets. A year ago, milk was selling at close torecord levels, driven largely by success in international markets. Butconditions shifted quickly, said Bill Schiek, an economist with theDairy Institute of California, a milk processors group.

Thedairy industries of Australia and New Zealand, which had been hamperedby drought, recovered and began to push more milk products onto worldmarkets. The melamine scandal in the Chinese dairy industry drove abroad decline in dairy sales in much of East Asia. The bad globaleconomy and the stronger dollar made matters worse.

Duringthe boom, U.S. milk production continued to grow, as it has since 2004,Karlin said. Fearful of oversupply, the dairy industry has for severalyears funded a roughly $60 million-a-year program to pay farmers toshrink their herds. But the buyouts haven't stopped the expansion ofthe nation's 9.3 million-cow dairy herd.

Afterspending heavily to increase culling in late 2008, the industry haslittle money left to fund additional cuts, said Michael Swanson, thelead agricultural economist with Wells Fargo & Co. in Minneapolis.

To cull the herds, dairies sell the cattle to meatpackers.

Theprice U.S. farmers get for their milk is set monthly by governmentregulators according to international market prices for four dairycommodities: cheese, butter, milk powder and whey.

Retailersset their own prices, with the minimum store price for milk usually atleast a dollar a gallon more than the farm price. Milk prices can'tfall much more, said analyst Karlin, because dairy commodities arealready at or near federal support levels.

Ascommodity prices crashed, many big cheesemakers got stuck withwarehouses full of cheese made from milk bought at last fall's highprices. Because they know milk prices are dropping, processors arereluctant to keep producing more cheese, making it difficult for somedairies to find buyers for their milk.

Severalexperts, though, said the sort of dumping that Van Egmond had to do hasbeen fairly rare. And Van Egmond said he doesn't blame anyone for thefact that he had to pour out his milk.

"It's just a tough situation," he said.

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suchandra · January 21, 2009

Same in Europe, the farmers also say they're getting no money for their milk.

Every household consumes milk but the farmers say they're not getting paid. Looks like our politicians should be send to the forests. Once they had 80,000 farms in Austria, now only 2000. And these 2000 are fighting to survive, have to work in other jobs to keep their farm from being collected by the bank.