Depressed milk prices threaten dairy farmers

HOLLENBACK TWP. – On a cool, overcast morning in mid-June, Jeff Bloss took a break from a typical 16-hour workday to show about 40 students around his 130-acre dairy farm.

The Nescopeck Elementary schoolers threw him softballs like “Do chocolate cows give chocolate milk?” – his reply: “I have a cow named Chocolate, but she doesn’t give chocolate milk.”

But their presence was only a short respite from far more painful questions about how the sixth-generation farm will survive an ongoing slump in milk prices.

“I don’t know,” said Wilber “Pop” Bloss, Jeff’s 86-year-old grandfather who passed on management of the farmstead a few years ago. “The milk business is a terrible business. I can’t figure it out.”

The numbers form a disheartening picture. According to statistics from the U.S. Department of Agriculture for 2008, it cost Pennsylvania dairy farmers an average of $30 to produce a “hundredweight” of milk, or about 11.6 gallons. They were paid, on average, about $20 per hundredweight. The USDA’s statistics go back to 2003, and the difference each year is more or less the same.

The trend is nationwide. In its 2008 summary of the industry, the USDA noted that the number of cows, milk production per cow and total production had all increased over 2007, but that cash receipts from marketing milk and returns to farmers had both decreased.

Prices lower now

Right now, the prices are even lower. And while, according to the Pennsylvania Milk Marketing Board, dairy farming makes up the largest portion of the state’s top industry and creates billions in state revenue, it might not remain that way.

“To tell you the truth right now, the farms that are hanging on right now, they’re eating up their equity. They’re doing without,” said Donna Hall, a Lycoming County dairy farmer who’s also a member of the National Family Farming Coalition.

The coalition is petitioning federal legislators for more recognition in Washington, D.C., where it says it is being ignored in favor of larger players in the industry.

“We’ve had too many dairy farmers suffering for too long,” said Joel Rotz, the state government relations director for the Pennsylvania Farm Bureau, a dairy specialist and a former dairy farmer. “We believe we’re going to lose a significant portion of our dairy production in Pennsylvania.”

Luzerne County has already suffered a loss. Down by about half in the past decade, 23 dairy farms remain, according to Donna Grey, of the Penn State Cooperative Extension in Luzerne County.

Jim Doran doesn’t want to be among the casualties, but the Hanover Township dairyman realizes he faces a daunting road. He milks 39 cows.

“I’ve been milking for 58 years. I just don’t know how the farmers are going on. They’re stuck between a rock and a hard place,” he said.

“Right now is certainly one of those times,” Rotz said. “The cost of production escalated with the energy crisis last year, and they’ve not come down, even though energy costs have come down.”

‘Double whammy’

Additionally, farmers are trapped because their cows aren’t worth selling. “It’s sort of a double whammy,” said Tim Moyer, the chief of support services at the marketing board. “If you say, ‘I’m going to get out. I’m going to sell my cows,’ now they’re not worth as much as they were a year ago. It’s a struggle, that’s for sure.”

Back at the Bloss farm, Jeff leads the students through his day, starting with cleaning out the holding area of his brand-new, state-of-the-art barn that cost several hundred thousand-dollars to build.

“Believe it or not, this was cleaned at 5:30 this morning,” he says, pointing at his herd of roughly 50 milk cows mingling around, “and they already have a mess. … The farm never closes.”

Wilber sizes up the barn itself, which they started building about 18 months ago. “We started at the wrong time.” He says milk prices were about $20 per hundredweight then, but “right around the time we started building this barn, prices dropped to the lowest they’ve been in 20 years. … The economy went bad, the stock market crashed and then milk prices dropped.”

The students are disgusted when a cow nonchalantly raises its tail and leaves Jeff something new to clean up, but he simply smiles. The things that make his stomach churn likely wouldn’t concern most kids.

His farm is currently receiving a little more than $12 per hundredweight – Doran gets even less and Hall’s return is lower yet – but expenses are increasing for all of them. A day’s worth of feeding would cost about $250, Jeff Bloss figured, though he actually pays less because he produces much of the hay and corn he needs. And his cows are at their lowest production of the year, about 3,000 pounds a day. “It sounds like a lot, but we need to get a lot higher than that,” he says. “Where we should be is 4,000 to 5,000 a day.”

As the summer wanes and the cows become familiar with the new barn, their production will increase, but that won’t change the economic equation.

“Most farmers are drawing on reserves or they’re borrowing money in anticipation of the price improving,” Moyer said.

“They still have loan availability as long as they own their land,” said Rich Maculaitis, a district conservationist for the USDA’s Natural Resources Conservation Service. “It’s in their blood. They’ll continue until there’s no more credit left. Most farmers are optimists.”

They have cut back on staffing, he added. “Most of them had one or two people whom they could afford to pay, let’s say, a minimum wage to help with the milking process or to help bale hay,” he said. “Most farms are operating without hiring help. … Basically, they can’t get sick.”

Most farmers like Bloss want to increase production, which can be done without greatly increasing costs. But according to Rotz, it’s the last thing the industry as a whole needs.

“It doesn’t matter what country you go to, they’re not making money milking cows because there’s a glut in the market,” he said.

Demand fell off

For about two years, milk prices were up. Demand was high in developing countries, production was down in other countries thanks to arid conditions and the dollar was weak, making U.S. dairy products more attractive.

“There was worldwide demand that could hardly be met,” he said. “What has happened since then is a worldwide recession, which has really impacted dairy demand in expanding countries like China.”

“This is the worst ever. My last milk check, I cleared $11.09 per hundredweight,” Doran said. “It’s gets you so disgusted, you’d like to quit. Every day you get up, you know you’re losing money and you know you can’t even break even.”

But farmers won’t leave their failing businesses for the same reason they’re successful at their work – they refuse to quit.

“For one thing, it is a way of life. You enjoy having your children and your grandchildren around,” said Hall. “What are they going to do for a livelihood if this is what they know?”

“We’re lucky they are optimists. If it was strictly dollars, we’d have a lot less farmers,” Maculaitis said, but added that they “can only last so long. … If this (the price crash) lasts a long time, you will see people sell their farm because they’ll just be way too deep into debt.”

How the milk maker makes money

Payments to dairy farmers are based on a four-tier system, ranging from the most profitable class of fluid milk to soft products like yogurt to cheese to powdered milk. The price for each is set based on commodities trading markets.

Farmers’ milk is pooled together into federal milk orders, and their payment is a blend of the four classes’ prices, weighted for the amount of milk from their pool used in each class.

The Pennsylvania Milk Marketing Board also requires that state dairy farmers receive a premium, but only for milk processed and sold in-state.

From there, farmers’ checks are reduced by charges. Hanover Township dairyman Jim Doran’s last payment – $11.09 per hundredweight – included reductions for a herd buyout program, transportation costs, advertising and a 50-cent-per-hundredweight charge for his farm’s distance from where the prices are set in Boston.

Much of the milk that would have been sent offshore is being turned to powder – the lowest-paying of the milk classifications – and stored. “It only takes a few weeks to have too much milk, and because it’s perishable, it can’t sit like other stuff, like oil,” said Donna VanHorn, of the Dairylea Cooperative Inc. and Dairy Farmers of America.