Dairy industry's woes pinned on ethanol subsidy

December 4, 2010 

After a tough year, local dairymen thought they had seen the worst of the bad times.

Not true. Feed prices are through the roof again, the price producers are getting for milk is down, and dairy producers are once again struggling.

"Every day is a new adventure," said Simon Vander Woude, a third-generation Merced dairyman. His grandparents, who emigrated from Holland, started the dairy business that Vander Woude now runs in partnership with his father, William, and brother, Arlan.

"We don't just work with animals and employees anymore," Vander Woude said. "We are forced to spend part of our time watching the markets -- what's happening with the grain and milk futures markets."

Although Vander Woude said he doesn't mind dealing with the numbers-crunching part of his business, it's one more aspect of a day filled with milking, feeding and all the other activities at a dairy.

Michael Marsh, chief executive officer of Western United Dairymen, a voluntary membership organization representing more than 60 percent of the milk produced in California, said the price dairymen are being paid for milk isn't that bad. It's the cost of feed that's killing producers.

"If our feed costs were at somewhere near normal levels, most of the producers would be cash-flowing today," Marsh said.

The cost of feed has exploded partly because of ethanol. The price of corn has gone up as it's been used for fuel instead of feed.

Marsh said dairy producers enjoyed about three months of solid prices ending in October.

"The milk price was just barely exceeding what their input costs were," Marsh said. "The challenge for them now is they have all picked up additional debt load during the recession."

Western United Dairymen, along with others in the dairy industry, are pushing for the end of subsidies for ethanol. They expire Dec. 31, and many dairymen think they shouldn't be renewed.

"Subsidizing ethanol raises the price of food for American citizens," said Ray Veldhuis, a third-generation dairymen in Winton. "Those subsidies cost Americans about $6 billion a year. Let ethanol be sustainable by itself, and if it can't, then let it go by the wayside."

Marsh said because corn prices are high, other feeds such as soybeans, barley and alfalfa hay are also high. Factor in the holidays as a soft time for milk and butter consumption, and the milk producers are right back to struggling.

"If the subsidies for ethanol are allowed to lapse on Dec. 31, I think there would be a quick response in the price of corn," Marsh said.

Although most dairymen have tried to shrink their debt and lower the number of cows they milk, Marsh said it isn't easy. "You can't just turn cows off," he said. "We will have more guys going out of business."

Marsh said about 14 percent of dairy producers went out of business in 2009, and that number is likely to go up for 2010.

Veldhuis said other steps can be taken besides not renewing the subsidies for ethanol.

"We need a growth management plan that would control growth (of dairies)," he said. "If you were growing during times when there wasn't a market for the product, you would be penalized."

Veldhuis said the problems for dairymen aren't confined just to producers.

"The challenges we are facing create challenges in Merced County itself," he said. "Dairy is the No. 1 ag commodity in the county, worth almost $1 billion. When the dairymen are hurting and going out of business, it affects the entire community. It's a compounding deal."

Reporter Carol Reiter can be reached at (209) 385-2486 or creiter@mercedsun-star.com.

Merced Sun-Star is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service