Are California dairies drying up?

Milk-makers struggling to be moneymakers

jsmith@mercedsunstar.comAugust 4, 2012 

— California dairy farming can be a real roller-coaster ride.

In a good year, an average-sized dairy farm can make more than $500,000, money often largely invested back into farm operations, industry figures show. However, in bad times, the losses can be just as great.

Over the past four years, dairy leaders say, far more farmers have been hanging on amid steep drops than riding high.

And recently, a surge in feed prices, due in part to a devastating drought plaguing the Midwest, has forced some of the state's dairy farmers to the brink of losing their way of life.

"If it stays like this, this time next year we'll be out," said Chowchilla dairyman Alfred Soares. "This time next year, this whole conversation will be, 'What are we going to do now?' "

Soares and wife Reis have been dairy farmers for 28 years. When they moved to Chowchilla in 1992, they were milking 160 cows. They've grown with the times and today have a mid-sized herd of about 900.

Like many dairy farmers, the Soares family was hit hard in 2009 when the price farmers were getting for milk dramatically dropped and feed prices steadily increased. As a result, they refinanced their ranch.

"We literally borrowed more than what we paid for the ranch just to stay in business, because everything was so upside down," Reis Soares said. "You can weather a couple bad months, but when it lingers on a whole year, then that's hard."

With little equity left to borrow from and the cost of production again outpacing the return on milk, the Soareses are concerned about being able to secure a loan to buy feed this winter.

"There's always bankruptcy courts," Reis Soares said. "We haven't gone there personally, but a lot of the fellow dairymen we know have."

Chris Keeler is the district director for the Central California Farm Service Agency, an extension of the federal government that provides emergency loans and disaster relief to farmers.

"There's no question, commercial banks do not want to lend to dairymen right now," he said. "What we're seeing now is that we have existing dairies that banks are turning away, and they're showing up on our doorstep. We're able to help about 20 percent of everyone who comes to us."

From 2006 to 2011, the California dairy industry lost about 300 dairy farms, reducing the number of dairy farmers to 1,668, according to data from the California Department of Food and Agriculture. Preliminary signs suggest that the industry could be on pace to face significant losses again in 2012.

Over that same period, most dairy farm production expenses increased only mildly, but the average cost of feed rose steadily, the CDFA data shows. In the first quarter of 2012, it cost a farm $10.81 to buy enough feed to produce 100 pounds of milk, up from $6.84 in 2006.

Some dairy farmers, especially operations with large acreage, grow their own feed in an effort to insulate themselves from market fluctuations. But the California farming industry trucks in much of its livestock feed from other parts of the country.

"We have historically in California a feed-deficient state and are very dependent on importing feed and hay from the Midwest," said CDFA Secretary Karen Ross. "It is a very challenging time for our producers who are not feed sufficient."

While dairy farmers have been going out of business, the number of cows being milked in the state has remained relatively stable, and milk production increased as technology improved.

The impact on families who have to go out of business is "monstrous," but the impact to the overall economy is "small," said Leslie Butler, agriculture and economics professor at the University of California at Davis.

The consolidation of dairy farming into fewer hands is nothing new, said Bill Schiek, economist for the California Dairy Institute. "I think the fundamental thing is that while there are some producers that are losing money, there are others that are expanding and making money."

Many dairy farmers have expressed concern that the consolidation of dairy operations also means the concentration of wealth in too few pockets.

"When you wind up with a community with less entrepreneurs and more workers, that's a loss to the community because people don't have an ability to contribute," said Joaquin Contente, a second-generation dairy farmer in Hanford. "It's too bad, because it was a business that you could be proud of."

In an effort to save more dairies from going out of business, supporters and advocates recently petitioned the CDFA to raise the minimum price that cheese processors must pay to farmers for their milk.

The request was to adjust the price factor for whey in the funding formula.

State officials expressed concern that would strain smaller processors who do not have the technology and infrastructure to profit from the cheese byproduct popular in protein shakes and many other health foods.

A small increase was granted, but dairy farmers expressed frustration with the formula adjustment, which raises by about 4 cents the minimum price processors pay to farmers for milk per 100 pounds, depending on market factors.

The processor community has opposed increases to the minimum price of milk.

The issue is a tricky one for state officials, because forcing prices higher could make it even more difficult to attract and keep processors, who must deal with California's tough environmental regulations.

CDFA leader Ross has said she is putting together a task force to analyze the industry and provide recommendations for stability.

"The task force will be in place by the end of this month," she said. "This is so important to me that I don't feel we have time to waste."

Reporter Joshua Emerson Smith can be reached at (209) 385-2486 or jsmith@mercedsunstar.com.


AT A GLANCE

Here are some key factors for determining the profitability of the dairy farming industry over recent years, based on data from the California Department of Food and Agriculture:

In 2011, a dairy cow produced an average of about 23,438 pounds of milk a year. That's up from 21,815 in 2006.

During the first quarter of 2012, it cost California farmers an average of $16.63 to produce 100 pounds of milk. Over the same time period, the "mailbox price," calculated to reflect the average price a farmer received for 100 pounds of milk, was $15.52.

In 2011, it cost California dairy farmers on average about $15.79 to produce 100 pounds of milk. That year, the average mailbox price was $18.13 for 100 pounds of milk.

In 2010, it cost California farmers an average of $13.70 to produce 100 pounds of milk. That year, the mailbox price was $14.37 for 100 pounds of milk.

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