After two years of booming prices for their liquid portfolio, dairymen have been hit with some of the lowest prices for milk in years.
That has Rep. Dennis Cardoza, D-Merced, worried.
Cardoza is concerned about his constituents, the dairymen working hard to make a living for their families. He has already heard about two dairy producers in the southern San Joaquin Valley who've committed suicide over financial problems.
"This is a very serious crisis," Cardoza said. He spoke with one woman in the dairy business who said she had lost $80,000 in the last six weeks.
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Because of the low price for milk, Cardoza has had meetings with incoming Secretary of Agriculture Tom Vilsack. He has also met with the secretary of ag for the state of California and is trying to figure out what the proper course of action will be to help local dairymen.
Bill Schiek, an economics expert with the Dairy Institute of California, said milk producers have just come off of a period of unprecedented high prices. Between the spring of 2007 and the last quarter of 2008, dairymen enjoyed high prices for their product.
Because of that, the production of milk went up. But then two things happened.
First, the price of commodities went up, including the hay and grain that dairymen feed their milk cows. Then the price for milk dropped.
"By the middle of 2008, speculation caused a run-up of grain prices," Schiek said. Margins narrowed for dairymen, but efficient ones could still make good money.
Schiek said the price collapse for milk happened because when prices are high, more people invest in cattle and in boosting their milk production. The typical cycle is good prices, expansion -- then a drop in prices because of overproduction, Schiek said.
"In the past, the price has been supply-driven," Schiek said. "This time there was the added complication of demand."
The domestic milk market demand has fallen because of the overall economy, Schiek said. Add to that a decrease in the demand from foreign countries, and the result is a tanking of prices for milk.
Part of the decrease in demand is because New Zealand and Australia, which both went through a drought in 2007 and a resulting decrease in their milk production, are back on track and competing aggressively in the world market.
"There are just fewer people out there looking for the milk product," Schiek said.
Depending on what type of staying power local growers have, there could be a number of dairymen getting out of the business, Schiek said. That could mean a glut of cattle on the slaughter market, but that remains to be seen. Some of those cows could go to other dairies and not be taken out of production, meaning that the amount of milk produced won't go down.
Some of the dairy producers facing financial problems are also the ones who are being hit hardest with trying to comply with environmental rules. Schiek thinks dairymen with a lot of equity in their land and without a lot of debt will be able to hang on through the tough times, but he's not sure about the rest of the producers.
"We are pretty sure that we'll be seeing a very bad first quarter of 2009," Schiek said. "If there will be recovery in the second half of the year, we just don't know."
Meantime, Congressman Cardoza has one more issue on his already crowded Valley agenda.
Reporter Carol Reiter can be reached at (209) 385-2486 or firstname.lastname@example.org