Dairy farmers strained by rising costs, drop in exports

The perfect storm has hit the dairy industry in the United States, and dairy farmers in Pittsylvania County are in its path.

Kathleen Vanderhyde and her husband, Garry, are in the dairy business in Chatham with three of their sons.

She said being the wife of a dairy farmer right now is “depressing.”

“We are faced with two problems,” Vanderhyde said Wednesday. “The input prices have increased in price the last two years — the feed, fuel and fertilizer — and second is what has happened to export prices.”

The export markets are in a serious decline, and the droughts are over in Australia and New Zealand, leading to more milk production, Tony Banks, assistant director of commodity marketing for the Virginia Farm Bureau Federation, said .

“The market decline is being driven by the global economy,” he said Thursday. “The milk consumption, especially with cheese, a popular ingredient within the restaurant trade, has declined because people are not eating out as much.

“So, there is too much milk. It is only a 2 percent increase — very small — but milk products consumption is so sensitive to supply that it only takes an incremental bump to hurt the price.”

Even though the Southeast produces milk for the fluid milk market, or milk in containers, the price farmers are paid is based on the price of cheese and milk powder, Banks said.

Low prices, low profits

Tommy Motley, whose family owns the fourth-largest dairy farm in the county, has been in the dairy business for 30 years and serves as the president of the board of directors of the Pittsylvania Farm Bureau.

He said there are 10 dairy farms in the county with the smallest farm having 20 to 30 dairy cows and the largest having more than 2,000. Motley said he doesn’t remember any dairy farms going out of business in the past 10 years, but dairy farmers are entering new territory.

“This is the worst year I can remember,” Motley said. “In January of 2008, we were getting $20.98 for Class I fluid milk per hundredweight (one hundred pounds). In January of 2009, it was $14.04, and they are talking about $4 more off the price in February. And there are no production controls in place.”

Motley estimated that he would have to receive at least $15 per hundredweight to break even and get a return on his investments and the cost of the inputs.

Motley said that in the past when milk prices have decreased, the feed prices were half of what they are now.

Roy Vanderhyde, Kathleen’s son, said, “The milk prices are not the lowest we’ve ever seen, but the input costs are so high that it’s the lowest profit we’ve ever seen. Our 1,200 cows go through 1.7 million pounds of feed a week.”

He pointed out that the farmers have no control over the input prices or the price they receive for the milk.

“What the average person doesn’t know is that the dairy farmer has no say,” Vanderhyde said. “The government sets the price and the co-ops add a little, then six weeks after you ship the milk out, you receive a price.

“We are getting almost half of what we were getting a year ago, and the bills are going up. And the dairy farmers have to make that work.”

He said that the stores don’t have much say in the price of milk either.

“It’s the processors, and you have to take what they offer,” Vanderhyde said.

Threat from the West

Another part of the problem, according to Motley, is that Western states, such as Texas and New Mexico, have been steadily increasing their milk production, partly to supply the Southeast since the Southeast only produces half the milk in its market.

“In the West, the investors have built factory farms, but with the market and transportation costs,” he said, “it isn’t feasible for them to produce milk for the Southeast, so the Southeast has to pay part of the transportation costs.”

Fuel prices, of course, are part of the problem.

“I don’t care what comes in or out of a farm, it is fueled by diesel, and diesel continues to run 25 to 30 cents more than premium gas,” Banks said. “Everyone is having a difficult time with the fuel costs.’

The problems have come about in the last four months, primarily the last two, when there has been a 25- to 30-percent decline in the price of farm milk, Banks said.

“Last year, there was a general shortage of milk, but with a cow you can’t turn it off and on,” he said. “It takes about nine months to breed a cow and have her producing milk. So, it’s a biological process you have to wrestle with.”

The two ways to deal with the oversupply of milk are both sad, according to Kathleen Vanderhyde, who said farmers either have to go out of business or send their cows to market.

Motley, however, said sending cows to market presents another problem — an oversupply of beef.

“On Monday, I sold some culled (non-producing) cows for beef,” he said. “The beef industry is getting hit, but the only way to try to cut the milk supply is to send the cows to market. It’s overproduction, but you can’t cut back on feeding the cows.”

That oversupply results in a lower price for the farmer, even though the price for the shoppers isn’t going down, Motley said.

Weathering the storm

There aren’t many bright spots on the horizon, everyone agreed.

“Historically, Virginia dairy farmers have had a more stable climate, but now you can throw the trends out the door,” Banks said.

He predicts that the average dairy farmer in the U.S., who has 133 cows in a dairy herd, will stand to lose $10,000 in February.

Motley said that, sadly, a current drought in California holds some hope.

His plan is to “buckle in.”

“We had a little forewarning in December, so we prepaid fertilizer and bought up some feed,” he said. “We hope this will be short.”

“Our hope is that the price of milk will go down,” Kathleen Vanderhyde said, noting it is frustrating to lose more than 90 cents per a gallon of milk and not see that reflected in the price in the grocery store.

Banks added, “My hope is that the dairymen can weather the storm. Some in the industry are predicting we could see higher prices for milk at the end of the calendar year, but some are saying it will be the middle of next year.”

Roy Vanderhyde said his family is using their equity to get through, but if it lasts too long, they will run out of money.

The hope is that when the perfect storm passes, there will still be dairy farms standing.