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Dairies hunker down for more low prices

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Posted on April 8, 2010 |
By Kathryn Flagg



ADDISON COUNTY — Vermont dairy farmers slogged through the worst milk prices they’d seen in decades for much of 2009, struggling to stay in business as they sold their milk at prices so low they could not cover the cost of production.

Now, milk price forecasts suggest that 2010 isn’t shaping up to be much better for dairymen, many of whom went into debt to the tune of $800 to $1,000 per cow last year in order to continue farming.

According to projections from the Massachusetts-based dairy co-op Agri-Mark, the average price for 2010 per hundredweight (cwt) is expected to hover around $16. Agri-Mark dairy economist Bob Wellington said that the cost of production varies on every farm, but most Agri-Mark farmers report it costs between $16 and $20 per cwt to produce milk.

Meanwhile, national milk production is inching up, while demand for dairy products remains relatively low.

“Milk prices are still not at cost of production,” said Cornwall dairy farmer John Roberts. “It’s going to be a very difficult year.”

Now, some dairy experts are saying that a second year of low milk prices could be the straw that breaks the cow’s back.

“(Farmers are) looking at a second year of quite possibly break-even or below break-even,” said Tony Kitsos, a farm management educator with the University of Vermont Extension. “Some folks are looking at it and just saying, ‘You know, I don’t know if I want to go deeper in debt for another year.’”

That milk prices are expected to remain low through the spring, summer and into the fall brings bad news to farmers, particularly those already burdened by heavy debt.

Wellington said that fewer farmers went out of business last year than the industry had initially anticipated. Statewide, the number of dairy farms fell from 1,078 to 1,026 in the first 11 months of 2009, and 11 Addison County dairy farms went out of business in that time.

Still, many farmers hung on, even when milk prices languished as low as $10 and $11 per cwt.

“There’s not a lot of alternatives,” Wellington said. “If the economy was good and there were good paying jobs out there, farmers might have decided to sell off the cows and do something else.”

So farmers turned to banks to limp along during the protracted period of low prices. Now, Wellington said, the big question is whether or not banks will continue to extend credit to farms crippled by debt.

Farmers in Addison County reported this month that a regional farm credit agency had warned farmers that credit may be harder to come by. Meanwhile, some farmers have turned to credit cards as a way to buy farm supplies when loans dry up. Wellington said that means they’re facing interest rates of 18 percent or more to finance grain and seed.

Yankee Farm Credit CEO George Putnam said the bank is still lending to farmers on a case-by-case basis, though net farm earnings from last year were dismal.

Before last year, Putnam said the dairy industry saw the worst net farm earnings since 1977 in 2006, when dairy farmers in the region on average earned 30 cents per cwt. Last year, net farm earnings slumped to negative $1.17 per cwt.

“With industry conditions like this, it is important to pay attention to the condition of your balance sheet,” Putnam said.

VOLATILITY ABOUNDS

Despite the fact that forecasts are dismal, Roberts pointed out, though, that predictions are always changing; he doesn’t put too much credence in any one number.

“I think it’s fair to say that what’s happening is extremely volatile,” he said. “It’s hard to say from one month to the next. There’s a lot of sort of unknown, ‘what does this really mean?’ attitude.”

That uncertainty is part of what farmers like Marie Audet — who has been championing a supply management program for dairy farmers — hope to eliminate from the industry. Audet, who runs a large dairy in Bridport with her family, said it’s a commonly cited statistic among farmers these days that a 2 percent surplus in milk on the national stage can drive prices down as much as 40 percent for farmers.

Wellington said that the push for supply management seems to be gaining traction nationwide.

“We’ve had a sense here in the Northeast that we had to do something,” Wellington said. “In other areas of the country, we’re finally having more co-ops and their farmers come on board.”

With various models on the table for a supply management program — which, in theory, would help eliminate the milk surpluses that drive down prices — Wellington said he hopes more co-ops and dairy organizations might reach a compromise on the best path forward sometime in the next two months.

Reporter Kathryn Flagg is at kathrynf@addisonindependent.com.

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