, Thursday July 20: the sweat has already accumulated on Eddie Fredriksson’s dark gray tee-shirt; it’s going to be another busy day. In a few short hours, he has delivered two calves, bred three cows, helped get the hoof trimmer started, and also helped a cow that had slipped and landed in an awkward position get up.  

What will it take for the 36-year-old Fredriksson to be doing this 10 years from now? “Something other than $14 milk,” he answers. What keeps him doing it? Lately, he confides, “I don’t know.”

It’s telling for someone as hard-working as Fredriksson to show frustration. After all, he likes working with cows. To him, its fun to breed a cow and make the herd better as a result. “I’ve always been interested in genetics and developing a good herd of cows.”

But the economics of managing two dairies in northern Florida are daunting. “We’re shipping milk at essentially the same (mailbox) price that my father shipped milk in 1982 or 1983,” he says. “At some point, the price we get paid for our milk has to compensate us for our rising inputs,” he adds. For instance, he must pay $10 to $12 per ton more to buy corn silage from local growers this year than what he paid the same time last year— all because of higher fuel costs.  

Like Fredriksson, many of the producers in the Southeast have reached a crossroads.  

Price reform

Three states in the deep Southeast — Florida, Georgia and Alabama — continue to lose cows. In 2000, the three states had a combined total of 269,000 milk cows, according to USDA statistics. By 2005, that number had dropped to 234,000. (The 13 percent drop in these three states is much steeper than the national drop of 1.8 percent over the same period of time.)

Florida, the leading dairy state in the region, lost 20,000 milk cows from 2000 to 2005, along with a number of farms. Because of skyrocketing real-estate prices, many producers simply decided to sell out. Others had a tough time weathering the fluctuations in milk prices.  

Surely, a number of dairies will remain to serve the burgeoning population of the region. Based on the 2000 census report, the combined populations of Florida, Georgia and Alabama grew 22 percent from 1990 levels -— significantly higher than the national average of 13.2 percent. By 2020, the U.S. Census Bureau projects Florida to be the nation’s third-largest state (behind California and Texas).    

Yet, some people talk loosely about the dairy industry “going away” if something isn’t done to better compensate producers for selling into a Class I (beverage milk) market. The vast majority of the milk produced in Florida is used for Class I purposes, but because of how the federal milk marketing order system works, the milk is initially priced off of the Class III or IV (manufacturing-grade) markets. That, in turn, subjects the producers to fluctuations in the cheese market.      

“We can’t price Class I milk on weekly or monthly gyrations of the cheese markets,” says Joe Wright, president of Southeast Milk Inc., the largest dairy cooperative in the region, serving producers in Florida, Georgia, Alabama and Tennessee

Potential opportunities

During a Farm Bill hearing (attended by two members of the U.S. Senate Agriculture Committee) this past June, Georgia Milk Producers president Tom Thompson called for reform in the milk-pricing system. 

Georgia dairymen, and indeed dairymen located in the Southeast, are in danger of extinction,” he told those attending the hearing. 

Among other things, Thompson called for partial de-coupling of Class I pricing from manufacturing-grade pricing. 

If some of the current inequities in the pricing system are addressed, many in the Southeast think the industry could rebound.

Speaking at the annual meeting of the American Dairy Science Association this summer, Southeast dairy producer David Sumrall (with 13,000 cows in Florida, Georgia and Mississippi) was mainly bullish on why he continues to invest in the Southeast dairy business. He cited the area’s growing population, which places the dairies in close proximity to more and more consumers.

Doesn’t it make sense to produce milk where the people are?” Sumrall asks.

And, pay prices in the Southeast are still the highest in the nation. In 2005, the Florida federal order averaged $17.64 per hundredweight for the year — significantly higher than the national federal-order average of $14.99. The Southeast federal order (which includes Georgia, Alabama and several other states) was the second highest for the year, averaging $16.

Opportunities abound in the Southeast, Sumrall says. Rather than investing $25 million in a mega-dairy in Amarillo, Texas, to get a Class III cheese price, why not invest in Florida and get a higher price tied to the Class I market? he asks.

Higher fuel cost

With higher fuel cost now a reality, there is added impetus to produce milk closer to the population base rather than shipping it hundreds of miles.

For example, shipping milk from southeastern Pennsylvania to central Florida -— to meet Florida’s fluid-milk deficit during certain times of the year — can add approximately $4.50 per hundredweight to the cost. (That assumes a 50,000-pound-capacity tanker truck; $2.20 per loaded mile over 800 miles, and a 30-percent fuel surcharge.)

“I would submit that the current system of milk pricing and marketing is increasing our dependence on foreign oil,” Thompson, the president of Georgia Milk Producers, told those attending a Farm Bill hearing in June. “Locally produced fluid milk for local consumption just makes good, common sense,” he said.

But politics continue to confound the situation.

Much of the milk that comes into the Southeast is controlled by co-ops whose majority membership and directors live outside the Southeast, and whose farms are in less populous areas with lower Class I utilization, Thompson said. Getting their milk pooled into a market with higher Class I utilization “puts money in their pockets,” he added. “Management (of the co-ops) is only too happy to oblige ‘working the system’ to accomplish that.”

Thompson cites two “disasters” that have hurt producers in the Southeast federal order region:

  • In 1995, Congress failed to re-authorize the “base-excess” plan. Essentially, “base-excess” was a two-tier payment plan; producers got paid more at certain times of the year when the market needed their milk the most, and they got paid less during the “spring flush” months when there was a surplus of milk. When the “base-excess” plan expired, those incentives and disincentives went away, as well.
  • In 2000, the USDA enlarged the geographical area of the Southeast federal order to include southern Missouri and northwestern Arkansas. That brought more milk into the region, leading to a  signficant drop — about 20 percentage points — in the federal order region’s Class I utilization, which cut milk prices,  Thompson says. 

“We basically got robbed with a little backdoor politics,” Thompson said.

At a crossroads

Near Okeechobee, Fla., Randy and Doug Burnham plan to expand their dairy from 700 cows to 1,200 cows. That’s  somewhat of a bold move, given the strict environmental complicance expected of producers in that region, along with the fact that two housing developments will be going in around the Burnhams in the next five years. Land values in the area have tripled over the past two or three years.

Whether more producers, like the Burnhams, decide to stay in business — or else sell out and reap the benefits of a rapidly appreciating real-estate market — will depend in large part on the signals they receive from the milk market. If producers are paid commensurate with their ability to provide a fresh-milk supply for a rapidly growing population, then many will decide to stay.

Taking some of the peaks and valleys out of the fluid-milk price (by separating themselves to some degree from the cheese price) also would allow producers to budget their needs more precisely. 

With the certainty of stable milk prices, a producer could feel more confident in going out and recapitalizing his farm. Given the climate conditions in Florida, re-capitalizing would likely include free-stall barns, cow-cooling equipment, tunnel ventilation and various measures that   ensure environmental compliance. 

This is a pivotal point in time, says Wright, the president of Southeast Milk Inc. Whatever comes out of the current price-reform discussions will influence the Southeast for years to come.

Price reform soughtfor Southeast

The upcoming farm bill debate could be crucial for the future of the dairy industry in the Southeast.

Industry leaders plan to seek enabling legislation that would allow the federal milk-marketing orders in the region to come up with a pricing formula for Class I milk that is partially separated from the manufacturing-grade (Class III or IV) price.

“The fluid market today is becoming so much different than the manufacturing market,” says Calvin Covington, general manager of Southeast Milk Inc., the largest dairy cooperative in the Southeast region.

Covington said a new pricing formula would still tie the Class I price to the manufacturing-grade price to some degree. But the formula would have a different method of calculating the Class I mover, perhaps factoring in cost-of-production and fuel cost.

It wouldn’t necessarily result in a higher Class I milk price, although Covington is hopeful that would be the case. The main thing is to provide more stability to fluid milk prices, he adds. The revised formula would take out some of the fluctuation in Class I prices by separating Class I milk to some degree from the cheese markets. 

Current fluctuations in Class I prices “make it difficult for the dairy farmer to do much planning,” Covington says. That, in turn, makes his relationship with his banker more difficult because he doesn’t always know what his income will be in the months or years to come.

If their efforts to get meaningful price reform through the Farm Bill fall short, Southeast Milk officials have entertained the thought of breaking away from the federal-milk-marketing-order system altogether.

“That is something we have talked about,” Covington confirms.

Under that scenario, southeastern producers could perhaps negotiate direct contracts with large retailers like Publix supermarkets and Wal-Mart for a fluid-milk supply. With those contracts in place, the producers would have an even better idea what to expect, income-wise, in the years to come.