10 Reasons For Dairy Producers to Say ‘Good Riddance’ to 2009

It’s not enough just to say that 2009 hurt. It dragged on for far too long, stole jobs and livelihoods, and changed the way many regard their businesses, industries and lives. U.S. dairies were among the hardest hit.

As we step into a new year that beckons a little brighter for dairy, Dairy Today offers 10 reasons to say goodbye to 2009. (Let us know what you would add to this list.)

1. Poor milk prices. No matter how you slice it, milk prices fell to levels that hurt nearly every U.S. dairy. Overall, 2009 milk prices collapsed by 50% from 2008’s levels. Many producers have told us their milk prices dropped $3/cwt. to $7/cwt. below their cost of production. More specifically:

· The nation’s all-milk price plunged to $11.30/cwt. in June and July, according to USDA. Compare that to the all-milk price of $20.50 in January 2008. California dairy producers averaged only $10.47/cwt. for the first six months of 2009.

· 2009’s average net dairy farm income is expected to fall a whopping 94% from 2008, according to USDA’s Economic Research Service.

2. High-priced feed. The milk-feed price (MFP) ratio, a widely used indicator of dairy profitability, reached a 35-year low in June 2009. In California, feed costs accounted for $9.82/cwt. in the first quarter of 2009. New Mexico dairies paid $192/ton for hay and $222/ton for corn. The MFP ratio is improving, but costs for corn, cottonseed and other supplies remain high. Although not at their January highs of $4/cow/day, feed costs remain in the range of $3/cow/day.

3. Lost equity. Producers lost billions of dollars as a result of the year’s poor milk prices and high input costs. Struggling to stay afloat, they burned through their equity and reserves, wiping out what had taken years to build. In some areas, like the Upper Midwest, 2009 losses reached $100/cow/month, says Greg Steele with AgStar Financial Services. It was worse in California‘s San Joaquin Valley, home to the nation’s largest milk shed. There, losses for 2009’s first nine months totaled $133/cow/month, says Robert Matlick with the accounting firm of Moore, Stephens, Wurth, Frazer and Torbet. “Do the math on a 2,500-cow herd, and that’s a $3 million loss in net worth,” Matlick says. “The year has been a financial disaster.”

4. Weakened export market. After five years of unprecedented growth, dairy exports plunged in early 2009. Billions of pounds of exports – which had helped drive recent dairy profits – vanished. Export shipments through October 2009 were off 46% from 2008, says the U.S. Dairy Export Council (USDEC). The good news is that the budding economic rebound in Asia and consequent upturn in dairy demand are encouraging for 2010, says USDEC’s Marc Beck. “The worrisome news is that the sector has a long way to go before anyone could say, yes, we have recovered and left behind the crisis of 2009,” he adds.

5. U.S. and global recession. Whether from Wall Street’s greed or the housing meltdown, the economic downturn took hold and spread, reaching across the U.S. and the world. Unemployment rose, and consumption of many products and services fell. Consumer spending for dairy products dropped off too. Fortunately, China has maintained its dairy import appetite throughout the economic crisis—largely because domestic consumers are flocking more than ever to foreign brands after the nation’s melamine scandal in the fall of 2008.

6. CWT was not enough. Between the second half of 2008 and the end of 2009, Cooperatives Working Together launched five herd retirement rounds. USDA analyst Rachel J. Patton says the impact of the five herd buyouts wasn’t as great as hoped. Sure, they helped boost prices by $1.54/cwt. by removing more than 250,000 cows and lowering production by 5 billion pounds of milk. Yet all that, says Patton, still didn’t curtail production enough to make the kind of price-improvement impact that producers needed. Milk production will only decline by less than .5% -- yes, point 5 -- from 2008 to 2009.

7. Little help from the top. Many producers have expressed anger and frustration that their co-ops and trade associations did not act quickly or significantly enough to stop the bleeding at the dairy level. USDA did pump $1.3 billion into dairy coffers through the MILC and DELAP programs, and the Holstein Association USA lobbied hard – but unsuccessfully -- to get its supply management program accepted. Several co-ops distributed patronage checks and payments ahead of schedule. But the efforts didn’t quell producers’ sense that their leaders provided too few solutions during the worst financial crisis in decades.

8. No immigration reform. For 15 years, agriculture has been calling for Congress to address the nation’s immigration and guest-worker laws, says Craig Rugelbrugge of the Agriculture Coalition for Immigration Reform. But 2009 passed without needed reform. Instead, the Department of Homeland Security and its Immigration and Customs Enforcement (ICE) division shifted its enforcement focus from employees to employers. 2009 saw a record number of I-9 audits. At least four Vermont dairies received ICE notices in November that they would be audited over their hiring practices. The dairy industry, where immigrant labor makes up half of the workforce, urgently needs the proposed AgJOBS legislation, Rugelbrugge says.

9. The West loses milk. Regional shifts in milk production have many wondering who’ll hold the dairy powerhouse title in the new decade. A year ago, California and Arizona milk production was running 10 million lb. per day and 315 million lb. per month higher (8.5%) than the combined Midwestern production of Michigan, Minnesota and Wisconsin. Since then, 98,000 cows have left the Western sunshine, largely thanks to the Cooperative Working Together program, sub-$10 milk in California, and historically high feed prices. In a surprising twist, California‘s milk supply dropped so sharply, the state’s processors had to go looking for milk to fill their orders.
Meanwhile, the Midwest has added 10,000 cows over the last year (and 19,000 over the past two). Entrepreneurial Midwestern producers have learned how to milk cows in freestalls and parlors, and large foot-print, cross-vent barns are now becoming the facilities of choice. With new investment in large-scale processing plants and re-investment in existing facilities, the Midwest is regaining its competitive advantage in feeding the eastern half of the U.S. And new Texas dairies have turned the Lone Star state into a substantial milk producer.
The unanswered question: Can the West regain its footing?

10. Cap-and-trade impasse. Without cap-and-trade legislation in 2009, carbon credits’ net to farmers continues to languish at just $3/ton. For Minnesota‘s Dennis Haubenschild, who has been operating a methane digester on his 900-cow dairy for the past 10 years, that isn’t much. His digester captures 90 tons of carbon equivalent per week, or barely $1,000 per month in carbon credits.
But that could change in 2010, if Congress gets serious about cap-and-trade legislation. With passage, carbon credits could triple in value as energy producers try to offset their carbon emissions and bid for carbon credits on the Chicago Climate Exchange.
Other good news: In mid December, USDA and the Innovation Center for U.S. Dairy announced the signing of a memorandum of understanding to jointly work to reduce the dairy industry greenhouse gas (GHG) emissions by 25% by 2020. The agreement allows USDA to target and expedite existing programs such as EQIP and REAP toward greater energy efficiency and GHG reductions. The hope is that more dairy producers will install anaerobic methane digesters on their farms to produce methane gas, which in turn can be used to produce clean electricity.
Currently, fewer than 150 digesters operate on U.S. dairies. The new agreement could lead to more than 1,000 digesters being built.

Contact us at: cmerlo@farmjournal.com.