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  • From: "Tradingpost" <tradingpost@lobo.net>
  • To: livingontheland@lists.ibiblio.org
  • Subject: [Livingontheland] Global glut squeezes dairy farmers, consumers
  • Date: Wed, 27 May 2009 11:15:49 -0600



Global glut squeezes dairy farmers, consumers
http://www.azdailysun.com/articles/2009/05/26/news/20090526_front_196993.txt



By CHRISTOPHER LEONARD
AP Business Writer
Tuesday, May 26, 2009

BARNHART, Mo. -- A collapse in milk prices has wiped away the profits of
dairy farmers, driving many out of business while forcing others to
slaughter their herds or dump milk on the ground in protest. But nine
months after prices began tumbling on the farm, consumers aren't seeing the
full benefits of the crash at the checkout counter.

The average price for a gallon of milk at grocery stores last month is down
just 19 percent from its peak of $3.83 in July. Farmers, on the other hand,
got $1.04 a gallon in April -- 35 percent less than they were paid last
fall. This winter, wholesale prices were down as much as 45 percent. Price
disparities are a fact of life both for farmers and anyone who shops at a
supermarket, but the nature of milk -- how it's stored, priced and sold
around the world -- makes the gap all the more dramatic. In fact, the price
that farmers get has been wildly volatile for years, creating a succession
of booms and busts felt from pastures to the grocery store.

With each turn, proposals are floated to end the pricing seesaw, which at
one extreme squeezes the profits of farmers and the other squeezes dairy
processors. Any fix that boosts the price of milk runs the risk of bumping
up how much consumers pay, too.

Today, frustrations are spilling over as the price crash creates widely
divergent fortunes within the milk industry, boosting profits for the
middlemen like dairy processors while pushing farmers to the edge of
bankruptcy.

Darrell Kraus, a dairyman in Barnhart, spends almost as much today on hay
and other supplies for his herd of 160 cows as he did a year ago, but he's
getting paid less for a gallon of milk than his father in the 1970s. He
blames middlemen who buy the milk from the dairies, process it and sell it
to grocery stores at higher prices.

"Somebody's getting a cut of this, but it's not the dairy farmer," he said.
"It's sad, but they're going to see a lot of dairy farms go out of
business."

At a grocery store in Fayetteville, Ark., Katherine Thacker noticed how
milk prices were slowly falling -- but not as drastically as last year's
price hikes. She was surprised to learn that the lower wholesale milk
prices were being absorbed by dairy processors.

"That's kind of criminal, isn't it?" she said.

Milk processors and supermarkets see it differently.

Last fall and summer, they swallowed losses because of high wholesale milk
prices and government-mandated ceilings on what they can charge. They're
now recouping some of what they lost and anticipating a rise in prices this
winter, said Mike Nosewicz, vice president of dairy operations at
Cincinnati-based Kroger Co., which operates its own dairy processing
division and sells milk through 2,400 supermarkets.

At the heart of the problem is the nature of milk. Unlike grain farmers who
can hold out for better prices by storing crops in a silo, dairymen must
sell raw milk to processors or else it spoils. And cows keep producing
whether the economy's expanding or in recession.

The price paid by processors to farmers is set by the U.S. Department of
Agriculture based on commodity markets, which rise and fall with global
demand. Some of the raw milk is processed into milk for stores as well as
butter, yogurt and other products for U.S. consumption. The rest becomes
powdered milk, cheese and whey for international and domestic markets.

U.S. milk exports soared last year and demand grew in countries like China
while supplies dropped from Europe and Australia. U.S dairy exports jumped
to $3.82 billion, or 11 percent all milk production in 2008 according to
the U.S. Dairy Export Council. Wholesale prices jumped.

Dairies responded to the demand by increasing production.

But once the global recession accelerated last fall, demand, particularly
exports, fell off a cliff.

U.S. farmers were suddenly faced with too much milk and too many cows.
Wholesale prices crashed. Farmers found themselves spending more to
maintain their herds than they were being paid for raw milk.

"It's an inequity that cries out for attention, consideration and action,"
said Sen. Robert Casey, a Democrat from the dairy stronghold of
Pennsylvania. Casey projects that 25 percent of his state's 7,400 dairy
farms could disappear because of the crisis.

Casey said most lawmakers are focused on short-term solutions -- loans or
subsidies -- to help farmers bridge the period of depressed prices. But he
said Congress should also explore why processors and retailers are keeping
their prices high while wholesale prices collapse.

Farmers also are lobbying for a bill that would change the USDA pricing
system for milk so that wholesale prices reflect what they pay for feed,
fuel and other supplies.

If that happens, milk would be the only commodity of its kind to have a
government-set price determined in part by the cost of production, said
Scott Brown, dairy analyst at The University of Missouri's Food and
Agricultural Policy Research Institute.

"Anytime you put in place a policy that raises farm-level prices, those are
going to get passed along to the consumer," he said.

U.S. Secretary of Agriculture Tom Vilsack also said he is not eager to
remake the USDA milk pricing program. Instead, he wants to see if a range
of recent actions might buoy wholesale prices. USDA recently donated
500,000 pounds of excess powdered milk to needy countries to reduce U.S.
supplies, and a new program will pay farmers to slaughter more than 100,000
dairy cows.

Some farmers say faster action is needed. They're dumping their milk on the
ground to draw attention to the crisis.

Jan Morrow, a farmer in Cornell, Wis., dumped milk on May 4 to protest the
lowest whosesale prices she's seen in 25 years of farming. If prices don't
rise, she says she may have to sell her cows.

Eddy Lekkerkerk, a 42-year-old dairy farmer outside Filer, Idaho, planned
to participate in another milk dump on May 31. But he fears he may not be
in business that long. For five months, he hasn't made payments on the
roughly $800,000 he borrows annually to buy feed for his herd of 1,000
cattle. He said his bank is forcing him to sell his herd to pay his debt.

He predicted many of his neighbors will have no choice but to follow him
off the farm.

"It's going to be ugly. This is historic stuff going on," he said. "The
dairymen are nervous, and they are scared."









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