Dairy farmers seek price relief in tough times
Clinton County, MI – In 2009, dairy farmers from California to Connecticut found themselves in the midst of one of their worst years in decades. The global credit crisis evaporated milk exports. Prices fell through the floor -- and many producers went bankrupt.
Now, dairy farmers are still grappling over how to achieve price stability. They'll address that issue this week when they meet in Frankenmuth for the annual Great Lakes Regional Dairy Conference. The good news is that as the recession continues, Michigan's dairy industry is actually growing.
If you were part of the offensive line rushing through your local supermarket last Sunday, you might have been carrying a frozen pizza and a gallon of milk to the checkout end zone. According to the retail research company NPD Group, milk and pizza are among the top 10 foods consumed on Super Bowl Sunday. Beer doesn't even make the cut.
And it's likely you didn't notice a huge spike in the cost of that gallon jug. For much of the past year, grocers held the line or even slashed milk prices. But for dairy farmers, the 2009 balance sheet left a sour taste in their mouths.
"In my career in farming, which started officially in 1968, we've never suffered losses like that," says Ken Nobis.
Nobis is the president of the Michigan Milk Producers Association, a dairy co-op serving 2,300 farmers in four states. He manages 950 Holstein cows in Clinton County.
A rollercoaster ride
The last three years have been a rollercoaster ride for Nobis and his peers. In 2007, milk prices hit record highs. Producers exported about 12 percent of their product as milk powder and protein. But in 2008, credit dried up, along with some commodity export markets. Nobis estimates that in '09, the U.S. exported just 8.5 percent of its milk.
"Now, that doesn't sound like much; you drop from 12 percent to 8.5 percent, but we're producing a perishable product here," Nobis explains. "And it's estimated that just a two to three percent change in consumption can have a 20 to 30 percent effect on price."
The crisis was particularly acute out west. California grows very little feed, so farmers there paid more to ship it in from out of state. The cows drink a lot of water, too and California has long faced a critical shortage.
That's where Michigan has a hoof up on the industry.
Christopher Wolf is a professor of agriculture at Michigan State University. He says Michigan's climate and geography put its dairy industry in prime position for growth.
"There's a lot of feed available Michigan produces a lot of the corn, soybeans and hay," Wolf says. "But on the selling side, we're within 400 to 500 miles of two-thirds of the population of the United States."
Wolf says Michigan is also one of the top states in per animal production. The average 1,400 pound cow yields about 10 gallons a day. But supply is outweighing demand...so the industry is taking steps to balance the two.
Milk capacity is expanding
That happens at a "balancing plant," like this one in Ovid, near Lansing. This facility unloads up to 60 milk tanker trucks a day, and processes three million pounds of milk. Plant manager David Wittkop says they'll soon complete a two-year expansion that will raise that daily rate to five million pounds.
"We were really at a point where we were either going to have to cap their growth or reinvest in this business," Wittkop explains. "The board made the decision to grow the capacity of this manufacturing plant by two million pounds a day, and that required an investment of about $62 million."
Here, workers convert excess milk into butter, cream and powder, which can be stored for up to a year. That's the balancing act. Raw milk still comes into the plant, even in times when consumer demand for bottled milk drops. So the plant makes other products to fill the gap.
Searching for stability
Back on the farm, dairymen are in a rebuilding mode. Many were forced to tap into their land's equity last year to survive the price pinch. Ken Nobis says most Michigan farmers have since regained or are nearing their normal production costs.
The National Milk Producers Federation is working on an income assurance program to help stabilize the margin between feed cost and revenue. It's been slow going, and there's a lot of impatience to avoid a repeat of last year. But Nobis believes nothing will happen until the next farm bill in 2012...and he says farmers are taking their time to get it right.