Milk Money

This is lengthy and I apologize but, I think some things need to be air and discussed on the Herd Retirement Program.

I am a farmer. It’s in my blood. It’s my way of life. I know there are others out there in the world just like me. We are a tough breed who will live off making just enough money to cover the bills and sometimes go without for stretches not being able to make ends meet.

As a farmer, I think we feel we have a commitment to provide the world with food, including milk. Sometimes, our passions outweigh what we know. Losing businesses rarely stay in operation for three or four years without showing some ink in the black, profit zones.

I am also a consumer, one that pinches every penny possible. I am concerned over soaring prices everywhere and extremely concerned about other people making ends meet when soaring grocery bills are taking up a larger chunk of their paychecks.

A recent article called Milk Money in the City Pages has taken me back many years to my youth. It’s brought back memories of working with my Grandpa at a young age to assist all I could in the barn. I loved it. It was my one sanctuary in the world, that barn was my life line.

Back to the article, my spouse and farm partner was operating a 30 cow dairy at that time. His parent’s were also. Both farms were sold off under the program. Rich’s were sold off prior to the big government push in 1985 and his parent’s were sold off under the direct program listed in April of 1986. My grandfather, who had lost his home due to a fire and in turn his farm in 1982, was irate that he hadn’t held on long enough for the buyout.

I will admit I was too young to fully understand what was going on at that point. All I knew is that I loved spending time in the dairy barn and it was gone. As the years progressed, some people still refer back to those times. Even Rich was confused over why the USDA had even offered the program. Milk prices didn’t change. All he knew is that he no longer had a farm.

After talking with him about it at length last evening, nearly 30 years later, the only benefit he saw to the program was that his payment paid off all of his over-extended bills and provided him with an escape from his farm debt and the ability to keep his sixth generation farm land. He also stated that he received a payment of .40/hundred weight of milk produced and still received another .35-.40/lb for each animal sold. On a 30 cow dairy with a herd average of 14,000 pounds of milk produced, that alone was a payment of around $168,000.

Right now the milk prices are around $17-$18 per hundred weight of milk paid to the farmers. In 1985 when Rich sold out, milk prices were around $14 per hundred weight. It was a little cheaper for grains but only by about $60 a ton. Actual on farm production prices were actually higher than they are now. The newer fuel-efficient tractors that have come into the market place and advancements on machinery have changed drastically since those days. In 1985, most farms were still using small square bales for feeding. Now the use of large 3’x4’ square bales and round balers are prevalent. General speaking, the overall cost of production and feed inputs when including the labor involved probably ranked on a higher dollar value back in the early 80s.

One thing that needs to be understood about that program is the general concept. The concept was that we had too much cheese, butter and yes, milk in storage. At that time, we also did not have the trade agreements that we now have with countries like China either. China wouldn’t even talk to President Reagan. But, the question is, what was the purpose?

The purpose of the program was to limit the amounts of products that were going into storage. One thing people do forget is that all milk products are perishable, except for powdered milk. Times were different then, we didn’t have the advancements and extent of understanding that we do now about export markets and the commodity value of things like exported cheese. Here these perishable goods sat in storage, paid for by the government by tax payer dollars with thousands of tons being sent to landfills every year.

Did the program work? Maybe as a short-term program it did. The levels of items going into storage did reduce. But what happened long-term is that many small farms that were struggling to make ends meet got out of the industry and larger farms just continued to expand. You can almost pinpoint the spike in growth of large commercial farms in correlation with this program in the 80s.

Let’s jump forward to today. There are groups working as cooperatives to compete with commercial-scale dairies. We have lost the mentality of quality over quantity. Now, it’s all about who can produce the most milk with decent protein levels (because that’s the newest standard) for the cheapest inputs. It’s a tough, competitive world out there. I can name five small farms in my area that still can’t produce the amounts of milk being shipped from one commercial dairy. So, you might ask, who can keep feed cost down the best?

Commercial dairies around me have started getting in Mexican or Honduran farm hands about five to ten years ago. This actually keeps their labor costs down. Good farm help is difficult to find and especially ones that work like immigrants do. Smaller farms don’t have the accommodations to provide room and board for one, let alone more. They depend on local help and in turn those local folks want to get paid a fair wage. Which, I honestly can’t blame them, it’s hard work.

Now that you know the difference in labor, let’s look at crop production. Crop production for the small farm includes using smaller tractors which take longer to get crops done. A small farm might take 3 days to get in 50 acres of crops. Large commercial farms gather their drivers, their big equipment and blast out 150 acres in less than two days. On a pound per pound, the commercial dairy can produce chopped hay for feed for about .65 per cow per day while the small farm costs about .85 per cow per day. Over a 100 cows being fed the same amounts, that’s a total of over $7000.00 difference per year.

When feed grain prices skyrocket like we saw in 2010, which also cuts into the small farms profit margins. The large dairy can afford to have large loads brought in and have ample room for storage. But, the small farm might not have the room for storage and also runs the risk of grains souring prior to use because of the low amounts used daily. A quick comparison: Large farm orders in bulk at 7.15 per bushel (56 lbs) and the small farm ends up paying about 7.50 per bushel. At 8 lbs of grain per cow per day, that’s five cents more per cow per day. For each 100 cows, that’s another $1800 per year.

Why am I explaining all of these differences? I explain them because I think it’s important for the general public to understand the comparison of profit margins. Both of these farms are still getting paid the exact same amount for milk. They both still have taxes, insurance, tractor payments and electricity that are all about equal.

My question to all is now this: If you are and have been committed to something you love and do with a passion, what would it take to get you out? If you have the option of receiving enough money to pay off all of your debts and have a little bit left over, would you take it? Knowing the farmers mentality, I know it would take a lot for me to get out of farming and probably the only thing that would be is financial security.

As for milk price-fixing, I think that some of this does tie back into keeping the milk prices as stable as possible. I know people want cheap milk and I can see the argument that this isn’t a good policy. It is about how much money you spend out of your pay for the food you eat and the milk you drink.

But, one thing that seems to be missing is the understanding that farmers cannot continue to make milk with payments of $10.00 per hundred weight of milk like we saw in 2009, especially when milk production costs for feed, fuel, etc are at an average $11 per hundred. If a cow produced 100 lbs. of milk per day, that means the farmer loses a dollar a day, per cow! You cannot build profits doing business like that.

We have all got to work together and understand the system. I know many of you think that milk should just be produced on a day-to-day basis and the more produced, the cheaper it becomes. Unfortunately for farmers, even though we love what we do, it’s still a business and we still need to make money.

Milk is a commodity, not much different that the oil used to fuel your car. It works off the supply and demand system but sometimes, we have to add more units to storage to keep the prices cost-effective and sometimes we need to purchase more to keep up with the ever-growing demand. It isn’t an easy job to watch and predict the markets. Milk production is controlled through that same mentality. Right or wrong, the people who produce the milk from cows they own still have the ultimate decision to make.

There are a great deal of flaws with our system, with that I will not argue. But, in today’s markets everything is volatile. It doesn’t matter if it’s oil, milk, grains, meat or stocks. It all jumps around so fast it’s hard to keep up sometimes. As a producer, the volatility creates high risk for me when I am locked into just milk production. The retirement program allows a farm with what I like to call a niche market and singular product (and a system I need to clarify that I do NOT promote) the risk is huge to make profits on a continual basis.

Do I feel that in today’s market the retirement program is needed? The simple answer is NO, I don’t. With the droughts in the Southwest, meat prices are on a slow and steady incline, expected to raise beef prices approximately 8% in 2012. A little known fact too many is that approximately 1/3 of the beef on supermarket shelves is actually derived from cull cows from dairy farms. The price increases for cull cows has been tremendous over the past year. In 2010, we sold an animal at auction and received a check for $719. In 2011, we sold an animal at auction (two pounds difference in weight) for a payment of $1010. As a good producing cow, her worth is between $900 and $1200. Since cull cows are one’s that usually start having breeding problems, she is definitely worth more as beef.

There is a great deal of additional underlying issues to the retirement program as well. Many of these farms that are utilizing this program are not properly managed to begin with. Today’s dairy farms require extensive paperwork to track and maintain feeding programs, breeding protocol, animal health and animal welfare. The farms today that are prospering are not the farms we knew growing up. They run like well oiled machines with every consideration taken into account for overall farm production.

There is also the issue of the age of the farmer. These buyout programs offer them a way to retire. Unfortunately, as with the hiring of immigrants to do farm labor there just aren’t the people willing to work the life of a farmer anymore. With no one to transition into the farm, it makes it difficult for a farmer to just walk away. Remember the commitment of a farmer to produce food, that doesn’t leave us as we age.

As you can read, I sit on both sides of the fence on the herd retirement program. In some ways, for some folks, I think it is an option. While I sit on the fence, I also see an ever-growing demand for milk here in NY due largely to yogurt manufacturing in the state but, it isn’t like that in all states. I also see the consumers demand for cheap milk and I understand the issues of affordability. But somewhere along the way, we all need to decide that farms still have to make money to survive and we need to ensure a stable market with limited risk for new farms to develop.

I don’t have the answers and half the time the more research I do the more questions I have. My concern is that through these programs we are leaving out the small farms that make up the back bone of quality in this country. We are pushing toward the highest production costs for food in recorded history but milk prices have been staying within the same range for at least three decades. Where and how is our milk going to be produced in the future? Why would the younger generation come into a dairy farm knowing that they won’t get any type of raise (from profit) during the remainder of their lives?

Our biggest concerns should be quality and affordability for all. How can that be achieved without government buyouts? I honestly do not know.

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3 thoughts on “Milk Money”

  1. When you produce a commodity, you’ve got to expect commodity prices and all the garbage that goes with it.
    There’s plenty of farming that can be done without relying on a failed and corrupt socialized system.
    I’ve been there, done that…I’m free from it all and will be free from it forever and will never go back!

    1. I have to ask, are you farming? Are you selling products? Have you diversified? I do think there are ways to change on a farm by farm basis but no matter what, we still need milk as a commodity. In my personal opinion, the commodity market should be for mainly exports.
      The whole world lives on a supply and demand system. Nearly everything we consume or use, food or regular goods, are a commodity. That’s just the way the markets are done from a global stand point.
      I would really like to hear more about what you have done to remove yourself from the system and what decisions went behind that transition. Would you please connect with me and share your story?

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