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Milk's price collapse squeezes dairy farmers

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 in the fall. This past winter, wholesale prices were down as much as 45 percent.

Price disparities are a fact of life for farmers. In fact, the price farmers get has been wildly volatile for years, creating a succession of booms and busts in pastures and at grocery stores.

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 did 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 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.

In the 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 Kroger Co. of Cincinnati, which operates 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 a recession.

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 in the 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.

Farmers are lobbying for a bill that would change the Agriculture Department 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, a dairy analyst at the University of Missouri's Food and Agricultural Policy Research Institute.

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

European protests hit the roads

Six thousand farmers with 700 tractors clogged roads in Berlin, while others blocked milk processing plants in France and protested at European Union headquarters in Brussels on Monday, seeking more aid to stay in business as milk prices plummet. EU farm ministers later decided to allow member states to bring forward the payment of 70 percent of direct aid to farmers from December to mid October, hoping it will alleviate the financial difficulties. Farmers, though, have been calling for more drastic measures. They say they have been forced to sell milk below cost, because prices have fallen by up to 50 percent over the past year.

Milk's price collapse squeezes dairy farmers 05/25/09 [Last modified: Tuesday, May 26, 2009 7:03am]

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