Dairy farmers hit hard by low milk prices, high production costs

A sharp downturn in milk prices has produced what may be the worst crisis most dairy farmers have seen in their careers. But the slump may ultimately help dairy farmers in Minnesota and the rest of the Midwest.

On Steve Hoffman's farm near New Ulm, 100 or so dairy cows prove a bit of old farm wisdom is true; a contented cow is a quiet cow. There's not a single moo as they enjoy a cool breeze.

"For me this is by far the worst."

But the cows don't pay attention to low milk prices and the huge dollar losses accumulating in the dairy industry. For farmers who do, like Hoffman, there's very little contentment to be found these days in the dairy business.

"For me this is by far the worst," Hoffman said. "And I've been in the business for about 24 years now."

The big problems are high production costs coupled with low milk prices. Prices have dropped because there's too much milk available right now.

The economic recession has helped drive down demand worldwide. The high production costs are linked mainly to a sharp jump in corn prices, an important feed for dairy cows. Milk is sold in units of 100 pounds, known as a hundredweight. Hoffman said right now it costs far more to produce milk than anyone's willing to pay for it.

"Most producers are probably losing anywhere from $2 to $7 per hundredweight of milk produced right now," Hoffman said.

That adds up to some huge losses. Hoffman said he's losing about $10,000 a month right now on his milk.

"You got to borrow a little money to survive right now," he said. "I hate to borrow money just to stay operating. I mean really you're going backwards when you're doing that."

Hoffman said he's optimistic that he'll be able to pay back that money when milk prices become profitable once again.

Some farmers though have seen enough.

Joseph Soenneker farms near Melrose in central Minnesota. He's been cutting back his cow herd for several years as he approached retirement. He said the current dairy downturn helped convince him to sell his herd altogether and retire. Soenneker said business is so bad he felt a personal jab every time he sold milk to a dairy cooperative.

"I was getting tired of being insulted when they sent out a milk check and say you're only worth that much," Soenneker said. "There's no way you can make money milking cows right now."

Soenneker sold his cows to a national program designed to cut milk production and boost prices. Most of the cows purchased, as dairy farmers often say, will go for hamburger.

It's an ongoing effort by the nation's major milk cooperatives to reduce cow numbers. Farmers selling milk to the co-ops pay about a penny per gallon to fund the program. University of Wisconsin dairy specialist Bob Cropp said the co-ops plan to buy about 100,000 cows this summer, roughly 1 percent of the U.S. herd.

"It'll help," Cropp said. "But it's not going to bring about a sharp recovery in milk prices."

The buyout program doesn't have the money to reduce the U.S. herd enough to boost milk prices back to a profitable level. For that to happen, Cropp said additional farmers will have to sell their herds on the open market.

Eventually that culling of the U.S. herd will reduce milk supply and boost prices. When that happens it's possible Minnesota and other Midwest states could find their position in the dairy industry strengthened. Cropp said that's because, while things are bad everywhere right now, dairy farmers in the western U.S. are being hit the hardest.

Western producers pay more for feed and get lower milk prices compared to Midwest farmers. Cropp said the nation's leading milk producer, California, has seen some of the biggest drops in milk production during the current downturn.

"The markets will rebound, we will need more milk down the road," he said. "And we'll probably be in the position to supply that at a competitive advantage to the west."

If that happens it could provide a little more security for dairy farmers who, right now, are wondering how long the bad times will last. Most dairy analysts say it could be next year before the dairy industry is profitable again.

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