The Garden City Telegram
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Dairy farms battling high costs, decreasing demand
Published 2/28/2009 in Business : Business
BY SHAJIA AHMAD
When Plymell dairy owner Boyd Sigafoose looks down his line of munching cows, he knows their content behavior means they're stress free-and happy, he said.
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Shajia Ahmad/Telegram — Cows line the milking stalls at the small-operations Plymell Dairy LLC, where their mammary glands are drained three times a day. Larger dairy farms are facing a slew of destructive economic forces including decreasing milk prices, decreased demand for American-produced butter and cheese abroad and high feed costs.
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Shajia Ahmad/Telegram
Though the cows may be content, most dairy farmers are not. The national dairy industry is taking a hard hit in a tight and stagnant economy, especially in western Kansas, where 22 large dairies produce about 70 percent of the state's milk.
At least one area dairy farm that has been hit hard by rising cattle-feed prices and decreasing consumer demand is closing its doors: The West Kansas Dairy in Coolidge is in the midst of shutting down, putting a few dozen out of work in Hamilton County.
Dairy manager Clint Anderson declined to comment in detail about the closure but confirmed that the business is no longer viable because of high milk production costs. Job losses will total 40, he said, and at least seven people already have been fired. The dairy cows may be sold to farms in other states, Anderson added.
Vreba-Hoff Dairy Development LLC, the global dairy development business based in Ohio that owns the Coolidge farm, declined to comment to The Telegram. An official said a closing date still is uncertain.
That closing business isn't alone in its woes. Prices for milk are just above two-thirds of what it costs Kansas farmers to produce the staple, and dairy farmers face corn costs that have doubled in the last five years due to competition from ethanol producers.
Large-operation dairy farms are spending on average between $1.40 to $1.50 to produce milk but receiving only about a $1 per gallon for the commodity, Kansas Dairy Association Board member Mike Bodenhausen said.
Bodenhausen, who's worked in the milk and dairy industries for several decades, said the economic climate for the industry today is the worst he's ever seen.
"I can tell you that in most cases, every dairy farmer is producing at least a 30-some percent loss," he said. "That will vary from farm to farm -- but it's going to be hard to find an industry dairyman who's breaking even right now."
At Plymell Dairy LLC, where about 1,300 "happy" head of dairy cattle are milked three times per day by high-tech sensory machines, Sigafoose said he's selling milk for about 90 cents a gallon right now. A year ago, the small-scale dairy farmer received about $1.80 per gallon of milk production.
Heavy losses due to high corn prices -- about 65 percent of the average Plymell milking cow's production is used to cover its feed costs -- coupled with a cash-strapped consumers and global decreases for demand of American butter and cheese means increased cull rates: More and more dairy cows are headed to the slaughterhouse.
Dairy farms typically have a 30 percent cull rate; that is, about 30 percent of the cows that die or do not produce profitable amounts of milk are replaced each year. Right now, that turnover rate is 40 to 55 percent at the Plymell farm, Sigafoose said, reflecting a national trend of dairy farmers who must sell parts of their herds for slaughter. That hurts the beef industry, as well, Sigafoose admits.
Nationally, dairy cow slaughter is up 30 percent while beef cow slaughter is down 14 percent, the Associated Press reported last week. Unless the supply and demand align, industry officials project that more than 1.5 million of the nation's 9 million milking cows could be slaughtered this year as dairy operators look to cut costs.
"Milk is a fluid product — we can't shut it off or turn it on," Sigafoose said. "A 1 percent increase in supply, and our prices plummet."
One way to store milk — turn it into cheese — is also not a viable option for dairy farmers because cheese supply is at all time high.
The Plymell dairy farmer said he hopes the dairy industry will be quick to respond by reducing herds and, subsequently, its milk production in order to bolster demand and prices.
"Your parents always said there'd be days like this and that you'd get through it," he said. "We wouldn't be milking today if we didn't believe this thing will turn around."
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