Dairies Shutter Barn Doors

News Editor

California dairies are feeling the pressure as drought and prices collide.

The explosion in feed costs, now made worse by the Midwestern drought that has ravaged corn and soybean crops, has taken a huge toll on the state’s dairy farms, many of which were already in poor financial health as a result of the economic downturn that pummeled milk prices in 2009, said Michael Marsh, CEO of Western United Dairymen.

While there are no official numbers yet on dairy losses for 2012, Marsh said the anecdotal information he is hearing paints a bleak picture. Since 2008, the state has lost 283 dairies, with 1,668 remaining as of 2011, according to the California Department of Food and Agriculture.

Just in recent days, Contente said he learned of at least 16 dairies within five miles of his operation in Hanford that have shuttered their doors or are in the process of doing so. He noted that while a good portion of those dairies were “at the end of their financial rope,” others calling it quits are just fed up with the business and want to get out before they lose all of their equity.

Bruce Miles, a partner with Genske, Mulder & Co. in Costa Mesa, which does the accounting for about 13 percent of the nation’s milk, said in the last year or two, he has seen about 10 percent of the firm’s dairy clients sell out, while another 20 percent to 30 percent have filed for bankruptcy with the intention of restructuring their businesses in hopes of hanging on to them. Those cases will take a court’s approval and the dairies will need to show they have a viable business plan, he said—and in today’s market, with corn prices escalating, “it’s about a 50-50 shot now” that those dairies will come out of bankruptcy.

Reis Soares, a dairy farmer in Madera County, said she has already used up her equity on the loan she borrowed in 2009, of which she has so far paid back only 6 percent on the principal. Now, with another year “where everything is upside down,” she said, she no longer has the same financial avenues available to her. She said she keeps a steady payment going to the bank so it won’t call her note, but that means not paying other people.

She said she has contacted a bankruptcy attorney to learn about options for dairy farmers.

“Obviously, the dairymen need a higher milk price at this point,” he said. “They’re not going to get any help from the banks anymore, and the government is not really coming in, so somebody needs to push a higher milk price through so the industry can survive.”

Western United Dairymen filed a petition earlier this month asking CDFA for an emergency hearing to consider a temporary price increase of 50 cents across all classes of milk and to reconsider permanent changes to the valuation of whey in the state’s current pricing formula. CDFA is expected to grant or deny the hearing this week.

Meanwhile, the market is starting to respond with higher milk prices. Some Midwestern dairy herds have been liquidated due to the drought and lack of feed, Marsh noted. Coupled with recent high temperatures in California that slowed milk production, the nation’s milk supply has dropped. Dairy exports also are still doing very well, he said, with more product being moved overseas at higher values.

Dairy groups are also urging Congress to pass some sort of emergency disaster relief package to help dairy farmers, said Lynne McBride, executive director of the California Dairy Campaign. Although a bill to aid drought-stricken livestock producers passed the House before Congress went on recess, the measure has not been approved by the Senate and does not address the issue of soaring feed prices that dairy farmers face.

Source: California Farm Bureau Federation, By Ching Lee

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