Md. dairy farmers feel the squeeze

The Baltimore Sun

As his 100 dairy cows lumbered over for their Monday afternoon milking, farmer Eric Foster pondered his sudden misfortune. Those Holsteins and Jerseys, profit machines during a recent milk boom, are now such money losers that he has begun selling part of his herd and fears he might have to quit the business altogether.

It is not the cows' fault. The problem is the plummeting wholesale price of milk. It has fallen more than 40 percent in six months, driven down by disparate factors such as better rains in Australia, a tainted-milk scare in China and the global economic slowdown.

This unlikely combination of forces has hit Foster's milking parlor in Easton, and dairy operators across Maryland, with a vengeance. After soaring in 2007 and remaining high much of last year, milk prices paid to farmers have collapsed and are expected to remain dismal, even as feed and fuel stay fairly expensive.

Some dairy farmers have shut down. Others, like Foster, are trying to hang on. He is hoping a federal subsidy will help him endure thousands of dollars in monthly losses until the market turns.

"It's a disaster," said Foster, who is 39 and began the dairy five years ago with his wife, Holly. "We're going to do the best we can to survive. If you come back in six months and prices haven't changed, I don't believe we're going to be in the dairy business."

Though consumers should benefit from somewhat lower prices at the supermarket, the drop in the value of milk presents a grim outlook for dairy farmers from here to California.

"We project one of the lowest milk prices in 2009, one of the lowest in decades," said Larry Salathe, senior economist at the U.S. Department of Agriculture in Washington. "Right now, our thinking is pretty bleak. ... This has been a very sharp and sudden decline that no one anticipated. Dairy producers are very much concerned, and we're concerned, too."

Farmers are accustomed to price swings, but experts say this one has been wilder than most. Given the low-price forecast over the coming months, Maryland agriculture officials predict further contraction in a state dairy industry that has been shrinking for years.

"We're going to see an acceleration of dairies going out of business," said Patrick McMillan, assistant secretary of agriculture.

Dairy is still the third-largest sector in Maryland's farm economy, with 250,000 acres devoted to milk production. The top three dairy counties are Frederick, Washington and Garrett. But the number of dairies has steadily dropped, even in good economic times, from 825 nine years ago to 558 because of labor costs, taxes, development pressure and other factors. Many are family enterprises.

"There's a high value on preserving agriculture as an industry," McMillan said, "and as part of the fabric of our society and the landscape."

Yet last month on the Eastern Shore, Doug Carroll, 50, shuttered a dairy operation begun by his father when the younger Carroll was an infant. He is keeping the Caroline County farm, but the 70 milk cows have been sold to a slaughterhouse.

The milking parlor needed an upgrade, and Carroll could not justify the six-figure investment. "If I've got to work the rest of my life, I might as well get out," he said yesterday. "When prices are down so bad, I can do other things rather than work that hard."

The grueling work is never-ending, with no snow days or breaks for muggy summer weather. Cows must be milked twice a day, usually around 5 a.m. and 5 p.m.

The milk price paid to farmers is largely determined by the wholesale price of cheese, butter and nonfat dry milk, according to Salathe, and it has evolved into a commodity subject to global trends.

In 2007, average farm milk prices nationally rose, Salathe said, partly because of lower production in drought-stricken Australia and New Zealand. Meanwhile, Europe cut its exports. Prices stayed fairly high last year.

That changed a few months ago. Salathe listed some reasons: Australia and New Zealand were able to boost milk production, expanding supply. Global demand was depressed after China found milk to be contaminated by the toxic substance melamine. And the sputtering economy here and abroad further reduced demand.

The result: Farm milk prices nationally plunged 20 percent between November and January. And the projected average price for 2009 is 44 percent below where it was in July.

While no numbers are published for Maryland, University of Maryland agricultural economist Howard Leathers said he thinks dairy producers will see similar drops. He said this month's milk price could end up being nearly 40 percent below November's.

Leathers said prices should edge up toward the middle of the year but not come close to last year's levels. That would keep the pressure on farmers. Lenders may force those with heavy debts to sell off herds, he said. Older farmers may hang it up rather than dip into savings.

"At what point," he said, "does a dairy farmer decide, 'Hey, my life is better if I sell everything and move to Florida'?"

Compounding the impact of low prices are high costs of animal feed, labor, veterinarian fees and taxes, said Bob Cooksey of the Maryland & Virginia Milk Producers Cooperative Association Inc., which represents many state dairy farmers. Feed bills alone may exceed milk income.

Farmers are "financially stressed," Cooksey said. "They can't stand these extended swings; it'd be like you and me getting our pay cut in half."

Next month, dairy producers will receive a federal payment that kicks in when prices fall below a certain level. It covers up to 45 percent of the loss within limits.

Eric Foster says that for him the payment will mean about $1,500 a month. While he welcomes the cash, it will cushion just 10 percent or so of his expected loss. He had been clearing $4,000 a month on milk, but with February's low prices he figures each cow now means a loss of $150 a month, or $15,000 for his herd.

The Fosters are fortunate to have other income. They raise chickens. Eric Foster owns racehorses with his father. Holly Foster uses a tenth of the milk to make high-end cheese under the Chapel's Country Creamery label.

But as fairly new dairy farmers, they carry a heavy debt load on their 112-acre operation and have four children ages 4 to 15. They might have to lay off at least one employee.

"I'm very worried," he said. "I could sit here and cry, but what good would that do?"

Foster sold two cows for slaughter Monday. Eventually, he may cut his 100-strong milking herd in half. As much as he hates that, he says he would be doing his small part to reduce supply. And that, he hopes, will help nudge milk prices up and keep him in business.

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