Low milk prices in '09 worst for dairy industry in decades

BY JAMES HAGGERTY (Times Shamrock Writer)
Published: January 9, 2010

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The crisis in dairy prices pushed Dan Spencer to a life-changing New Year's resolution.

"We're out of business. As of the first of the year, we're done," said Spencer, 69, who has operated a dairy farm near Nicholson for decades with his wife, Joyce.

"We're selling the cows one or two at a time," said Spencer, a fourth-generation farmer who has worked with dairy cattle since he was 9. The 300-acre farm in Lenox Twp. once had a herd of 50, Spencer said, but it was thinned to 24 in recent months.

"We probably lost $30,000 or $40,000 this past year," Spencer said. "I cashed in a lot of retirement money just to pay the bills and now that's gone."

A trough in prices paid to farmers for milk made 2009 the dairy industry's worst since the Great Depression. The reversal has moderated, but the consequences linger.

"Last year was the worst I ever saw, by far," said Arden Tewksbury, 76, a Meshoppen lobbyist for dairy farmers. "Nothing comes close to matching it. The price collapsed and the costs escalated."

Prices paid to farmers for 100 pounds of milk - a standard industry measure equivalent to 11.6 gallons - ran close to $20 through much of 2008.

By February, though, average prices in Pennsylvania dropped to $13 and stayed under $14 until September, while average costs to produce the same amounts stayed close to $17.

Average prices statewide in October hit $15.49, topping the production-price average for the first time in 2009.

"You've got eight months of terrible prices," said James Dunn, Ph.D., an agricultural economist at Penn State University. "Everybody's balance sheet is a mess. That's the essence of the problem."

Will Keating sees the problem at his dairy farm near Mount Cobb and thinks about following Spencer's exit.

"We lost over 50 percent of our revenue from one year to the next. Where do you pick it up?" asked Keating, who has about 100 cows. "If I can find something else, my cows will be gone in the spring when the silos are empty. I'm at the breaking point."

The crash started after U.S. dairy exports hit 8.4 billion pounds in 2008, a 25 percent increase over 2007.

Rising dairy prices led to an explosion in U.S. herd populations and overproduction before the international financial crisis upended demand and a glut of supply collapsed the market.

Exports through October were down 46 percent from the same 2008 period, according to the U.S. Dairy Export Council, an industry trade group based in Alexandria, Va.

The milk cow population was 8.3 million in November, according to the U.S. Department of Agriculture, down 209,000 from the year-earlier period. Pennsylvania's milk cow total was 537,000, down 2 percent.

"There has been a lot of adjustment, but somehow people have hung in there," Dunn said. "They are still on the precipice. What farmers need is a couple years of decent prices."

Decent prices will not shake the reversal's effects for farmers like Keating, though.

"Our income has been cut so drastically that anybody that had any savings or any equity in their farm has used it to try to stay ahead," he said. "There's nothing left for me to take a pay.

"I'm tired of killing myself seven days a week, 365 days a year."

Contact the writer: jhaggerty@timesshamrock.com.

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6 posted comments

Cigarettes have been deemed bad for us...so the government hikes up the tax. Alcohol and beer have been deemed bad for us...the government needs to hike up the tax. Why not tax the bejeesus out of sugary drinks such as soda and juices containing less than 50% of real fruit juice? The government has been saying for a long time that obesity is one of the major issues affecting the health of the US population while also driving up health care costs. Tax certain unhealthy fast food menu items as well. The US citizens will not organize and be able to force change themselves; we are in so deep that government intervention is the only way to force public companies to change. The government shouldn't have an issue with imposing taxes, they will simply make more money. Push prices so high that people stop eating fast food and drinking soda just like they are stopping smoking. The next time you go to the grocery store look at the first 20 people you see and make a mental note of how many you feel are overweight...it is out of control.

Fresh produce is the only way to go!

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US of Obesity,  01/09/10 3:47
It's a shame that the dairy farmers are struggling, but isn't everyone these days? Seems like we all enjoy government subsidies when the times are good then we turn around and cry foul when we aren't willing to accept we glutted the market while we fed at the government trough during the Bush years.
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annabelle,  01/09/10 2:08
Somehow people believe we should have all kinds of farm subsidies, price supports, etc... for farming and that is not socialism, but capitalism. The same people think requiring everyone to have health insurance, (car insurance has been mandatory for a long time as is insurance on your home if it is mortgaged) and removing the pre-existing condition clause is somehow socialism.
If the farmers believe any form of socialism is bad, they would believe there should be NO subsidies, No price protection, No government loans, No price supports. Just survival of the fittest.
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Petey,  01/09/10 1:12
Supply and demand! Interesting that people rail against socialism but what they want is more government intervention in the milk market. One can talk about socialism but the root of this problem is more milk supply than there is demand for the product.

Perhaps if we didn't subsidize corn so much then the price of corn sweetener would rise to its proper level, raising the price of soda in comparison to milk.

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BC Native,  01/09/10 11:30
Yes, we farmers are SO glad Mr. Specter, Mr. Casey and Mr. Carney took care of us in that "Farm Bill" they are the biggest liars in the state next to the governor.
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Kevin,  01/09/10 8:57
The Government does not want for them to stay in business.. So many Senators and Congressmen have huge farms now that they want to make so the little guy can not compete..And it is sad! Corruption is rampant every where.. We are becoming more socialist every day and are just sitting back and letting them take us there!! The Farmer gets no respect and yet used to the backbone of this country..
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enough,  01/09/10 7:57