Farmers face loss as milk price falls
WASHINGTON — After weeks of dire predictions by economists, milk prices paid to farmers have begun a historic tumble, falling to levels that are gaining notice in the nation's capital.
The U.S. Department of Agriculture reported last week that the minimum price farmers are paid for beverage-class milk will fall to $10.72 per 100 pounds in February, a nearly 50 percent plunge from a year earlier and $5 less than just a month ago.
"It shouldn't be a big surprise to a lot of people, but it's a substantial drop, no doubt about it," said Mark W. Stephenson, a dairy economist at Cornell University, who said the annual decline may be the biggest the industry has seen.
"I think it's going to be a real problem for producers this year," Mr. Stephenson said.
The dairy industry remains the biggest part of the economy across much of the north country, and steep price declines raise the prospect of more farmers going out of business. The dairy industry is New York's top agricultural business; the state ranks third in milk production nationally behind California and Wisconsin.
Dairy farmers are protected by federal subsidies that will soften the blow, but a decline of such proportions will still have a big impact, and the government will have to pay out considerably more in subsidies because prices were already low enough to trigger the payment program.
The subsidy, called the Milk Income Loss Contract, pays farmers whenever milk prices fall below $16.94 per 100 pounds, making up slightly less than half of the difference between the beverage-class price, called Class I, and the target price.
Lawmakers failed recently in an effort to use the economic stimulus bill to speed up the retirement, or slaughter, of dairy herds in an effort to dampen supplies.
The chairman of the House Agriculture Committee, Rep. Collin C. Peterson, D-Minn., wrote to Agriculture Secretary Tom Vilsack on Jan. 21, urging the USDA to quickly buy surplus dairy products, possibly for use in school nutrition programs and elsewhere. Rep. John M. McHugh, R-Pierrepont Manor, signed that letter, as did Rep. Kirsten E. Gillibrand, D-Hudson, who will be sworn in today to fill New York's vacant U.S. Senate seat.
They cited an "imminent threat" to the livelihood of dairy farmers and reported that the nation's dairy surplus could reach 6.5 billion pounds this year.
A spokeswoman for the committee said Mr. Peterson had not received a reply by Monday.
Food companies that buy milk were about to send a similar letter Monday. They also support increases in the federal food stamp program in the economic stimulus plan moving through Congress, said Ruth Saunders, senior director for policy and legislative affairs at the International Dairy Foods Association, which represents the companies.
The National Milk Producers Federation made a similar appeal and also touted its program for reducing production, in which farmers are paid to send entire herds to slaughter. The program also finds foreign customers for nonfat dry milk and other manufactured dairy products, further reducing supplies at home.
Mr. Stephenson predicted that milk prices for farmers could bottom out in early spring but that the entire year looks challenging as prices remain low but costs for feed and fuel remain relatively high. Feed costs have retreated since last year's record highs, but not enough to make up for the loss from lower milk prices, economists say.
The MILC program has an adjustment for high feed costs, which Congress added to the program as part of last year's farm bill, so farmers are paid slightly more when costs of corn, alfalfa and other feed staples are higher than average.
The milk price drop could be good news for consumers, depending how much of it is reflected in retail prices and how soon. Supermarkets are seeing increased sales, generally, he said, as restaurants lose business — and supermarkets are the main place people buy milk.
On the other hand, Mr. Stephenson said, fluid milk represents less than one-third of U.S. dairy consumption.
Falling consumer demand was a major contributor to the price crash, as was a sharp drop in U.S. dairy exports, Mr. Stephenson said.
Because exporting large amounts of dairy products is relatively new for the United States, Mr. Stephenson said experts have a hard time predicting how this economic downturn will compare to others for the dairy industry. But while the country was exporting as much as 10 percent of dairy production in recent years, the percentage could fall by half, he said.
"That's a lot of product that's going to have to stay here instead of go somewhere," Mr. Stephenson said.
