February 2009 Archive for On the Udder Hand

If there’s one shocking statistic that really captures why dairy farmers right now are looking at the lowest prices in 30 years, it’s this one: total commercial disappearance of cheese in 2008 dropped for the first time since 1975.  Cheese sales actually shrank 0.3% last year, a stunning reversal of the vehicle that has allowed the U.S. dairy industry to continue growing while other commodity sectors stagnated or shriveled.

In fact, fluid milk sales have been flat for decades, and have actually been falling when measured on a per capita basis.  Cheese has been the shining star in the dairy sky; fully 43% of the milk produced in the U.S. goes into cheese, and commercial disappearance – in essence, overall sales – had been growing upwards of 2% per year.  So, when that cheese engine suddenly stops and goes backward, it’s no surprise that farmers collectively are suffering from an agonizing case of whiplash.

At Thursday’s USDA Agricultural Outlook Conference, the chief USDA economist, Joe Glauber, said that he’s calculating farm-level milk prices in 2009 will be the lowest since 1978.  And if there’s one form of entertainment we don’t need in dairy, it’s that 1970s Show all over again.  `70s prices, with 2009 input costs, will mean cancellation of a whole lot of equity in the dairy business this year.

As to why cheese sales shrank suddenly last year, there was – perhaps coincidentally, perhaps not – a prescient article in the Wall Street Journal earlier this week about the troubles the pizza business is having.   The WSJ reported that while overall fast food sales grew 6.4% from 2002 to 2007, pizza sales during that five-year period only rose 2.5%.  As one food industry consultant put it:

"The pizza segment's struggles are part of a longer-term secular trend in which market share is being lost to healthier and fresher dining options on one side and less expensive burger and sandwich players on the other," says Walter Butkus, principal at Restaurant Research LLC, a Redding, Conn., consulting firm.

Translated, that means less demand for mozzarella, and less demand for milk from thousands of America’s dairy farmers who rode the pizza wave as Baby Boomers scarfed down tons of pies from the 1960s on until, well, recently.  But pizza’s slice of the food industry is shrinking at a time when we can least afford it, creating Ford-era milk prices with it. 

Two USDA agencies have released recent reports that provide additional confirmation of what everyone in agriculture should recognize by now, which is that the inexorable trend of fewer but larger farms continues to reshape the dairy farming landscape.

The more noticed report was last week’s National Agricultural Statistics Service annual summary of the number of farms – what gets referred to as the annual farm census.  It found that there were 2.2 million farms in the U.S. last year, and of those, 67,000 were dairy operations. 

What’s interesting is that of those 67,000 dairies, the largest 5% (farms with  500+ head of dairy cattle), some 3,500 of them, produced 59% of the nation’s milk supply last year.  Their share of the milk supply grew to 59% from 57% in 2007.

So while on the one hand, it’s still accurate to say that most dairy farms are small – 60,000 of the 67,000 have 200 head or fewer – it’s also true that the largest farms are generating a growing majority of the nation’s milk supply. 

As to the reasons for this trend, a report issued in January by the Economic Research Service delved more deeply into the hows and whys of the NASS data.

In a report entitled “The Transformation of U.S. Livestock Agriculture”, the USDA’s ERS found that large-scale dairy operations (defined as those with 1,000 head or more) enjoyed a 15% advantage in cost of production compared with smaller farms, due to greater efficiencies.  Given that kind of advantage, it’s not hard to see why milk production continues to grow at larger farms.  The same advantage, it must be pointed out, is also affecting all other species of livestock agriculture, and for that matter, crop and fiber producers as well.

So the big question today is, given the depth of this recession and its impact on dairy prices, will the current crisis, which is clearly affecting larger farms harder than smaller ones, significantly alter this trend, or just provide a momentary speed bump?  We’ll know more when next year’s farm census report comes out.

If E. Coli contamination in peppers (or was it tomatoes?) was the big food safety scare of last year, 2009 is shaping up to be the year of the toxic peanut.  By now everyone who pays attention to the news knows that there’s a massive recall of peanut products because hundreds of people have been sickened by Salmonellosis.  It doesn’t take many more accounts than this one from last week’s NY Times – relating the experience of a boy infected by the peanuts - to make it a big deal.

“He was just in screaming pain,” said his mother, Gabrielle Meunier of South Burlington, Vt. “He said, ‘It hurts so bad, I want to die’ — something you don’t expect to hear out of a 7-year-old’s mouth.”

Now, here’s another recent story about a health warning involving salmonella – and raw milk.  A dairy that sells raw milk commercially was warned by the state of Pennsylvania to stop doing it, at least temporarily, because tests shows salmonella in the milk.  Why?

"Salmonella is a disease that thrives very well in water, so a source might have been water tanks that haven't been cleaned out, or maybe there's a bird or rodent problem that could have caused it to show up in the milk," according to the PA Department of Agriculture.

I’ve opined several times (in July, and earlier last April) in the past year about the fact that, well, the facts surrounding raw milk as a potential source of life-threatening illnesses are well-documented.  And at the same time, the facts, such as they are, about raw milk as a health supplement are dubious at best.  And my columns routinely have drawn the raw milk fanatics into the blogosphere to defend their choices.

Thus, my latest rhetorical query on this topic is related to developments like those reported in the NY Times article, where people like Sen. Dick Durbin of Illinois say:

“We can no longer forgive or explain what’s happening with food safety in this country.”

Or this story from the Wall Street Journal, where the new Chairman of the House Energy and Commerce Committee, Henry Waxman, is going to hold a hearing next week specifically on the Peanut Corporation of America because Waxman is:

“extremely troubled by reports that the plant tested positive for salmonella numerous times but nothing was done to ensure that the product did not go on the market.”

So here we have major lawmakers on Capitol Hill freaking out about salmonella-infected peanuts being sold to unsuspecting customers.  And we know the same thing can, and is, happening in the marketing of raw milk.  I don’t think I’d be nuts to see the connection, and wonder how much longer it will be before this level of concern about food safety results in some hard questions being asked about state laws allowing raw milk sales.