Dark Days Continue for California Dairies

June 25, 2009 04:17 PM

California's 1,700 dairies have cut their milk production for eight consecutive months, underscoring what some call the worst economic climate the state's dairy producers have ever seen.


Between January 2009 and April 2009 alone, California reduced its output by 2.2 million pounds of milk per day, says William Van Dam of the Alliance of Western Milk Producers. That totals 264 million pounds.


The four-month production drop is more than several of the nation's top 23 milk producing states, including Colorado, Florida, Illinois, Kansas, Missouri, Oregon, Utah, Vermont and Virginia, each churned out last month. Even so, California remains the nation's No. 1 milk producer.

The Golden State's cutback, fueled by the red ink of low milk prices and high feed costs, contrasts with 2008 when California's milk output increased 1.3 percent to surpass 40 billion pounds. March 2008 saw a peak production of 3.64 billion pounds.


Breaking point


That marked a breaking point, reports the Dairy Marketing Branch of the California Department of Food and Agriculture (CDFA). In its 2008 California Cost of Production Annual Summary, CDFA says the production peak sent plants and producers frantically searching for homes for the excess milk output.


"Reducing the supply became the overriding issue facing the industry, and the cooperatives and other processing plants initiated production base caps for their producers,” reports CDFA.


Under those caps, any member exceeding his or her production base was assessed a penalty for handling the surplus milk. Some penalties reached as high a $10/cwt. The restrictions resulted in very few producers increasing their herd size, CDFA notes.


The supply/demand imbalance has led to calls among producers to cut production by 5%. John Gailey, who milks 4,200 cows near Visalia, Calif., says he was more positive last month that the reduction could be achieved with the help of the state's dairy co-ops.


"I'm not so sure now,” Gailey says. "Getting everybody together takes longer than you like to see.”


Van Dam says the effort is still going, "but the devil is in the details. Some people have already cut production by 5% and they're not ready to cut another 5%.”


Five of the state's dairy co-ops reportedly will meet tomorrow to discuss the 5% reduction plan.


Grim numbers tell the story


Over the past decade, California's milk production grew an average 3% a year, according to John McDonnell, a statistician with the California field office of USDA/NASS.


But that changed this year. The first four months of 2009 showed a 3% decline in California's milk output from year-earlier levels, McDonnell says.


Current mailbox milk prices also contrast with 2008's rosier picture, when prices averaged $16.17/cwt., according to CDFA. Reflecting this year's dairy distress, prices have dropped to the $11/cwt. to $12/cwt. range, down from $16/cwt. to $20/cwt. at this time last year.


California's dairy production costs now average about $15/cwt. CDFA says the cost of production increased 18.6% in 2008. Higher prices for feed commodities mainly accounted for the increase, representing 60% of the total cost of producing milk.


Fuel and oil costs for California dairies rose 31% last year. Milk hauling costs increased by 9.8% over 2007, notes CDFA. Environmental regulations are also adding extra burdens to the state's dairies.


Labor has shown a continuing trend of higher hourly wages for milkers and outside workers. Last year, labor costs among California dairies increased 3.3%, driven by an increase in the state's minimum wage from $7.50/hour to $8/hour.


The rate of dairy cows sent to slaughter rose 3% to 37% in 2008.


"California's dairy cow herd had been growing fairly regularly, excluding the death loss in the 2006 heat wave,” McDonnell says.


A shift in that trend began in August 2008, however. Between then and April 2009, the number of dairy cows has declined by about 25,000 head. "Seventy-five percent of that decline has occurred this year,” McDonnell says.  


No one seems to know how many dairies have closed so far in 2009. CDFA only gathers dairy closure information once a year, in January.


Gailey doesn't think there have been as many closures as might be expected. The state's dairy producers continue to hold on, he says, "hoping things will get better in six months or so.” Producers are using a variety of tactics, from seeking more financial credit to selling heifers to cutting rations to string out their survival, Gailey adds.


In 2008, California lost 99 dairies, CDFA reports. The loss marked a continuing trend of the state's dairies relocating to other states, while others shut down completely.


Catherine Merlo is Western editor for Dairy Today. You can reach her at cmerlo@farmjournal.com.

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