In Survival Mode California dairies try to outlast the downturn

March 5, 2009 12:05 PM
 
His neighbors' quick response and an insurance policy helped Mark Plantenga survive a recent hay fire at his Bakersfield, Calif., dairy. Getting through the economic crisis may be tougher.


Scorched piles of hay still smolder at Western Sky Dairy south of Bakersfield, Calif., the white smoke visible from miles away.

Two days after a spontaneous fire consumed 1,500 tons of his dairy's hay, Mark Plantenga is taking the calamity in stride. It's early February, and he's more intent on surviving a bigger disaster: the steep plunge in milk prices that some say may wipe out 10% of California's dairies.

At $9/cwt., milk prices are near historic lows—and a long way from Plantenga's $14.50/cwt. cost of production. Adding to the pain are sky-high feed prices, which now eat up about 60% of every milk check.

"Conservative estimates show that many California dairy families will be losing 30¢ for every gallon they produce, some even more,” says William C. Van Dam, CEO of the Alliance of Western Milk Producers. "This could mean losses of tens of thousands of dollars per month for many dairies.”

While no one knows when the misery will end, it is clear that dairying in the Golden State isn't for the weakhearted.

"We knew a downturn would come, but we didn't know it would be this fast or this low,” Plantenga says. "Even the strongest can fail after a long downturn.”

But the 32-year-old, who milks 5,000 cows in partnership with his father and brother-in-law, is holding on. "We're really utilizing the FeedWatch software,” he says. "It allows us to adjust our feed levels so we don't have excess feed at the end of the day.” The computer program, from Valley Ag Software, provides feed inventory and cost information.

Other cost-cutting measures include eliminating sexed semen use and shopping for alternative feeds. Plantenga has found that culled onions work well for his dry stock. He's increased his cow culling rate too. Average per-cow production at Western Sky Dairy is 78 lb./day. If a cow's production drops to 50 lb./day and she's had multiple lactations, she's probably culled.

But Plantenga doesn't plan to trim much more. "We've always run a tight ship,” he says. "We don't want to cut too much because then we would go backwards. We think this downturn will turn around someday.”

Farther north in Fresno, Calif., Steve Shehadey says he and his family are doing everything they can to minimize losses at their two Bar 20 dairies, which milk a combined 8,000 cows.

"We're losing money just feeding them,” the third-generation producer says.

In late December, when milk prices began their dramatic drop, the dairies' managing owners met to revise their budget. Bar 20 had received a milk-blend price of $14.27/cwt. in November 2008. By December, the price had plunged to $12.41/cwt. The decline continued in January, dropping to $10.22/cwt. February's price was expected to sink to an estimated $9.29/cwt.

To cope, Shehadey has reduced labor by about 8% among the 130 employees employed by his dairies and farming operation. (His family is also a partner in the Producers Dairy processing plant in Fresno.) He's refocused on training his remaining workers "to make sure they're doing things the right way,” he says.

The Bar 20 dairies are also evaluating all costs and putting off any expenditures that can wait, such as equipment purchases. At 36%, their culling rate is higher than normal.

But Shehadey draws the line at lowering the level of animal care. "When it comes to feed, medicine or treatments, we're not cutting back in any way,” he says.

Feed remains a major concern. Like many producers, Shehadey bought a large supply of hay last year to supplement what his farming operation already produces. "When the hay inventory runs out in May and June,” he warns, "that will have a big impact on dairy producers.”

Shehadey remains optimistic, hoping for an uptrend by mid-2009 and a strong year in 2010. "We will survive this downturn like we have others over the last 50 years,” he says.

Even so, the reality is daunting. "If this goes past six months,” he says, "a lot of people will be in trouble.”

 

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