*Extended comments are highlighted in blue.
Do you realize that if we all took your advice [Dairy Talk, January 2010 issue, page 4] we would need to take $2.7 billion ($300 per cow times 9 million cows) out of producer margins and turn it over to the risk management brokers and speculators?
I am in my 31st year as a dairy farmer. Year in, year out, good years and bad years, my margin has averaged about $105 per cow per year*. Now you are suggesting that we need to accept that the brokers and speculators get to take $300 per cow out of our pockets.
Why do you think that producers, who balk at paying 10¢/cwt. for the Cooperatives Working Together program, are going to be willing to spend $1.50 per cwt. ($300 per 20,000-lb. herd average) to pay for so called "risk management”? It is not going to happen no matter how hard the establishment tries to cram it down our throats.
I have never seen such a huge disconnect between the emotions and thinking of actual producers and all the industry folks that work for us and with us. I don't think you guys get it. We are broke. There is no equity left in our cows.
What equity we have is in our property or other assets. Our debt per cow has gone up by at least $1,000 per cow over the past 12 months for the average dairy farmer. We are farming for the bank and very fragile emotionally.
Risk management is a fraud and most producers either explicitly or implicitly realize that the futures system is rigged to benefit those who manage the system.
If too much supply causes a drop in milk prices, market theory tells us that that drop in price sends the signal to producers to reduce supply. If everyone is "protected" with risk management tools, who is going to get the market signal to reduce supply? No one, until the risk management contracts expire.
Widespread use of risk management tools, if used as designed, will make the downs longer, not shorter. Risk management as it is being promoted is not an industry solution. At best, it is an individual solution.
I know you and the rest of the establishment don't like supply management and I spent most of my career opposing it as well. We need to make sure we do not short the market of milk and drive prices unreasonably high. We need to make sure that expansion can occur and new producers can get started.
But the only way producers have any chance of rebuilding our businesses with some control over our own destiny is if some sort of producer-directed supply management is implemented. That is why, despite the arrogant opposition of the National Milk Producers Federation, the talk about the Dairy Price Stabilization Program will not die down.
Producers know something has to be done. What NMPF is proposing will not lead to a hopeful future for the vast majority of America's dairy farmers. The vast majority of producers know that something has to be done to manage supply. The people we pay to lead us are not serving our interests.
-Geoffrey Vanden Heuvel, Chino, Calif.
* I started milking 120 cows in 1979 and grew to 1,400 milking cows today. My average over that time is 615 milk cows. I added my profit/loss for each year and it totals $2,005,445 positive over the 31 years, for an average of $64,690 per year. Divide that by the 615 milking cows average and it equals $105 profit per milking cow per year.
What's wrong with dairy? Depends who you talk to:
- Grocery store—very profitable.
- Dean Foods—record profits.
- Co-ops—some of the top personnel average more than $250,000 per year plus expenses.
- Dairy producers—worst decade ever.
Yet dairy producers are expecting the people who are benefitting the most to change the system. How do you expect to get a good price?
—Jerry Wood, Mount Vision, N.Y.