Rustburg farm takes hit from souring milk prices

On Carter Elliott’s Rustburg farm, milking his 420 dairy cows three times a day means his operation runs almost around the clock.

The milk is sent at least every other day by tanker truck to a processing plant in South Carolina, where it’s pasteurized, homogenized and sent out for drinking.

But while his herd keeps doing its job, the price Elliott is paid for their work has plummeted.

Prices just set for March by the State Milk Commission, which regulates pricing in the dairy industry based on a complex formula, could mean farmers receive less than $1 per gallon — prices last seen in 1995.

A combination of factors, from diminished consumption in foreign markets to increased U.S. production, has caused dairy prices to plunge and left farmers like Elliott struggling.

In addition to some farmers culling their herd, which means financial recovery from producing milk would take longer, some may “just exit the business,” said Tony Banks, the assistant director of commodity marketing with the Virginia Farm Bureau. “2003 was bad and we lost lot of dairy farms in Virginia at that time, but this year it’s worse because that cost-price squeeze is even greater,” he said.

Over the past three years, fertilizer prices have more than doubled and feed prices have shot up, Banks said. “When farm commodity prices started to really increase, a lot of the (production) prices went up right behind them.”

Factors affecting milk prices include reduced demand from the restaurant business here at home. But the largest one, Banks said, is that global demand for dairy has plummeted while supply has increased.

In recent years, global prosperity meant that certain Asian countries such as China and India were purchasing many more dairy products for consumption or manufacturing. That increase in demand coupled with severe droughts in major U.S. competitor milk-producing regions such as Australia and New Zealand meant that prices rose and American dairy farmers could increase their output and make more money, Banks said.

But the weather improved and the worldwide economy tanked, which has left supply high but demand diminished. In the U.S., Banks said about 40 percent of milk is ultimately used by the restaurant industry; however, that demand has dropped by about 30 percent in the last few months.

While there has been some increase in grocery store sales, “it hasn’t been to the extent to offset the losses from the restaurant trade,” Banks said. Additionally, he said, retail prices haven’t dropped as significantly as the price farmers get paid per gallon because of production and transportation costs.

As dairy farmers struggle to survive, so many are culling their herds that the excess cows have caused beef prices to drop. About 40 percent of beef comes from old dairy cows, which usually become hamburgers. Since September, federal livestock reports show that dairy cow slaughter is up 30 percent according to The Associated Press, while beef cow slaughter is down 14 percent.

“In farming, if one sector does good, most of the time it penalizes another sector,” Elliott said. For example, when feed prices are high, those farmers are doing well, but that impacts animal farmers purchasing the feed. “When (feed) prices drop, we enjoy it and they suffer. It’s bad that way.”

All of that contributes to why dairy farmers throughout the area and country are left trying to find a way to survive making 1995 wages and paying 2009 production prices.

For Elliott, that means looking for ways to cut costs while not culling his herd.

“The sad thing is most industries you can lay people off, but on farms you don’t have any extra people around,” he said. “And if you sell cows, you’re cutting your nose off to spite your face.”

Most costs are fixed and a culled herd still would require the same amount of labor, so the only savings would be for feed, Elliott added. “You’re just going to have to suck up and borrow money and wait until it gets better.”