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New cow kill program seeks end to milk glut

By Seth Nidever
snidever@HanfordSentinel.com

Send tens of thousands of dairy cows to the slaughterhouse, and what do you get?Hopefully higher milk prices, according to local dairy producers eyeing a new herd-removal program announced Friday that builds on a just-completed round that removed 103,000 cows from milk production.

"We've just got to reduce the number of cows, and this will do it," said Selma dairyman Steve Nash.

Cooperatives Working Together, an national consortium funded by producers, is hoping this second round of buyouts will achieve what the first round didn't -- a spike in dairy prices to alleviate a months-long crisis of high production costs and vanishing demand.

The program works by paying producers to get rid of their herds. The idea is to quickly move cows out of production, which theoretically should help create upward pressure on milk prices.

Except in the last round, it didn't work that way.

Given an estimated national herd size of 9 million (according to www.dairyfarmingtoday.org), removing 100,000 wasn't enough, according to Hanford dairy operator Chuck Draxler.

He called Friday's announcement of a second round "a small step in the right direction."

"I'm afraid certain dairymen are going to have to go out of business," he added.

The speed of Friday's announcement, coming just days after the first round wrapped up, was spurred by desperation among producers, according to Bill Van Dam, CEO of the Alliance of Western Milk Producers.

"I think it's a fairly aggressive approach. I don't think the producers have much choice," Van Dam said.

Producers have been facing a milk glut since demand dropped off with the recession. They have been bleeding cash since December.

Exports have declined 60 percent, according to Michael Marsh, CEO of Western United Dairymen. And the domestic market has been slow to rebound. Cheese prices -- a primary driver of liquid milk prices paid to producers -- have remained stagnant.

Van Dam said he's surprised how many producers have stayed in business this long. That leads him to believe that there will be significant participation in this latest herd-reduction effort.

Many say they think that increasing pressure from lending institutions will play a bigger role this time. About 50 of California's approximately 2,000 dairy herds were liquidated in the first round, with two confirmed in Kings County.

"There's people in worse financial trouble that are probably ready to call it quits. Some of them may be told to call it quits," Nash said.

The reporter can be reached at 583-2432.

(July 11, 2009)

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The following are comments from the readers. In no way do they represent the views of the Hanford Sentinel

ShylosMom wrote on Jul 12, 2009 6:36 AM:

" I am paying 3.05 t0 4.00a gal for milk. What is it costing you to make that one gal.
"The idea is to quickly move cows out of production, which theoretically should help create upward pressure on milk prices."
Most people aren't buying milk because of cost! So you kill cows raise price we stop buying milk kill more cows and it goes on and on!!!
This is NOT an answer. "

Armonian wrote on Jul 12, 2009 10:10 PM:

" Lets get the government out of the milk price business! I say let the market show what the dairy prices should be! I think that would be the fastest way to get rid of milk producers who cannot clear a profit. I buy a gallon every 2 weeks whether I need it or not. I could cut that in half and eat eggs and bacon! I do not like to pay $4 a gallon for milk that is loaded with hormones, medicines and chemicals that make the cow unnaturally produce more. Besides, dairies make this county STINK! "

pickle wrote on Jul 13, 2009 9:06 AM:

" Dairy's are getting paid roughly $12 dollars per 100 pounds of milk. There are about 12 gallons in 100 pounds of milk. So the farmers are getting paid about a dollar a gallon and its selling for $3 to $4 dollars a gallon. It takes a farmer getting paid about $1.33 a gallon to break even given the data I have seen or $16 dollars per 100 pounds of milk. "

Ms DT wrote on Jul 13, 2009 12:26 PM:

" It costs us $1.29 to make 1 gallon of milk. We are getting paid around 0.85 cents per gallon. So if you are paying $3 to $4 per gallon, then you are getting ripped off. Someone is making is making a $2.20 to $3.15 profit off every gallon you buy. We dairymen don't want consumers to pay more for your milk at the store. We NEED some of that middleman profit to come back to us. We are not allowed to pass on our costs to you. But the guy in the middle and the grocery store can charge whatever they want. That's the real story. Consumers don't realize that the price in the store has nothing to do with our price for our milk. The middle guy is hoping consumers don't realize how little they pay the farmer and how much is going in their pocket. "

Ms DT wrote on Jul 13, 2009 12:51 PM:

" BTW Armonian, not 1 dairyman in CA is clearing a profit. What would happen to you if your paycheck was cut in half but your bills stayed the same? Once again, let me be clear. THE STATE controls our price, not market conditions. We are NOT ALLOWED to pass our costs on to you. Whatever you pay in the store, has nothing to do with us. Even if the state increased our milk price, the stores could keep your prices the same and still make money. But they won't because it's a great excuse for them to raise their prices to you. Plus as far as your pesticide, hormone comment, That's sooo 1990's. It's funny and sad cuz some processors write that stuff on their labels, charge you waaaay more, and it's all the same milk. And as for medicine, I guess you don't give antibiotics to you or your kids. Jeez, we segregate the sick animals and don't give you their milk. Once we treat them, they are out of the milking string for a loooong time. Learn your facts before you spout nonsense. "

Ms DT wrote on Jul 13, 2009 1:01 PM:

" Jeez, just about every person who wrote in doesn't know a thing about the dairy business. ShylosMom, we can't afford to feed our cows anymore. We have a choice to slaughter them and try to recoup our losses or we can watch them starve to death. What would you choose?Armonian, the DAIRYMEN pay for the CWT program, not the government. Every month a big chunk of money is taken out of our check to pay for it. NOT ONE GOVERNMENT DOLLAR is spent on the herd reduction program. Unfortunately, the government is involved in setting our milk price and they've messed that up because the processors have them in their pocket. And Pickle, thanks for the comment but we are getting paid $9.86 per every 100 lbs of milk we produce. Other than that, your other info was good. "

Bobb wrote on Jul 13, 2009 5:27 PM:

" Mrs. DT is right about the mark-up but the middlemen and in the dairy case. As a retired dairyman I can purchase directly from my coop, as we are considered lifetime members, at the same price they wholesale it for. I probably cannot mention the name so I don't get censored, but it is a VERY well know top brand. Butter is currently $26 for an 18 pound case.That is about $1.77 per pound. I also just bought several pounds of various cheese's at from $1.61 to $1.78 per pound depending of variety. Milk requires the least amount of processing and the markup is tremendous. Granted it is more perishable but the distributor must take it back if it becomes outdated so the store has no loss there. "

Time 4 Change wrote on Jul 13, 2009 5:31 PM:

" What's missing from this discussion are a few topics about milk processing. For instance, pasteurization, homogenization, packaging, storage, distribution and labor are part of the price paid at the store. Up keep of facilities, sanitation, regulatory compliance, refrigeration, heat generation, equipment purchase and maintainence, fixed assets such as buildings and specially engineered flooring, walls, ceilings, also contribute to the cost of getting fluid milk to us consumers in a safe manner.

"milk that is loaded with hormones, medicines and chemicals that make the cow unnaturally produce more"...if any substantial quantity of product fitting this description made it to the marketplace, that particular supply would be history in short order. Rigorous testing and other safeguards are in place to disallow for such product to make it into the food stream.

Allowing the market to determine pricing is a great notion. The complexity(ies) of deregulating the structure would take some time, effort and 'meeting of minds' from gov't., producers, processors, consumer protection interests and marketers. To get all included at one table would indeed be an admirable feat! "

Carl.Spackler wrote on Jul 13, 2009 6:16 PM:

" Ms. DT, thanks for the facts. There is so much ignorance on display here.

Folks our dairy farmers are in a world of hurt right now. This is serious business for our region. Milk is the #1 commodity in both Kings and Tulare County, accounting for about a billion dollars in each county. The trickle down in our economy is huge in terms of employment, payroll and equipment expenditures. When a major industry is hurting, it affects us all.

Drink more milk! "

Watchdog Fred wrote on Jul 13, 2009 7:48 PM:

" To: Ms DT wrote on Jul 13, 2009 1:01 PM

You would really be hard pressed to see a dairy making huge profits in today’s market. Primarily the Retailer of the milk keeps their price very low to stay in competition with the other markets and box stores in town.

I do not dispute the profits indicated by the dairy owners, those are well within the ballpark of where they have been in Southern California for years. The prices are cheaper down there but that is because there is more competition and selection to choose from. Let’s face it here you have Producers Dairy, Foster Farms who just purchased Crystal and who bought out Adohr/Suise/Foremost Farms in Bakersfield long ago. Also there is Berkeley Farm’s purchased by a national brand Dean Foods not too many years back. So with three dairies consolidating one family owned and one nationally owned, the competition is small to say the least. So since all of these buyouts and purchases have taken place the price of milk has increased in wholesale price while reducing at the pre production price to the dairies. "

Watchdog Fred wrote on Jul 13, 2009 8:04 PM:

" To: Ms DT wrote on Jul 13, 2009 1:01 PM

The state of California does fix prices on milk, it cannot go below a certain price point per gallon, which is subject to change every month or whenever the state feels necessary to change it.

That is why you will see advertisements that the milk is priced at whatever the state will allow at that particular time.

The dairy farmer isn't making the profits, it is the producer and wholesaler who are making the profits.

The more they produce the less it costs them per gallon to dispense the milk. That indirectly affects the wholesale price to the grocery outlets.

As you are probably aware stores who own and operate, their dairy farms, production facilities, including distribution and of course their store brand milk will always be the one's making the most money. Because they control all three, they can afford to lose money at the dairy end, while making it up at the production end and the retail end. That is why they sell private label milk. "

boyce wrote on Jul 14, 2009 12:59 PM:

" My question is how can you be in business if you have such low profit margines or have no profit at all?

What's keeping you producing milk? How can you afford to do it? If you are reducing herds because you can't afford to feed them, how do you feed your family when outgoings must be higher the incomes? "

Paul wrote on Jul 14, 2009 1:17 PM:

" They kill the cows and the profit they make goes up, then they realize if we had more cows we'd make even more money but they can't do that because they killed half their herd.

Then they buy more cows and the price of milk drops again because there's too many cows.

Ms DT wrote on Jul 13, 2009 12:26 PM:

"The middle guy is hoping consumers don't realize how little they pay the farmer and how much is going in their pocket."

I'm not a dairyperson but I think Ms DT you farmers need to get together and decide what to do among yourselves to knock out the middle man.

But remember the middle man is there because of something, otherwise he wouldn't be there taking your money. "

Bobb wrote on Jul 14, 2009 2:42 PM:

" boyce; it is called spending down equity. As a business grows and pays down debt load they build equity in that business. In the bad times they can borrow money against the equity to survive. Those new to the business and have little equity will fail. Even those with large equities can only borrow so much before the lenders cut them off. Then they need to make a decision to cut their losses and sell with some profit left our loss everthing. The Bee had an article about a long time dairyman and friend, Fred Machado selling out for just this reason recently. He started with nothing and built a great business but decided to cut his losses now and leave the industry. "

boyce wrote on Jul 15, 2009 4:17 PM:

" Ah! Thanks Bobb.

I'm surprised the milk producers here haven't all decided to cut their losses. Crazy system! "

SueB wrote on Jul 15, 2009 5:10 PM:

" I simply cannot believe such thinking!

KILLING over 100,000 cows in the first round, just to raise prices??? This is absolutely insane.

I will stop drinking the stuff, happen to love SILK SOY in vanilla and chocolate.

Where is the OUTRAGE FOLKS??? "

Bobb wrote on Jul 15, 2009 10:39 PM:

" Sue B; Where do you think the beef in the markets comes from. This is just a small fraction of animals raised and processed each year by the meat industry. It is probably the best time for the market to absorb this additional amount of meat on the market because of the summer BBQ season.Much of the beef in the markets are cull, low producing, failure to breed, dairy cows to begin with. This is just a herd size adjustment as when milk prices were high last year the cull numbers were very low as lower producing cows were profitable. If you don't eat meat that is fine with me but I enjoy all types of meat. I guess I am just a carnivore. "

what-huh? wrote on Jul 17, 2009 3:25 PM:

" I have not been in the retail side for awhile but I never receiving credit for date expired dairy productd . We would return it to our supplier who would take back to the plant and give it to small hog farmers for feed free of charge . I keep reading about dairy co-ops ,who owns and how do they fit into this equation ? "

Bobb wrote on Jul 17, 2009 11:31 PM:

" What-huh; coop's are owned by the dairymen. We had to "buy in" to our coop with an assessment per hundredweight for several years to own a part of the processing facility that handled our production. If our herd size increased we had to buy additional processing. The creamery holds out "retains" for overhead and expenses during the year. Until the State "make allowance" was ended all processors including the coop's receive about $.25 per hundredweight for processing. That is long gone and probably why most independent processors are gone too. In the coop at the end of the fiscal year they pay "dividends" to their producers on the profit the coop make for the year after all expenses are paid. These are bases on the amount that particular dairy shipped. "

what-huh? wrote on Jul 19, 2009 12:29 PM:

" Thank you Bobb . I always wondered how that worked . So this money is not included in the money you receive for your milk ? "

Bobb wrote on Jul 19, 2009 3:38 PM:

" What-Huh; The price for milk is the same but at the end of the fiscal year the coop pays the producers a dividend according to the coops profit. It is like having stock in a private processor and the stockholders receiving the dividend. The big difference is the dairymen choose their Board of Directors who hire the management so their isn't those huge bonus's before the stockholders distribution like in the private corporations. The producers have control of their company. If the Board does not retain good management they will be gone in the next election. Might work in the public sector except the inept spenders keep getting elected. "

Watchdog Fred wrote on Jul 19, 2009 4:04 PM:

" what-huh? wrote on Jul 19, 2009 12:29 PM:

" Thank you Bobb . I always wondered how that worked . So this money is not included in the money you receive for your milk ? "

No this money isn't included in the money for the milk. Reason being the Co-op is returning profits made on money contributed by the dairies to the co-op to pay costs of doing business and support the co-op throughout the entire year.

That is why it is paid after all costs of doing business have been deducted. What is left is profits distributed back to the dairies for their support of the co-op. "

jeff wrote on Jul 20, 2009 10:24 AM:

" We could all just stop drinking milk. I mean there is really no health or nutritional reason to do so after nursing. "

Watchdog Fred wrote on Jul 20, 2009 8:41 PM:

" jeff wrote on Jul 20, 2009 10:24 AM:

" We could all just stop drinking milk. I mean there is really no health or nutritional reason to do so after nursing"

More of your sound advice, what should we substitute more arsenic enriched water?

What I want to know is if they are slaughtering all this beef why hasn't the price gone down? "

jeff wrote on Jul 23, 2009 9:30 AM:

" Fred,

Why would there be a need for a substitute? Besides, aren't you one of the people who thinks cleaning the water for $3.00 a month is ridiculous? "

Watchdog Fred wrote on Jul 24, 2009 10:06 PM:

" To: jeff wrote on Jul 23, 2009 9:30 AM:

"jeff f f" once again you misinterpret what I say. I don't mind paying the $3 per month, but at the current price we should get arsenic free water as it is, that is what the state says. That is why the city of Hanford Water Department has had to drill knew wells and do all they can to cut back on arsenic in our drinking water.

Los Angeles has been chlorinating their water system for forty or fifty years. I know what chlorinated water tastes like. It was a big thing back in the 60's to prevent tooth decay. Well most of the people who benefited have false teeth today anyway. So chlorination isn't always the sobeit answer for every problem.

That was my point -jeff f f - nothing more. "

Bobb wrote on Jul 25, 2009 8:12 PM:

" Fred; I believe that they were putting fluoride in the water for tooth decay. The chlorine was to kill the bacteria. Correct me if I am wrong. "

Watchdog Fred wrote on Jul 25, 2009 9:54 PM:

" To: Bobb wrote on Jul 25, 2009 8:12 PM:

I stand corrected my Uncle worked for the water department down south they used Chlorine with Floride in it. But the Chlorine was advertised as being healthy for your teeth as well and to keep them bright if you brushed like you should. "

Watchdog Fred wrote on Jul 25, 2009 9:55 PM:

" Bobb wrote on Jul 25, 2009 8:12 PM:

" Fred; I believe that they were putting fluoride in the water for tooth decay. The chlorine was to kill the bacteria. Correct me if I am wrong. "

Regardless the end result was the same for most people of that era False Teeth, the Flouride or the Chlorine wasn't the answer to tooth decay, proper brushing and flossing is according to dentists today. "

Watchdog Fred wrote on Jul 25, 2009 9:59 PM:

" Bobb wrote on Jul 25, 2009 8:12 PM:

But don't you agree at $100 bucks a month we should get pottable water, drinking water, out of the deal?

You drink Hanford water and your breath smells like sulfur for ten hours afterwards. Then to boot I find out I am allergic to sulfur drugs to top the cake. So Hanford water isn't all it is cracked up to be after all.

If the arsenic doesn't get ya the sulfur will, and don't tell me it's just a smell, if sulfur wasn't in it it wouldn't have that rotten egg smell to it. "

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