“Producers Voice” written for and printed in Agribusiness Dairyman Magazine, July 2010

Not exactly what Mark Twain had in mind when penning the famous quote but it pretty much sums up the dairy industry today.

The dairy industry is a unique critter. We are a group of fiercely independent, conservative capitalists doing everything we can to wrangle ourselves into socialist systems. Milk marketing orders and cooperatives are examples of such systems that developed out of need.

We aren’t very consistent in our politics. We generally display a, “get the government out of my back pocket, but they damn well better make a deposit in my front pocket” attitude. I am actually ok with these forms of schizophrenia. The problem I have is the hypocrisy of the fighting within the industry.

It appears to me that the dairy industry is at war. We are at war with radical environmentalists who want to regulate cow farts and let sardines rule the earth. At war with vegan terrorists who torture animals on video to portray us as Hitler with a milk mustache. At war with Marxist journalists who portray modern agriculture as the source of all societal ills, creating a dilemma for us omnivores. At war with unions, regulators, politicians, inspectors, monopolistic processors, oligarchic retailers, weather reporters, food burning cars, market manipulators, protein concentrators, hippies, lions, tigers, bears, and Al Gore! Oh my!

Why the heck are we constantly at war with each other? Why is it every time we show up to a battle with an outside group we come fighting with each other? We do this with processors over make allowances and environmentalists over air regulations. They show up organized, with a plan, and a message. We show up prepared to lose. I don’t blame policymakers for making the easy choice.

With all this adversity it seems like this would be a good time to come together. Let’s cease to be Western, Midwestern or Northeastern dairymen, lets not align ourselves as dairymen from ABC or XYZ co-op, let’s erase the lines between the dairymen of the red trade group and the blue one. Let’s just be Dairymen!
Ok, great, we are all just dairymen, now what? How about we talk about Milk Market Management.

In 2009 we didn’t have a supply problem we had a demand problem. Yes the price discovery system is flawed and the markets are manipulated, but that doesn’t change the fact that the economies of the world collapsed. They are still collapsing. It wasn’t just us. Like the post-911 years 2002-2003, the world melted down and we melted with it.

We need a unified dairy industry taking a holistic approach to reform doing it from a position of thoughtful reflection as opposed to panicked reaction. And we need to do it now.

The first step is to stop talking about supply management and start talking about milk market management, a comprehensive plan to reform all sectors of the industry. Reform must take place on the supply side and the demand side. Supply management is just one spoke in the wheel that will drive our industry into a brighter future.

The demand side must include a coordinated effort by every dairy marketing organization across the country to produce two simultaneous campaigns. One positioning dairy products as the healthy, natural choice over sodas and junk food. The other, a public relations campaign demonstrating that dairy families share the same values as the people voting on milk with their check book and at the ballot box. I honestly believe people have forgotten that milk is better for them than Coke. It’s time for that to change.

Demand management needs to include other reforms such as eliminating programs that stifle innovation in the industry. If the CCC quit buying powder, I have a feeling we would figure out a better use for it. We always do.

On the supply side we need reform of our price discovery system. We need a supply management plan that will efficiently send signals to the market to cut supply but not hinder domestic growth and international expansion. We need a safety net that is flexible, changes with market conditions, is equitable to all dairy farmers, and is not a burden on the taxpayer. We need to reform trade policy and definitions of dairy products so that “fair” trade wins out over “free” trade. We need to change our relationship with the processor and shift some of the responsibility for marketing and profit making to them.

There are many more issues to discuss and a lot of details need to be worked out. Honestly, I don’t have the solution to any of these problems, but I know enough to understand only a comprehensive plan will be sustainable. I cannot support a single tiered approach. The last 18 months have been hell, and the future is still uncertain. But one thing is for sure, if we don’t put our differences aside and lock ourselves in a room until we emerge together with a total solution, we won’t be here next year to fight about it. In my opinion, NMPF’s Foundation for the Future plan is a good start. Now let’s all go to work.

(Side Note:I did not write this article as an endorsement of the NMPF Foundation for the Future plan. I am merely suggesting this should be the basis of our conversations and foundation for total industry reform. If you find that you have an interest in this plan and are willing to start discussing it, take a moment to voice your opinion at this poll: http://poll.fm/1vhac. It would be nice to see where people really stand on this issue. FYI, the poll has been active for many months before the NMPF’s plan came into existence.)

DG

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By Ching Lee
Assistant Editor

Kings County dairy farmer Dino Giacomazzi is looking to the future, or more accurately, to the futures market.

After weathering one of the most financially tumultuous years in 2009, he and a growing number of dairy producers are increasingly turning to commodity futures and options to try to minimize their risks against the boom-bust effects that have pummeled the nation’s dairies during the current global recession.

Giacomazzi said he’s been taking classes for the last year and a half to learn the ins and outs of financial risk management, including how to hedge his feed costs and milk price through market futures and options, and forward contracting.

He said this knowledge will be invaluable as farmers and ranchers try to adapt to progressively more unpredictable economic conditions in the future.
“I think things were not as volatile in the past and so we’ve been able to survive the cycles thus far without risk management,” he said. “But now the cycles are much deeper and the low periods of the market are longer, so it’s something that we’re going to have to learn to do in order to survive.”

Lending institutions also are starting to encourage farmers to adopt risk management practices. In a recent report, Wells Fargo, the largest commercial agricultural lender in the U.S. and a major dairy lender, weighed in on the rising economic volatility farmers and ranchers face and the impact that will have on agricultural financing.

Using the dairy sector as a case study on margin volatility and how lenders are responding, the bank warned that the business of financing agriculture will need “to change to deal with this increased price and margin volatility.”

Michael Swanson, an agricultural economist for Wells Fargo and author of the report, said it’s not so much that lenders are requiring farmers and ranchers to do more risk management as a lending criterion; it’s that changes in agriculture and the economic environment are forcing farmers to have better business acumen and greater financial sophistication.

“And lenders are going to come to the realization that what was an appropriate debt-to-equity leverage before, in a less volatile environment, is not appropriate anymore, unless it’s accompanied by sophisticated risk management and good production practices,” he said.

While some producers are beginning to use risk management tools such as futures and options, forward contracting and insurance, Allison Specht, an economist with the American Farm Bureau Federation, said these strategies, for the most part, are still not very popular among dairy farmers around the country.

“It’s difficult to learn,” she said. “It’s not something that producers have a great deal of experience with. But it’s something going forward that might be a good idea for the industry to look at.”
Up until 2007, dairy producers’ feed costs were relatively stable, Swanson said, so they didn’t worry much about the price of their milk falling significantly below their cost of production.

Also, producers were often rewarded for prioritizing their cost of production and labor management above everything else, he added, so there was little incentive for them to develop their hedging and financial analyses.
Aside from the complexity of futures markets, Giacomazzi said many farmers may still be reluctant to use them because of horror stories they might have heard about those who got burned.

Futures markets, however, are not new to agriculture, said Leslie “Bees” Butler, a dairy economist at the University of California, Davis. In fact, it was agriculture that first inspired the modern concept of futures trading, a process that was started in the 1840s in Chicago, which had become a major center for sale, distribution and storage of grain.

Before futures trading came about, farmers were often at the mercy of dealers when it came to selling their commodities. So a system was set up to allow farmers to lock in a price for a commodity early on and deliver it much later. This also allowed farmers and buyers to hedge their risks and speculate on the future price of the commodity.

“That’s what a futures contract is—a guarantee to sell at a certain price at a future date,” Butler said. “What you’re doing in the futures market is offsetting what you’re actually doing in the actual market.”

He said even though dairy farmers are used to futures contracts, such as when they forward-contract their feed to ensure a set price, many of them may not be hedging their purchase and managing their risks properly.
For example, when corn prices rose to record levels in 2008, many dairy farmers entered into feed contracts when prices were high, and then got locked in to those prices even when the price of milk came tumbling down in early 2009.

“What they should’ve done is once they bought that feed at that price, then they should’ve also gone to the commodity market, purchased a put option so that if the price of corn were to come down, then they would get some money back,” Giacomazzi said.

Butler said they also could have hedged their milk against the possibility of a price drop on the futures market.

“If you buy something today and you’re stuck with that price, you have risks—the risk of the price going up or down,” Giacomazzi explained. “But risk management is opening yourself up for an opportunity to capture some of the money back if the price goes up or down.

“When you manage risk, you fix a minimum price for your milk and a maximum price for your feed, and then you take advantage of any increase in milk or decrease in feed,” he said.

Butler said these financial tools are nothing more than insurance policies for the farm. He and Swanson agree that using these tools is too vital a function to outsource to consultants and recommend farmers learn to do it themselves.

They also stressed that having a strategy to reduce risk is important regardless of an operation’s size. And with increased volatility hitting every sector of agriculture, risk management is not just for dairies.
“If you’re going to be in the business, this is a core concept of agricultural production—the ability to look for risk mitigation in the futures market,” Swanson said.

Giacomazzi said while he’s glad to hear banks such as Wells Fargo are trying to promote risk management, he would like to see agricultural lenders “actively participate,” because ultimately they will have to provide the financing needed for farmers to implement their risk management plans.

“I think these banks are starting to look at it now because the dairymen are asking them,” he said.

Leonard Van Elderen, CEO of Yosemite Farm Credit in Turlock, said agricultural lenders such as the Farm Credit system are getting involved to the extent that they are providing seminars to educate farmers about what’s available to them.

“But there’s a fine balance there of encouraging education and lender liability,” he said. “We’re lenders. We’re not managers. And each of our members needs to make a decision for their own operation that suits them best.”
(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.

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Farmers and ranchers say their use of social media helps them reach people who are unfamiliar with agriculture. Siskiyou County cattle rancher Jeff Fowle, above, says he hopes his online messages will influence the non-farming public’s perceptions of agriculture.

Whether he’s strolling through the corral, doing payroll at his desk or checking on a newborn calf, Stanislaus County dairy farmer Ray Prock likes to stop by what he calls his “virtual watercooler” to chat about his favorite topic: agriculture.

He does this by logging on to his Twitter account, a social networking Web site that allows users to exchange quick, frequent messages known as tweets. By firing up his computer or turning on his smartphone, Prock can get a glimpse of what people in the global community are saying—and talk back to them.

That’s important, he said, because with so much misinformation out there about where food comes from and how it’s produced, farmers have a responsibility to speak up and set the record straight. And with social media, they now have a tool to help them reach virtually anybody anywhere at any time.

“I started to use it as a way to put a face on the farmer and make the farmer human again,” said Prock. “If you’re not part of the discussion, then you are the discussion, and if you’re being discussed, you might as well be there.”

It is no wonder that social media tools are gaining use among farmers and ranchers, who are increasingly turning to online networking applications such as Facebook, Twitter and LinkedIn to help bridge the gap between them and consumers.

The trend is noteworthy considering that 36 percent of U.S. farms currently still don’t have computers and 41 percent don’t have Internet access, according to the U.S. Department of Agriculture.

But where there is access, social media are penetrating the farming community. A recent American Farm Bureau Federation survey of farmers and ranchers aged 18-35 indicates that among the 92 percent who use computers, 46 percent regularly plug in to some form of social media.

Stanislaus County dairy farmer Ray Prock says social media allow farmers to fulfill their responsibility to speak up and set the record straight about agricultural issues.
AFBF spokesman Mace Thornton credits the rise in use of smartphones on farms for driving the adoption of Twitter and Facebook.

“I think social media is definitely here to stay on the farm, especially as farmers continue to embrace the need to get out and put their names and faces on the issues that are confronting them on a daily basis,” he said. “They can take their personal stories about how they’re being impacted and share them through this medium without having the filter or gatekeeper of traditional news media.”

Kings County dairy farmer Dino Giacomazzi said he began using social media because he was frustrated with how certain activist groups were misrepresenting animal agriculture. So he wanted to make himself available to consumers who want to get the real scoop from a real dairyman.

He uses Facebook to draw people to his “cause,” which currently has more than 3,500 members whose common interest is saving California’s milk supply from potentially harmful legislation. Giacomazzi also has a Web site, where he writes a blog about other dairy and farming issues.

“Nobody tells their story better than farmers do, and I think their personal stories are very powerful,” said Mark Looker, an agriculture communications consultant who encouraged Giacomazzi to start his own blog. “If you can get them to talk about what they do for a living, that’s going to have an impact on people who are non-farmers.”

That’s exactly what Jeff Fowle, a Siskiyou County cattle rancher, is doing on his blog and with his Twitter posts. He said not only does he rely on social media to share news and ideas with other farmers and ranchers, but they also have become an important tool for reaching people who are unfamiliar with agriculture and may have different opinions.

He said even a simple post on Twitter about something mundane and routine on his ranch could potentially have an impact on the non-farming public’s perceptions about agriculture, clarify issues, dispel myths and promote healthy discussions. That’s why this spring, when he installed pivot sprinklers on his farm, he posted a tweet about it because he felt it was important to show how farmers and ranchers are continually trying to improve water efficiency.

“(Social media) is an avenue that I think more of agriculture needs to take advantage of,” he said. “But I think we also have to approach it in a wise way and do it systematically. We need to have a strategy so that we can be as effective as possible at utilizing this technology.”

There’s also more to social media than professional networking and making friendly connections, said Michele Payn-Knoper, a speaker and agriculture consultant in Indiana who started Twitter’s #AgChat, a live online chat about everything agriculture on Tuesdays from 5 to 7 p.m. PT.

While social media are an excellent tool for educating consumers about agriculture, Payn-Knoper said farmers and ranchers could also gain some education through social media by “listening louder.”

“Social media is an opportunity to have windows into people’s thought, and as such, you can see the trends that are upcoming. You can see the concern and can probe as to why those concerns exist,” she said.

She dismissed the misconception that social media are a youth fad, citing statistics from both Facebook and Twitter. For example, Facebook now boasts 300 million users; that’s nearly the current U.S. population. Its fastest-growing segment is people 35 and older, while more than two-thirds of Facebook users are beyond college age.

Likewise, Twitter is not a kid thing either. Adults 35 to 49 represent about 42 percent of its users and the site is predominantly driven as a business tool.

Kings County dairy farmer Barbara Martin said using social media was “all new” to her. She started slowly with Facebook, which she said her college-aged kids thought was embarrassing at first. They also didn’t get Twitter and thought it was “totally nerdy,” she said.

But then she started writing her blog in August.

“I thought, if we don’t start introducing ourselves to our consumers, we’re headed for huge problems,” said Martin. “Social media is a great way to connect with non-farmers. They can ask you questions and get to know you just by your posts.”

In one of her first posts, Martin wrote about a recent encounter with a fellow dairywoman whose husband had committed suicide earlier this year because the dairy business “just got so hard.” Moved by her story and inspired by her strength, Martin decided to write about it but had no idea the response she would get for her Aug. 27 blog entry. Even her children were impressed when they saw the number of hits she was getting.

“I had gotten so many calls and e-mails,” she said. “I’m just little old me. Even a couple of responses amazes me, let alone having 500 people look at your blog in a day. It’s humbling. You just put your heart out there and you hope it helps.”

Payn-Knoper said while she understands that social media may not be for everyone, she also stressed that farmers and ranchers “have to do a better job of educating and connecting with consumers,” and significant inroads could be made by getting more of them on social media.

She noted that groups such as the Humane Society of the United States and People for the Ethical Treatment of Animals have had a more than 25-fold increase in their social media following in just the last nine months. And celebrities such as comedienne Ellen DeGeneres, who’s an active Twitter user and HSUS advocate, can sway public opinion about agriculture, she said.

“We have no choice but to adapt,” she said. “Agriculture’s voice needs to be heard loud and clear to overcome pundits like that. The harsh reality is that we will be driven by consumers who do not understand agriculture and anti-agriculture rhetoric if we don’t choose to take 10 to 15 minutes a day to reach out and communicate with folks.”

The California Farm Bureau Federation has established sites on Facebook, Twitter and YouTube.

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Here’s where to read about the farmers and ranchers profiled in our story

Ray Prock
Twitter: www.twitter.com/raylindairy
Blog: www.raylindairy.wordpress.com

Dino Giacomazzi
Twitter: www.twitter.com/dairydino
Blog: www.dinogiacomazzi.com

Jeff Fowle
Twitter: www.twitter.com/jefffowle
Blog: www.commonsenseagriculture.blogspot.com

Barbara Martin
Twitter: www.twitter.com/tbtamartin
Blog: www.dairygoddess.wordpress.com

#AgChat
www.twitter.com/agchat

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The use of a specialized breeding technique to boost the number of milking cows by thousands is generating debate in California’s dairy industry.

Some say it doesn’t make sense to produce more milk as farmers struggle with low prices, high debt and an oversupply. But supporters of the technology say it could be a valuable tool for efficiently raising more cows — and ultimately ramping up production when demand rises.

In the central San Joaquin Valley, the heart of the nation’s dairy industry, the slumping dairy economy has hit farmers hard. Many dairy farmers are losing money, while others have left the industry.

At issue is the use of a breeding technique called sexed semen that can produce more heifers — females — than bulls.

Normal breeding practices generally produce about an equal number of female and male offspring. Using sexed semen, about 90% of pregnancies result in females.

“I just don’t think it is in our best interest right now,” said Tom Barcellos, a dairy operator in Porterville.

In 2006, when the technique began to be used nationally, it resulted in about 8,000 new heifers entering milk production by late 2008.

This year, that number is estimated to go up to 63,000, and it is expected to reach 161,000 by 2010, said Albert De Vries, associate professor in the Department of Animal Sciences at the University of Florida. After that, the numbers are expected to drop because the technique is not being used as often.

“The short-term thinking at the time was that because replacement heifers were expensive, farmers thought it was cheaper to raise their own,” De Vries said. “But all that changed.”

Dairy exports began to decline steeply, while domestic consumption remained soft. To slash production, a dairy-funded group — Cooperatives Working Together — reduced the nation’s herd size by 226,000 cows. Prior to the reduction, the nation’s dairy herd was estimated at 9.2 million in 2008.

De Vries said that while the use of sexed semen has slowed significantly, it remains a tool for the dairy industry.

“It is up to the industry to figure out how to use it wisely,” De Vries said. “No one benefits when you are just creating a bigger cow population.”

William Van Dam, CEO of the Alliance of Western Milk Producers in Sacramento, doesn’t fault dairy operators for using the practice. Two years ago, milk prices were at an all-time high, and the chance to add more heifers was considered a smart move.

“The world seemed to take any amount of milk that we could produced,” Van Dam said. “But the market collapsed, and now we are sitting with too many heifers.”

Hanford dairy operator Dino Giacomazzi tried the new breeding technology, hoping to increase the number of heifers on his 900-cow dairy. He also thought about possibly selling them to other dairy operators.

But the dairy market crashed and Giacomazzi abandoned the practice. He now has serious concerns about its potential effect on an industry that is showing signs of recovery.

“We ramped up so quickly to meet global demand for milk, and we went and stuck our necks out,” Giacomazzi said. “But when demand went away, we got our heads cut off.”

Barbara Martin, a Lemoore dairy operator, said that the technology could be valuable if it doesn’t cause a glut of milk. She, like others, is pushing for a national supply-management program.

“One of the reasons we keep getting into these problems is that supply goes out of balance with demand,” Martin said. “We have to have a mechanism that keeps us out of what has become a debilitating problem.”

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June 22 (Bloomberg) — Dino Giacomazzi, whose great- grandfather started the Giacomazzi Dairy in Hanford, California, in 1893, said he had no choice but to sell 100 cows, or 11 percent of his herd, in the past four months. Rising feed prices and a world surplus meant it cost as much as $17 to produce $10 of milk.

“Producers are in an absolute state of panic,” said Giacomazzi, 40. “To spend 100 years building a dairy business and see much of that equity disappear in a year is very troubling.”

Farmers plan to shift the pain to consumers. The National Milk Producers Federation in Arlington, Virginia, will pay dairies to slaughter 103,000 U.S. cows in coming months. Milk futures prices will double next year to a record $23 per 100 pounds (43.5 kilograms) as the herd shrinks by 171,000 head, the most since 1989, said Michael Swanson, a senior economist at Wells Fargo & Co., the largest lender to U.S. farmers.

The cuts will lead to the first two-year drop in output in four decades and higher prices in 2010 for butter, cheese, milk and the non-fat dry powder that’s a benchmark for global exports, according to U.S. Department of Agriculture forecasts. Futures for delivery in September 2010 trade 56 percent above today’s prices on the Chicago Mercantile Exchange.

Retail butter prices may rise above the record of $3.937 a pound and cheddar cheese may top $5.097 a pound, according to Jerry Dryer, 65, the editor of the industry newsletter Dairy & Food Market Analyst in Delray Beach, Florida.

‘Big Spike Up’

“We could easily see $20 milk again next year,” said Richard Bradfield, a vice president of the dairy business at International Ingredient Corp., a manufacturer of specialty feed products in Fenton, Missouri. “The longer these low prices last, the greater the potential for a big spike up in prices as dairies make larger cuts.”

Farmers are culling herds because exports plunged 26 percent in the first four months of the year, supplies rose and the cost of corn, the primary feed ingredient, averaged almost $4 a bushel.

At Tulare County Stockyard Inc. in Dinuba, California, more than three fourths of the cows Giacomazzi sold were purchased by beef processors including Cargill Inc., owner Jon Dolieslager said. Many smaller dairies that bought animals at auctions last year are out of business, he said.

Sold for Beef

“The Giacomazzi dairy is unique because of its reputation for taking care of its animals and the long history of superior genetics,” said Dolieslager, who also auctions hogs, beef cattle, goats, sheep and horses. “Less than 2 percent of dairy cows we sell will go out to other dairies.”

“No one is making money producing milk,” Wells Fargo’s Swanson said by telephone from Minneapolis. “The milk price remains well below the total cost of production.”

U.S. output increased to a record 16.73 billion pounds in May as cows on average produced 1,804 pounds each, the most ever, the USDA said June 18. A gallon weighs 8.6 pounds.

Wholesale milk fell 51 percent in the past year and reached $9.93 per 100 pounds on June 19 on the CME. The USDA forecasts average cash prices this year will drop 34 percent, the most since the agency began keeping the data in 1980. While corn fell to $4.195 last week from a record $7.9925 a bushel in June 2008, it’s still 54 percent above the decade average.

Cheese, Butter

Cheese prices on the CME have fallen 43 percent in the past year to $1.1175 pound, while butter dropped 17 percent to $1.215. The retail cost of cheddar cheese rose 4.7 percent to $4.605 a pound in May from a year earlier, government data show. The average supermarket price of butter fell 15 percent to $2.778 a pound last month from a year earlier.

“Wholesale butter and cheese prices could rebound $2 a pound next year,” as the herd declines, Dairy & Food Market’s Dryer said. “Low prices are not going to last because we will see inflation across the board next year.”

In California, the largest milk-producing state, dairies lost $1.07 per 100 pounds in April, compared with profit of $11.23 in July 2007, based on feed costs and milk prices, USDA data show. In January, the state was the most unprofitable in at least six years of record-keeping.

“We’re all in survival mode,” said John Gailey, 35, the general manager and a part owner of the 4,000-cow the Milky Way Dairy near Visalia, California. Gailey cut his herd by 400 head, or 9.1 percent, since March. “I’m surprised we are not hearing about more people filing for bankruptcy.”

24-Month Wait

It takes about 24 months and $1,600 to feed and care for a dairy heifer before it starts producing milk, Gailey said. The price of a young cow ready for milking has dropped by half in the past year to $1,200, he said.

Farmers spent most of the past decade expanding to meet rising global demand.

Futures peaked at a record $22.45 in June 2007 as a drought in Australia and New Zealand, the biggest exporters, curbed supplies. Demand increased in Asia as economic growth allowed consumers to switch to more protein-based diets.

U.S. exports jumped to a record 2.55 million metric tons last year (653.7 million gallons), up 16 percent from 2005, and the value of the shipments rose 25 percent, according to the U.S. Dairy Export Council in Arlington, Virginia. Overseas sales accounted for 11 percent of U.S. production, more than twice the share of 2002, the council said.

By the end of 2008, with the global economy in the first recession since World War II, U.S. milk production had grown to a record 190 billion pounds and the dairy herd was at a 12-year high of 9.315 million cows, according to the USDA.

European Protests

When global prices sagged, European farmers sought government aid and disrupted food supplies. Eight hundred producers from across Europe protested in Brussels last month, and in parts of France grocers ran out of cheese and yogurt because of farmer protests.

Dairy Farmers of Britain Ltd., the U.K. cooperative, filed for receivership this month after firing workers and closing dairies. Dairy Crest Group Plc, the biggest U.K. producer, lowered its milk price in April to 26.28 euro cents per liter ($1.40 a gallon), reflecting a 32 percent drop since October, according to the Web site of the Dutch farmers’ organization LTO-Nederland.

U.S. dairies are trimming the herd. The kill in the week ended June 6 rose to 60,800 head, 35 percent higher than a year earlier, according to USDA data. This year’s cull is up 13 percent from 2008.

Accelerating Cuts

Reductions may accelerate because government payments to small and medium-sized farmers begin to run out this month, said Sherman Toone, 58, a third-generation producer with 350 cows and 1,800 acres of wheat, barley and alfalfa near Grace, Idaho.

“This is the worst I’ve ever seen the imbalance” between feed costs and milk revenue, said Toone, whose grandfather started with 25 cows in 1923.

U.S. milk production will fall 1.3 percent to 187.5 billion pounds this year from last year’s record, and to 186.4 billion in 2010, the first back-to-back decline since 1969, the USDA said June 20.

Prices probably will rise at least 25 percent by the second half of 2010 as production slows and consumption rebounds with an improving economy next year, said Kelvin Wickham, the managing director of global trade at Auckland, New Zealand-based Fonterra Cooperative Group Ltd., the largest dairy exporter.

“We do expect prices to trend higher toward the back half of the year,” Jack Callahan, the chief financial officer at Dallas-based Dean Foods Inc., the biggest U.S. processor, said June 2 at a New York conference. Shares of Dean Foods rose 2.1 percent this year, beating the 1.1 percent drop in the Standard & Poor’s 500 Index.

Roadblocks to Rally

Fonterra’s Wickham cautioned that even a smaller herd may not be enough to turn the market around as rising subsidies and government stockpiling in the European Union and the U.S. delay the recovery.

“People haven’t been buying the stuff, that’s the problem,” said Lloyd Downing, 61, who farms 560 cows on 187 hectares southwest of Morrinsville, on New Zealand’s North Island. “It’s not until the American economy comes right that we’ll start doing any good.”

The U.S. economy contracted three straight quarters, including 5.7 percent in the first quarter. Economists expect a 2.7 percent contraction in 2009 before growth resumes in 2010, based on the median of 62 estimates in a Bloomberg News survey. In the European Union, where growth was 0.63 percent last year, the economy will shrink 4.2 percent in 2009, a Bloomberg survey of 17 economists shows.

Global milk-production growth will likely slow to 0.5 percent to 0.7 percent in 2009, in line with the increase in consumption, Fonterra’s Wickham said.

Chinese Demand

China, the world’s third-largest fluid-milk consumer after India and the U.S., is recovering after melamine contamination last September slashed domestic output. Consumption growth that averaged 13 percent the past three years will likely return to pre-melamine levels by the end of 2009, Lausanne, Switzerland- based Tetra Pak Group, the biggest maker of milk and juice cartons, said in a June 1 report.

China increased imports of milk powder and other dairy products after the government shut 19 percent of the nation’s 20,393 milk-collection stations between November and April, the official Xinhua New Agency reported June 3.

“It only takes a relatively small amount of difference in production and we’re going to have a significant affect on international prices,” said Lachlan McKenzie, who owns a 600- cow dairy northeast of Rotorua on New Zealand’s North Island and is chairman of Federated Farmers’ Dairy Section.

New Zealand Exports

New Zealand exported 50.8 million kilograms of milk powder to China in the three months ended March 31, more than four times as much as the same period a year earlier, according to Statistics New Zealand. Dairies are the country’s biggest export earner, accounting for about 20 percent of trade receipts, government data show.

Whatever happens with demand, a recovery won’t be possible without a cull in the industry, said the Milky Way Dairy’s Gailey.

“We are in a depression right now,” he said. “I have to be an optimist that the dairy farmers can get together and find a way to reduce the cow herd about 5 percent so that prices can recover quickly.”

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net
Last Updated: June 22, 2009 16:40 EDT

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In Europe, farmers have taken matters into their own hands, blocking traffic with tractors and bringing cows to the European Union capital to protest plunging milk prices. In California, the price situation is just as bad, but local producers say they aren’t going to use European-style protest methods.

The idea of not shipping milk for a couple of days was suggested at an impromptu meeting of producers in Tulare on Thursday, but was quickly shot down amid fears that it would generate negative publicity.

European farmers don’t seem to have the same qualms.

On Monday, they clogged Berlin roads with tractors and unloaded cows at European Union headquarters in Brussels. A few farmers skirmished with police.

At least one local producer admires the European approach to the crisis that is threatening to drive many farmers out of business.

“I think here in the U.S. we’re too passive. That’s the culture difference,” said Joaquin Contente, a Hanford dairy operator.

Contente isn’t alone.

“I applaud the fact that these farmers are willing … to take some action. This is something we never do in this country,” said Hanford dairyman Dino Giacomazzi.

But Giacomazzi, like many local producers, doesn’t want a government-run system similar to what Europe has, where the EU has managed farm prices for decades by guaranteeing minimum prices or buying up extra production to keep prices artificially high.

Giacomazzi said he agreed with the idea that California dairy farmers are largely responsible for the current glut.

And he is in favor of the major milk cooperatives cutting production by 5 percent, a move suggested at Thursday’s Tulare meeting.

By allowing the cooperatives to control production, government has already given farmers the tools to solve their own problem, he said.

Chuck Draxler of the JCJ Dairy in Hanford agreed that a supply management program is necessary.

The problem is getting enough people to participate.

Draxler doesn’t like the idea of the four major cooperatives cutting production because it would leave other cooperatives and producers out of the loop.

He wants at least 90 percent cooperation nationwide.

In the meantime, farmers face an unprecedented global glut that is causing a price crash. Farmers are reporting major financial losses every day and aren’t sure how much longer they can stay in business.

If a national supply management system isn’t implemented soon, a certain number of dairymen are going to go under, Draxler said.

Like others, he hopes he isn’t one of them.

Draxler said he believes that dairy operators got themselves into their current jam by producing too much milk.

He hopes they can get themselves out of it — without a government-run quota system.

For Contente, however, more government involvement would be welcome.

European farmers “get better results,” he said.

But for Draxler and Giacomazzi, protesting against the U.S. government in the European style doesn’t make much sense.

“Who are we protesting? We’re protesting ourselves,” Giacomazzi said.

The Associated Press contributed to this story. The reporter can be reached at 583-2432.

(May 27, 2009)

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The U.S Department of Agriculture is providing more than $20 million to help California farmers and ranchers reduce air pollution.

The money is being made available to farmers in 36 counties, including Fresno, Kings, Madera and Tulare.

Dave White, chief of the USDA’s Natural Resources Conservation Service, said the money will go a long way toward helping California agriculture comply with local and state air-quality regulations.

The Valley, the center of the state’s multibillion-dollar agriculture industry, has some of the worst air quality in the nation and has been under pressure to meet strict standards.

“We believe agriculture can be on the leading edge of setting a cleaner, greener example for protecting the air we all breathe,” White said. “We’re doing what we can to help in that pursuit, technically and financially.”

White was in Fresno Wednesday, leading the national Agriculture Air Quality Task Force. Members of the task force will continue meeting today and are responsible for dealing with agricultural air-quality issues.

Task force member Manuel Cunha, president of the Fresno-based Nisei Farmers League, said complying with stricter air-quality standards is costly and can be difficult to afford when commodity prices plummet.

“After we find out what the problem is, who pays for it?” Cunha said. “It is not like we can tell Wal-Mart we want more money for our fruit.”

White said during a break in the meeting that the USDA understands the tough conditions farmers face, and it’s one reason the agency pumped more money into emission-reduction programs.

He also said his agency is trying to help farmers find solutions that are good for the environment, make economic sense and are easily implemented.

As an example, White mentioned the work of Hanford farmer Dino Giacomazzi, who uses a cultivating practice that significantly cuts the number of trips he makes through his fields on his tractor. The fewer trips through the field, the less dust that’s generated.

“It is those types of efforts that we want to support,” White said. “We want ag to survive. It’s important for people’s jobs, and we believe agriculture and the environment can find harmony.”

As part of the USDA’s effort, farmers can apply for funding if they use practices that benefit air quality. Those practices include:

Chipping the pruned limbs of almond and walnut trees rather than burning them.

Replacing polluting engines with reduced-emission models.

Reducing tillage of fields and leaving crop debris to keep dust down.

Properly disposing of chemically treated wood stakes.

Controlling dust on farm roads.

Using precision pest-control equipment to reduce volatile organic compounds emissions.

The deadline to apply is June 26. For details, visit the NRCS’s Web site at fblinks.com/ksn.

The reporter can be reached at brodriguez@fresnobee.com or (559) 441-6327.

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Milk prices inched up in March, but that didn’t give much encouragement to local dairy farmers mired in a severe downturn with no end in sight. “We need it to go up by about $8,” said Dino Giacomazzi, who runs a multi-generational dairy on Sixth Avenue near Hanford.

The local dairy industry, by far the largest agricultural business sector in Kings County, has been staggering from high feed costs, low milk prices and weak demand for cheese and other dairy products.

There are signs that the bottom may have been reached.

Milk pool prices per hundred pounds inched up to $9.84 in March, up from $9.58 in February. Some experts, like Bill Van Dam of the Western Milk Producers Alliance, see the market starting to move upward.

But local dairy operators offered a less-than-cheerful perspective.

Giacomazzi said he’s stuck with high feed prices he locked in last year on the expectation that the corn market, driven by demand for ethanol amid historically high petroleum prices, would go even higher.

Then the economy collapsed, the price of oil collapsed and Giacomazzi and other dairy farmers were left with expensive feed not worth the milk produced by the cows that eat it.

One reason Giacomazzi coughed up the big cash for feed: Back then, in September, he was getting $16.84 per hundredweight of milk.

Now, he wonders when he can get back to the break-even point.

“I don’t see it,” he said. “There is no break-even point in our future.”

Riverdale producer Jamie Bledsoe was hardly more sanguine.

He said production costs on his dairy are about $15 for every hundredweight of milk that rolls off in a tanker truck.

“I’m surviving on guts right now,” he said.

The hope expressed by Bledsoe is that a program to cut supply by paying dairy farmers to sell their herds, combined with market forces and lower feed costs, will level things off by August or September.

But like other producers, he just doesn’t know.

“We’re still in a very deep hole,” said Mike Marsh, CEO of Western United Dairymen.

Marsh expects some price relief in June and July, as the herd buy-off program takes cows out of circulation and the summer heat causes a slowdown in milk production.

For Giacomazzi, it’s become a question of how much equity he wants to burn. His family owns the facility and they own the land, so they can borrow against that.

But it could get to the point where, as Giacomazzi put it, “we may end up with no cows, and the bank may want all of our land.”

Bledsoe described a similar situation. He has equity left. He just wonders how long he can hold out.

“With this recession, we’re not quite sure when this things going to turn,” he said.

The reporter can be reached at 583-2432.

(April 28, 2009)

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When a brutal 2006 heat wave caused cows to drop dead and start piling up at his Hanford-area dairy, Dino Giacomazzi started composting them. Composting was allowed as an emergency measure at the time because rendering facilities — the services that pick up dead cows and convert them into pet food and shoe leather, among other things — were overwhelmed with carcasses. But before Giacomazzi could finish his composting experiment, county officials yanked approval, and the process of turning deceased bovines into fertilizer became illegal again.

The concept is back, this time backed by extensive research conducted by the California Department of Food and Agriculture and the California Integrated Waste Management Board.

The method is simple.

Researchers laid down a bed of dried manure and placed four dead cows on top. The cows were covered by another thick layer of manure. Heat sensors were placed in the middle to measure temperature. Bacteria packets were placed at different places in the pile to measure whether the heat generated by the composting process kills harmful pathogens.

Then the piles were left to do what composting does: Break down organic matter into basic elements that can be used as fertilizer.

Researchers found that within six weeks, interior temperatures that soared as high as 150 degrees killed the harmful bacteria.

The odor wafting off the pile was no worse than the manure smell, said Carol Collar, the University of California dairy advisor for Kings County who participated in the research.

In four months, only some of the major bones were left.

“Now the question is, how much longer do we have to wait to get the bones gone,” Collar said.

The preliminary findings indicated that one of the project’s main objectives — to prove that composting kills the bacteria — is being accomplished, Collar said.

The finished compost could theoretically go out with the manure that is used to fertilize animal feed crops around Kings County.

The bones would likely be separated and ground up into powder, Collar said.

But land application still has some public relations hurdles to overcome, researchers say.

“I think the worst part is people’s perception of what it is,” said Tim Niswander, Kings County agricultural commissioner.

Some of the concern relates to bovine spongiform encephalopathy, more commonly known as mad cow disease.

Separate research is being done to see if composting successfully disables the proteins that cause mad cow, Collar said.

If successful, the research would likely allay concern about composted cows being uses as plant fertilizer.

But even if land application never occurs, composting would still be preferable to simply burying the carcasses or allowing them to decompose on the ground, Collar said.

The composted material could be transported to a landfill more easily than a rotting carcass, for example.

Composting would help with another heat wave kill-off like the one in 2006, but it could also be used in case of a major disease outbreak, Collar said.

Still, composting will likely be an emergency measure only.

Rendering plants like Baker Commodities in Hanford will remain the normal disposal method, since they turn the carcasses into useful commodities and are easier to regulate, Collar said.

Meanwhile, the cow-composting research project is running out of money, she said.

Researchers still want to find out if composting in the winter works as well as in the summer. And they want to study how different composting materials affect the composting rates.

UC researchers are also looking at air emissions coming from the composted material, Collar said.

Giacomazzi is hoping that the research will encourage legislators and regulators to legalize the process.

“It would be a reasonable thing to do,” he said.

The reporter can be reached at 583-2432.

(Feb. 26, 2009)

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Publication 8361 / January 2009

JEFF MITCHELL, Department of Plant Sciences, University of California, Davis
ANIL SHRESTHA, Department of Plant Science, California State University, Fresno
MARSHA CAMPBELL-MATHEWS, University of California Cooperative Extension, Stanislaus County
DINO GIACOMAZZI, Giacomazzi Dairy, Hanford, CA
SHAM GOYAL, Department of Plant Sciences, University of California, Davis
DENNIS BRYANT, Agricultural Sustainability Institute, University of California, Davis
ISRAEL HERERRA, Agricultural Sustainability Institute, University of California, Davis

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