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Got Money for Milk? Despite Record-High Prices for Milk, Some Valley Dairy Farmers Still Are Struggling

Posted on: Thursday, 16 August 2007, 12:15 CDT

By Dennis Pollock, The Fresno Bee, Calif.

Record prices for milk came too late to save Denny Murphy's dream.

His cows are gone now -- all but two he kept for sentimental reasons for his teenage children.

The Fowler farmer sold his other 126 cows July 6, getting out of the dairy business because of losses caused in part by last year's scorching summer heat.

"Our milk check for June was the highest we got in the years in the business. But that's just one check," said Murphy, who had been in the dairy business 30 years.

Dairies large and small have shut down in recent months despite record milk prices, growing world demand and a temperate summer of 2007.

Since last fall, 91 dairies -- 5% of the state's total -- have closed, said Michael Marsh, CEO of Western United Dairymen in Modesto. About 20% of those were in the Valley.

"And we're still losing some," Marsh said.

"Some older dairy operators ... [are] saying, 'To heck with it,' and selling while the milk price is high and the cattle price is high."

The searing heat of 2006 killed thousands of California cows. Farmers said steep increases in the price of feed -- partly due to demand from ethanol producers -- also cut deeply into profits.

Murphy, who had dreamed of having his own dairy from the time he was 10, said he chose to sell because his cattle could fetch high prices and because he had lost $70,000 the previous year.

He said much of his equipment had fallen into disrepair during lean times and he faced an annual bill of $20,000 to $50,000 to comply with state water-quality regulations.

His wife, Stephanie, will continue to work as a veterinarian, and the family plans to grow grapes on the 20 acres where the dairy sat.

California regulators say the number of dairies declined by 68 last year -- 39 in Northern California, 15 in Central California and 14 in Southern California.

Hardest hit in the central San Joaquin Valley was Merced County, with 22 dairies lost.

Some think the industry is due for a rebound. Since spring, world demand for milk has burgeoned, boosting prices up about 80 cents in retail stores across the country to $3.80 a gallon in July.

California Dairies Inc., a Visalia-based cooperative that produces 43% of all milk sold in the state, is among those benefiting from the increasing thirst for milk -- particularly world demand for dry milk.

It's the largest manufacturer of nonfat milk powder in the nation and has plants in Turlock, Fresno, Los Banos, Tipton and Artesia.

Demand for powdered milk has risen greatly in recent years, partly because of urbanization worldwide and because of a desire for protein in countries where disposable income levels are growing, said Richard L. Cotta, the cooperative's CEO and president.

At the same time, milk supplies declined.

Some dairies thinned their herds because of continued low milk prices. A drought in Australia, historically a big player in international markets, hurt its dairy industry. And European subsidies of milk production ended.

Those factors led to a diminished worldwide supply, while the improving economies of Indonesia, China, India and Mexico meant an increasing demand in those countries.

As a result, shoppers saw milk prices rise to all-time highs.

Alicia Rockwell, a spokeswoman for grocery chain Save Mart, said higher prices have not yet cut sales, however.

Other challenges lie ahead for the state's dairy operators.

Marsh said Golden Cheese, a plant in Corona that bought milk, has announced it will close Dec. 31. The Hershey chocolate plant in Oakdale, another user of milk, also will shut down early next year.

California Dairies Inc. will have a new plant in operation this fall, Marsh said, and Leprino Foods is expanding its cheese-making facility in Lemoore.

"But it's never a good thing to lose an option for shipping your milk," he said.

Kerman dairy operator Brian Pacheco said the fear among dairymen is that their current luck with high prices won't hold: "What will happen two or three months from now when the cost of feed outpaces the cost of milk?"

The reporter can be reached at dpollock@fresnobee.com or (559) 441-6364.

Source: The Fresno Bee

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