Economic downturn affecting local dairies

By Argen Duncan: PNT senior writer

Six months after the drop in milk prices, Roosevelt and Curry county dairy owners are still trying to wait out the slump.

In January, milk prices dropped to half of the prediction from six months before. On top of that, many dairymen are locked into high-priced feed contracts.

“I think it’s going to be really tough for the next four months,” said Alan Anderson of Anderson Dairy in Roosevelt County.

Anderson expects some dairies to go out of business in coming months.

One dairy has already filed bankruptcy and local agriculture leaders are predicting others will follow if something doesn’t happen soon to wholesale milk prices.

In early June, the Stepping Stone Dairy in Portales filed for Chapter 7 bankruptcy liquidation, citing $89,000 in assets and $3.2 million in liabilities.

Dairymen are getting $10 or a little less per 100-pounds of milk. Producing it costs $15 to $18, according to New Mexico State University Extension Dairy Specialist Robert Hagevoort.

And, even though feed prices dropped earlier this year, corn and soybean costs are rising again.

Hagevoort said low wholesale milk prices coupled with high input costs are unprecedented.

“What we’re going through is the perfect storm,” Hagevoort said.

Anderson thinks the industry may get a break next month and in September. But not enough to break even until possibly later in the year.

Feed prices will probably remain high until September, when the contracts come to an end, he said.

Anderson said dairies going out of business may help increase wholesale milk prices by actually decreasing supply.

The Cooperative Working Together program paid for by dairy producers also buys and sends entire dairy herds to slaughter to reduce milk production.

Meanwhile, store prices for dairy products haven’t dropped nearly as much as the amount producers are getting, which Hagevoort said is typical.

A drop in store prices could increase the demand somewhat, Hagevoort said. Dairy producers, however, have no control over how much they get for their product over store prices.

To get by, Anderson said dairy owners are borrowing money against the equity in their dairies to pay bills.

“I think, if they have a good relationship with their banks, a dairy can probably stand it for a period of time,” said Anderson.

Dairies go out of business when they sell to the Cooperatives Working Together program. Or, when banks will no longer loan them money.

Also, to reduce operating costs, dairy owners are decreasing their herd size and removing cows from the herd based on tougher standards when milk production starts decreasing.

Hagevoort said dairies are struggling to reduce costs while still feeding cows properly to keep milk production from declining.

“They’re cutting without cutting corners,” Hagevoort said.

Owners may also not replace an old tractor or decide to employ one less worker.

Anderson said whether low wholesale milk prices have a permanent impact on the local dairy industry depends on how well prices bounce back.

Before milk prices dropped, Hagevoort said, the local dairy industry was growing, driven not by wholesale milk prices but by urban development in other areas.

When large cities grow and developers start buying up rural land, dairy owners sell their land at high prices and move somewhere else with favorable land prices, available feed sources and friendliness toward agriculture.

Hagevoort said even if wholesale milk prices start rising again, the local dairy industry won’t begin to grow again until real estate turns around nationally.