A series of colliding factors, including the weather, grain speculation and antiquated federal policies, have sent Maine’s dairy farmers spinning into one of the most dire situations in recent memory.
While consumers haven’t noticed any change in the price of a gallon of milk at the grocery store, behind the scenes the economics of milk is in disarray.
Maine dairy farmers, and the industry in general, are facing a grim future, the result of a complex federal milk-pricing system that dictates how much a farmer gets for his or her milk; rising fuel costs; historic high prices for cattle feed; bad weather in Maine; a drought in the Midwest; and safety nets ill-designed for the current conditions.
“We’re really barely scraping to get by,” said John Stoughton, owner of Misty Meadows Farm in Clinton. “We have the next generation coming. If it wasn’t for that, I don’t think we’d worry about staying in business.”
Stoughton milks between 500 and 600 cows, and said he’s had to dig into his savings and retirement to keep his head above water this summer.
David Doak, who has operated his dairy farm in Monroe for 30 years and milks between 40 and 50 cows, is struggling too. “It’s a struggle every month to pay the bills, it really is,” said Doak, 64, “to cover your debt load and have something left over.”
In August, Maine farmers received between $18 and $20 per hundredweight, or 100 pounds, of milk. Meanwhile, the cost of production, which includes feed, fuel and labor, was estimated in 2011 to be $25.03 per hundredweight, meaning farmers are losing money for every gallon of milk they sell.
Consider also that grain prices have increased significantly since 2011. “Grain prices make up one third of the cost on a dairy farm,” said Richard Kersbergen of the University of Maine Cooperative Extension. “You can imagine what this does to the bottom line of these dairy farms.”
Maine currently has 307 dairy farms in the state, ranging in size from those milking 10 cows to the largest farm in the state, the Flood Bros. farm in Clinton, milking about 1,700 cows. There are cow dairy farms in 15 of Maine’s 16 counties, Hancock being the one exception, though it does have sheep and goat dairy farms, according to Julie-Marie Bickford, executive director of the Maine Dairy Industry Association. Dairy farms manage 700,000 acres of Maine farmland and woodland, employ 1,300 people directly and support closer to 4,000 jobs, she added.
In August, Maine’s dairy farms produced nearly 51 million pounds of milk. The industry has an annual economic impact of $570 million, she said.
The current struggles of Maine dairy farms will have an impact on the industry’s future.
“When you go through periods of loss or low profitability, an inability to replace equipment and keep updated, it puts you in a position where you can’t go forward,” said Dale Cole, president of the Maine Dairy Industry Association’s board and a second-generation farmer who milks between 90 and 100 cows in Sidney. “We need young people … to take these places over and it needs to look like a business you can make a living at.”
Economics of milk
Milk is complicated, according to Bickford. More precisely, the economics of milk and how the federal government sets the minimum price farmers receive for their milk is complex.
“The standing joke is there are only three people who truly understand dairy pricing and they’re not allowed to fly on the same airplane,” Bickford said.
The minimum price a Maine dairy farmer like Stoughton or Doak receives when they sell their milk to Oakhurst Dairy, one of the few family-owned processors left in the country, is not determined by how much it cost to produce that milk or how much local demand there is for their product. Instead, the price they’re paid has its origin on the floor of the Chicago Mercantile Exchange, where global commodity traders and speculators buy and sell cheese and butter futures.
It is an “intensely convoluted and frustrating system,” according to Walter Whitcomb, commissioner of the Maine Department of Agriculture, Conservation and Forestry, who is co-owner of a 400-head dairy farm in Waldo.
It’s also a “failed” system, Bickford said. “When you pay farmers based on a pricing system that takes its source from a speculative market like the Chicago Mercantile Exchange, you’re opening it to other factors that could influence the price beyond what it costs to make the milk.”
An example: The cooling system at a giant cheese warehouse in New Mexico breaks down and forces the owner to dump a huge amount of cheese on the market before it spoils. That increase in cheese supply will mean Maine dairy farmers receive a lower price for their milk. Likewise, China could decide to buy large amounts of butter, which increases demand for milk and increases the price Maine dairy farmers receive for their milk.
Bickford calls the system “bizarre” because most Maine milk is sold to Maine residents in liquid form, which carries a higher value than cheese or butter. She says the prices Maine farmers receive should reflect that local dynamic, plus the cost of production, which often is higher in Maine because the state is farthest from the feed source in the Midwest.
“The trouble is when the costs go up, nothing happens until the milk supply starts to tighten up,” Cole said. “And that usually means somebody has to go out of business, and that usually means Maine farms.”
The Maine Milk Commission alters the federal minimum price as much as it can to reflect the Maine farmer’s cost of production. However, its hands are tied because if it increased the price a farmer gets for his milk too much, processors would begin shipping in out-of-state milk.
Safety nets not up to the task
In response to plummeting milk prices because of the weak dollar, the Maine Legislature in 2003 passed the Maine Dairy Stabilization Act, better known as the Tier program, which gathers a handling fee from milk processors that is then paid back out to farmers when tight conditions trigger payments.
“The Tier program helps me stay afloat,” Doak said. “It’s done what it’s meant to, to get you to the break-even point. At times it hasn’t done that, but it’s been a big help.”
While neighboring states, which don’t have their own milk commission or Tier program, have seen their dairy industries lose farms, Maine’s industry has stabilized, Bickford said. “This has been hailed nationally as an incredibly innovative and successful program,” she said.
She also admits the Tier program is “unconventional” and can be controversial, especially since the funds that are paid to farmers come out of the General Fund. Because of the volatility in the market, the amount of those funds sent to farmers on any given month are impossible to predict.
“We’re trying to solve a federal-level complicated mess by creating a somewhat complicated state mess,” she said. “It works, but it’s really messy.”
There is also a safety net on the federal level. The Milk Income Loss Contract program is similar to the Tier program in that it is designed to help farmers make up the difference, but it is less sophisticated, Whitcomb said.
However, on Sept. 1 the MILC program began providing coverage at a reduced rate, one so low that the program won’t be triggered even in the current conditions, according to a letter Sen. Olympia Snowe sent on Sept. 13 to House Speaker John Boehner and Senate Majority Leader Harry Reid.
The MILC program is part of the 2008 Farm Bill, which is set to expire on Sept. 30. While Sen. Snowe tried to rally her colleagues to either extend the old bill or pass the new one, Congress left for its recess without taking action.
Over its 10-year history, the MILC program has probably given between $10 million and $20 million to Maine dairy farmers, according to Whitcomb. “It would be a very different landscape without that in Maine,” he said.
However, these existing safety nets are no match for the historically high prices that Maine dairy farmers are paying for their feed.
“We have a situation now where most of the safety nets are based on having low milk prices, but it’s not that milk prices are historically low, it’s that expenses are historically high,” Bickford said.
John Stoughton at Misty Meadows Farm estimates his feed costs have increased as much as 44 percent in the last three months, from roughly $90,000 a month to closer to $130,000 a month.
“Milk prices aren’t bad, but they can’t absorb that kind of grain price,” he said. “It’s the [feed costs] that are killing us right now.”
At about this time last year, corn was trading on the Chicago board for about $3 a bushel. Now it’s about $7.40 a bushel, which means Maine dairy farmers are paying between $50 and $100 per ton more for feed than they were last year, according to Ellis Additon, general manager of Feed Commodities in Detroit, Maine, which sells 1,200 tons of feed a week to Maine dairy farms, enough to feed about 50 percent of the milk cows in the state.
On his farm in Sidney, Cole buys about 38 tons of feed a month, which means he’s trying to find an extra $3,000 a month without a corresponding increase in the price he gets for the milk.
The reason the price of grain has increased so much can be explained in one word: speculation. Corn, soybeans and alfalfa, the grains used in cattle feed, are traded as commodities, which means they are bought and sold with the future in mind, and right now that future looks bleak.
A severe drought in the Midwest is threatening the crop yields, which sends the markets into panic, Additon said.
“The bright thing on the horizon is the price of milk appears to be coming back,” Additon said. “The bad thing is with this drought out West, the corn hasn’t been harvested yet so we don’t know how bad it will be.”
Two other factors are affecting the price of feed for Maine dairy farmers: More corn is being diverted into ethanol production, and the weak U.S. dollar means more corn is exported.
Struggling farmers still need feed for their cattle and Additon has tried to accommodate them when he can. The dealer’s accounts receivables has increased 18 percent over the past two months, which represents more than a million dollars more than usual that Maine dairy farmers are taking on in debt.
The pain caused by the high price of corn from the Midwest is compounded by the fact that Maine’s farmers have had a terrible growing season of their own, which means they are relying more heavily on Midwest feed.
“In the short run we’ll see some farmers go out of business,” Additon said. “There are those who are in a hole so deep they can’t get out.”
It is really differcult to fathom, but, really dairy farming died in Maine in the 1930’s. A few have struggled, but one by one, they go out. Maine is really not a farming state.
It should be,I worked for the poultry industry back in the day when it was thriving,that was some of the best tasting chicken..Penobscot,Maplewood..,
Oh, I remember, and that was when Waldo County had a true economy, Friday night in Belfast all the people cashing their checks, and all the farms spread around, it was good times, and a cold beer a Bill Lunt’s. I was trying to think of the store across the street from the where the hardware store is now, it sold local produce and stuff, had real good meat. Was it by right??
Horribly narrow-minded and ignorant comment.
Pot – meet kettle.
NO, not really, waldoco1, I wish it was not true, I have seen the farming go, I have seen the manufacturing go, Maine is designated as the retirement and recreaction state for the rich and well to do flattys, we have to face it. They have got every packing plant off the coast, because it got their sailboats dirty, they got most of the manufacturing out of here, I witnessed the closing ofthe last sardine factory in Maine, for no real reason, they say there was not enough herring, but, for one plant?? Well turns out theyneed the herring for bait for lobstermen, the flattys like their lobster.
I hear what you’re saying pattenpond, but stick around, the end of cheap fossil fuels, especially oil, is going to start pushing some of those trends you have correctly identified, back in the other direction.
The economics of producing everything far away are going to get much tougher. That and the very idea of a retirement state will be strained by the fact that an idle, cash-rich retirement is going away for almost everyone.
I hear what you’re saying, but I think that virtually EVERY state is a farm state to one degree or another, even urban ones like New York or Massachusetts.
The idea that all our food should come from a faraway “farm” state like Iowa is an idea that will go by the wayside as fossil fuels get ever more precious.
Pattenpond, I disagree with your comment. Why in the world should Mainers drink milk from out of state?
I would gladly pay more for local milk if it means keeping these farms in business. We already buy quite a bit of local raw milk at $6/gallon.
Where do we send money to help maine farmers?
I have to step in here, Whit Richardson does not have his facts straight, “Typical of media”David Doak has not owned that farm for 30 years,the original owners were the Giggie family,in the late 60s and 70s,The Drummond family bought it out when Ted retired..R.I.P Ted Giggey,You were o.k. man!,I have a lot of respect for the 30 or 50 c0w farmer that tries to make a living in rural Maine…Its not easy.I met David Doak a year ago,while he was farming on the old Giggie farm and makes a go of it.The farm looks nice Dave., Skipper… Thing that gets me the most is our milk where I live sells for $1.57 a gallon and its produced in state,not imported….In Az.Look up Safeway Supermarkets for prices.
Contrary to the author’s assertion, there is a dairy farm in Hancock County. The Smith Family Farm is 3 miles down the road from me on MDI. They sell organic raw Jersey milk in stores, at the farm and farmers markets. They also sell cheese, yogurt and the meat from the bull calves which are raised on grass at the farm. It is a small operation reminiscent of the old days when everyone knew their farmer.
I was just going to post about them!
http://mofga.net/MyProfile/tabid/88/asuid/1490/showtab/products/Default.aspx
The author also forgot about Gravelwood Farm and Old Ackley Farm, both producing cows’ milk in Blue Hill.
Just like every thing else these days. By the time the suits get done carving up the pie, the guy who actually made the pie, the farmer, is left with a plate of crumbs. Middle men are ruining this country. A farmer’s work is hard enough without having to carry a half dozen suits too.
By suits I hope you mean the politicians in Washington and the “Greenies”. The price of feedstocks have escalated due to the cost of corn which has been driven up by the demand from ethanol mandates. Ethanol production has increased 10-fold in the past decade and now consumes +40% of corn production. Ethanol mandates require a minimumof 10% annual increases in production for the next several years. If you want to help the dairy farmers get their cost down you have to eliminate the market disruption of those mandates.
I was of course speaking of all the brokers, sales personnel, retailers, corporations, and everyone else who is in between a farmer and the consumer. You used to be able buy milk direct from the farmer. Now, it has to be “handled” a half dozen times before it makes it to the breakfast table. Speaking of “Greenies”, did you know that the dead spot in the Gulf of Mexico at the mouth of the Mississippi River is over 5,000 square miles now? A dead spot caused by all the nitrogen washing down the river from massive corporate corn farms. As long as there are dim wits who would advocate turning the entire gulf into a giant cesspool to keep the cost of gas down a little, I say go Greenies!
I buy raw, organic Jersey milk directly from these folks at the farmers’ market in Brunswick.
http://swallowtailfarmandcreamery.com/
We should be growing corn to feed people not fuel our cars period. Oh by the way the gulf covers about 580,000 square miles hhhmmm.
I actually worked as a chief engineer on a seismograph ship where we canvased the bottom of the gulf of Mexico looking for oil back in the 70’s. It seemed a lot bigger than that at 2 knots! lol.
I’m not sure the Greenies have much to do with ethanol. Corn farmers and ethanol producers are probably more responsible than Greenies for ethanol even existing. Given that more fossil fuels go into making ethanol than is saved, and the resulting higher price of corn which hurts consumers worldwide, ethanol should be eliminated. It is kept alive only by corporate interests and the politicians who take their money.
The single word that explains higher corn prices is not speculation. It is ethanol.
We shouldn’t be burning our food supply as fuel, period.
Drink milk, not corn!
Our legislature need to act and help these farmers who enable us all stock our refrigerators with delicious milk.
monsonto
Is his farm loosing 30k a month or losing?
Maine Agriculture could use the equivalent of charter schools; that is farms which are largely regulatory free and operate within a market economy that isn’t regulated by the government. I’ve been to several USDA grant program roll -outs with regulations that are so complex, a farmer has to hire a consultant to fill out the paperwork at a cost of approx. $1,500…even then the odds are that the farmer won’t get a grant. This is crazy and onerous. I’ve been in meetings where the farmers walked out leaving only the people who ‘advise’ farmers to get energy audits or the coop. extension people or university educators.
The energy audit racket is a great example.
You can’t get a grant unless you have an audit done..for a farm these cost thousands of dollars. Then the farmer has to implement the recommendations of the audit….now we’re into hundreds of thousands of dollars of new equipment and operational disruptions.
The ‘farm’ advisors sniff their noses at wood fired outdoor boilers, but there are many reasons why dairy farms now have them.
Time abolish the USDOA and the State bureaucracy since all they do is get in the way of viable sustainable farming, in my opinion. The time for a radical reform of government and UMS programs is now. get block grants for every government ag. program and distributed them as vouchers for he most needed farm improvements.
We try to stay just as far away from the USDA as it is possible to get in this place. The USDA is the “governmnet shill” for the “corporate food processing business” that smart people are gradually figuring out, and moving away from. More and more people around these parts, are willing to pay a little premium over store prices, to get food products that are produced locally.
I like Joel Salatin”s books, and “Everything I want to do is illegal” is extremely enlightening and educational.
We are proud to be a small part of the creative local economy which benefits all of us who live here!
Anything government run, mandated or regulated is destined for failure. Too many differing opinions from too many that are uniformed and basically ignorant.
What will it take for these farmers to realize that their businesses cannot be sustainable while being so heavily reliant on imports from far away?
All the farming models that involves feeding lots of grain to animals grown far away, off the farm are going to fail, whether they involve dairy cows in Maine, beef cattle in Kansas, Chickens in the outskirts of Maryland, or hogs in North Carolina.
Fossil fuels grow most of our country’s grain now and in turn, much of our grain is turned back into substitutes for fossil fuels (ethanol and biodiesel), tightly linking grain and oil prices.
Animal farming is going to transition back to growing more feed on the farm and the ones that don’t transition back are going to fail because grain prices aren’t coming down any time soon due to the previous paragraph.
Sell directly to your customers. Get out of the commodity market racket. Operating with both of your largest inputs (grain and oil) and your only output (milk) as commodities up for speculation in our broken financial “system” is courting disaster.
Feed cows their natural diet — grass. Cut out the expensive imported grain and let the cows go to their food (pasture) instead of bringing it to them. Which leads to…
Find ways to reduce energy usage, especially fossil fuels. Pasturing cows instead of cultivating and distributing a grain ration would be a good start. Laying in hay for the winter would still be necessary, but having cows gather their own food for much of the year would be a big savings.
The common thread in all of this is that you can see “government” meddling in the process and, as always, “picking winners” here and there. Many Maine dairy farms are carrying way too much debt to be able to sustain a business with the income they have. The penalty for any business being too heavily leveraged, is usually bankruptcy and failure. When government steps in to keep this from happening, it is no longer a situation which helps a businessman balance out at some point between his “wants” and his “needs”.
The entire situation is ridiculous as a cow is designed to eat grass, not high octane, very costly, feeds. We have a small hay business, mowing about 200 acres of grass. We feed some of it to our beef cows, some to our horses, and the rest we sell to pay the bills. We sell zero hay to dairy farmers as the dairy farmers don’t use hay, they have to make it into silage, all of which costs much more to make, but is a necessity to keep milk production up.
I side with those who say go back to being smaller and doing business locally and getting government out of the equation!. We raise our own beef cattle and feed them only a bit of corn each day, mainly to let them think they are getting a treat and being able to have them get close to us, often, which makes handling much easier. Their diet is green grass, with hay fed in the winter. They taste great too. Hi octane feed is NOT required for beef, or dairy cows, unless you are trying to be a participant in the endless “cat chasing his tail” situation , which nearly all Maine dairy farmers are playing.
There are some goofy laws with dairy production. I think Governor Melonhead talked about it when his guys were having issues. There is a law about Massachusetts or something…
If western farmers had to pay the real cost for the water that they use, I wonder what the impacts might be? I suspect that they would use less water and that would make agriculture in the Northeast more competitive.
Some crops can only be grown in particular climates, or only grown well in certain soil types, but the Northeast should be a dairy region. I think it is ridiculous that states with a very small population, located far from large markets, have a large dairy industry. Idaho and New Mexico come to mind. Making things worse, these two states are relatively arid. Depletion of groundwater is an issue in some western states.
It is a complicated issue. Many will call to repeal the price supports for Northeast dairy, and I would be OK with that – but if and only if the western farmer doesn’t gain an unfair advantage with subsidized water.
It is truly a “nation of fools” who take their “food” (corn!) and burn it for motor fuel.
This is one of the stupidest courses of action the United States has ever taken. And the ones profiting from it the most, are not the corn farmers, but the politically connected ones who profit from all the government subsidies of an ethanol industry that is NOT cost effective, and NOT capable of standing on its own to compete with other sources of energy. It takes way more energy to make a gallon of ethanol than there is energy in it, so this endeavour is a total loss…….other than to those standing in line to collect the government hand outs!
“Stupid is as stupid does”………Forrest Gump!