A downward trend for dairy

Editor's note: This is the second story in an occasional series on the government's role in farming and the millions of tax dollars that support the region's agriculture.

By Matt Sanders

Southeast Missourian

In the rolling hills of Cape Girardeau County, near towns like Oak Ridge and Pocahontas, large blue or corrugated steel silos for feed grain dot the landscape beside livestock barns with open sides and metal roofs.

Dairy used to be huge in this area, but the past decades have seen a steady decline. In the bottomlands south of Cape Girardeau, row crop farming still thrives, as it has since the area was drained and cleared. Because of the immense farming areas, the Bootheel sees an influx of millions each year in crop subsidies authorized by the federal farm bill.

But north of Cape Girardeau, dairy is on a downward trend. And in recent years, subsidies for dairy only total in the thousands, not millions, of dollars.

In 2006, $304.5 million in subsidies went to row crop farmers throughout Missouri, according to the Missouri office of the USDA's Farm Service Agency, which processes those payments.

Those subsidies provide a safety net for farmers in an uncertain business where they can't set their own price and where foreign farmers are heavily subsidized, say groups that support subsidies.

And while dairy farms also get a piece of the farm bill pie (only about 10 percent of the bill even goes to subsidies), their chunk is much, much smaller.

In 2006, $2.85 million was given out in Missouri through 1,360 milk contracts, according to FSA figures. In Cape Girardeau County, dairy farms and cooperatives received $55,537, while Perry County dairy farmers received $42,795.

Unlike row crop farmers, the farm bill's subsidy structure for dairy farms is a true "safety net" system that kicks in when prices are too low. Row crop farmers receive some subsidies, called direct payments, regardless of market prices.

Dairy farmers only get their subsidies -- called the Milk Income Loss Contract Program, or MILC -- if market prices fall below a target set by legislation. Another program subsidizes dairy exports in the same way, but that program hasn't paid out anything since 2004, said Mark Rouse, director of credit programs with the USDA's Foreign Agriculture Service, which administers that program.

Beef, on the other hand, gets nothing in the way of farm bill subsidies. Not that beef producers want any, said Karen Batra of the trade group the National Cattlemen's Association.

"We live and breath free market. We think everybody should operate on a free market basis, including ethanol," Batra said.

Beef and dairy producers, as well as row crop farmers, are eligible for disaster assistance funds under the Agricultural Assistance Act of 2007, signed into law in August.

Possible extension

In the farm bill passed by the House of Representatives this summer, the MILC program would be extended until 2012 and the bill would reinstate the Dairy Forward Pricing Program, allowing dairy producers to lock in contracts for future production.

The Senate bill being debated would increase payouts and expand eligibility for MILC.

Like their row-cropping counterparts, dairy producers are glad for the existence of MILC, which helped them sustain through the past two lean years.

They're also glad that this year they won't need the subsidies it provides, as milk prices have significantly increased.

Dairy farmers echo the words of row crop farmers in defending their subsidy programs, saying that, without them, producers couldn't make it through the hard years.

There would be fewer farms and dairy production would be confined to corporate operations, which could produce on a large enough scale to survive small profit margins.

The effect on local economies, they say, would not be good.

"Whenever dairy farmers make money, they spend money," said John Schoen, a dairy producer near Oak Ridge and member of the six-state Prairie Farms cooperative's board of directors. "When we're profitable, we spread it around."

Milk processors buy from producers in units called hundredweight. Almost 12 gallons of milk come from one hundredweight unit of unprocessed milk, Schoen said. A sustainable income for producers is about $15 per hundredweight, Schoen said.

Schoen knows a lot about the industry. His family has owned a dairy farm since 1853. In his lifetime alone, Schoen said, he's seen much of the family dairy operations in Cape Girardeau and Perry counties disappear.

The Schoens currently run a 200-head operation, and John Schoen expects his farm to continue with future generations. But in farming the future in always uncertain, and like row crop farmers, dairy operations are dealing with soaring input costs that put a dent in the higher prices they're fetching for their products.

Distributing and packaging alone is up an estimated 20 to 25 percent from last year thanks to higher fuel costs, Schoen said. Prices for fertilizer -- used to grow grain to feed the cows -- have also skyrocketed.

'A perfect storm'

Another Cape Girardeau County family dairyman, David Schabbing, said improvements on the world market and other developments have created "a perfect storm" to make milk prices higher for now.

"The only reason why dairymen are staying in business right now is because these milk prices are so high," Schabbing said. "Our other expenses are completely out of sight."

Those higher prices are passed on to the consumer in the dairy aisle. But like row crop farmers, dairy producers are price takers, unable to determine the prices they'll get for their product because of the complexity of the world commodity markets.

Couple the rising costs of dairy production with the endless work in the trade (14- to 16-hour days, milking at intervals around the clock) and the reasons are apparent why dairy farming is on the decline in Southeast Missouri and the state, Schoen said.

"It's a real challenge to stay successful in this business," Schoen said.

Dave Drennan, executive director of the Missouri Dairy Association, said that in 1975 Missouri had 302,000 dairy cows, according to USDA figures.

As of last month, Missouri has 109,000, Drennan said.

Many of the cows lost were once found in Southeast Missouri. But now dairy is small here, and most of the state's production is concentrated in southwest, south-central and central Missouri.

Thanks to the decline, Drennan said the state imports 1.7 billion pounds of milk each year from other states, enough to fill up tankers lined end to end from St. Louis to Salina, Kan.

Drennan's group and others are trying to increase dairy production here, teaming up to form the Missouri Dairy Growth Council. They're also lobbying for help from the state legislature, hoping the legislature will pass dairy-friendly legislation to provide grants for business planning and forgiving interest on loans for producers who want to add dairy cows or breeding heifers to an operation.

Government help is needed to bring dairy back to Missouri, he said, just like farm bill programs are necessary to keep dairy operations going.

"Other states are doing it," Drennan said. "They're reaping the benefits, and they're shipping us their milk."

Price supports are needed or more farms will quickly disappear, Drennan said.

"One of my dairymen says it pays for groceries," Drennan said of farm bill supports. "It's really geared toward keeping small dairy farms in production. Missouri has been one of the larger benefactors."

In Missouri in 2005, milk producers actually lost money on every gallon sold at average market prices that year, $4.04 per gallon, according to the USDA. But with better market prices in 2007, the USDA expects dairy farms' household incomes to be higher than any other type of farm, slightly higher than that of hog producers.

For a farmer like Schoen, dairy subsidies are a fact of life. They don't make his family rich but help keep them afloat in the tough times.

And in years like this one, they're not needed at all, which is exactly what dairy farmers hope for.

msanders@semissourian.com

John Schoen went over a chart that showed fluctuations in consumer prices for dairy products Friday.

335-6611, extension 182