Iowa dairy farmer testifies sector in a ‘price-cost squeeze’

America’s dairy producers find themselves in a “price-cost squeeze” between plummeting milk prices and feed costs that have remained high. Several public and private assistance initiatives are in place, but relief is not yet being fully felt at the farm gate, an Iowa dairy farmer today told a House Agriculture subcommittee.

Iowa Farm Bureau President Craig Lang, partner in a dairy with his father, brother and sons, testified on behalf of the American Farm Bureau Federation before the subcommittee on livestock, dairy and poultry during a hearing on the economic challenges facing the dairy sector.

Lang said that due to historically low milk prices, his family and a number of other dairy producers have depleted cash that was put aside during positive economic years, and they are “now using a bank line of credit to help pay for daily operations.”

Coming off positive economic returns in 2007 and most of 2008, farmers responded to market signals to produce more milk. Lang explained that last fall, factors such as the global economic recession and a stronger dollar effectively shut down the international market for U.S. dairy goods.

Lang said “the demand shock from the evaporation of the international marketplace, excess supply being thrust upon the domestic marketplace, and shrinking margins of income over feed costs” are putting dairy farmers at financial risk.

Lang testified that lower prices have resulted in supportive action by the federal government. At Farm Bureau’s urging the Agriculture Department has purchased dairy products for nutrition programs. Low prices also have triggered support payments under the Milk Income Loss Contract for the first time in two years, and USDA has allocated the maximum volume of dairy products eligible for incentives to boost exports consistent with world trade rules.

Lang said Farm Bureau would support several options to assist dairy producers in the short-term, including a program called Cooperatives Working Together. CWT is a voluntary, producer-funded program that supports milk prices through herd retirement and other means.

“We applaud the efforts undertaken by CWT so far,” Lang said. “The latest removal of 100,000 cows, unfortunately, only represents about 1 percent of the U.S. herd. Our economists believe another 3 percent reduction in cow herd numbers for an extended period of time will be required before dairy prices are likely to significantly rebound.”

Lang said that program may not have funds necessary to reduce the U.S. herd enough to boost milk prices back to a profitable level. This may mean the only option is for more farmers to sell their herds on the open market.

“Eventually, that culling of the U.S. herd will reduce milk supply and boost prices,” Lang said. “Cull cow markets have already softened considerably and are making this a difficult decision for farmers.”

While fewer dairy cows would be useful in increasing dairy prices to farmers, Lang said Farm Bureau is “adamantly opposed” to a federal dairy herd buyout program similar to those used in the past. In the past such programs have had negative impacts on the beef industry and Farm Bureau does not support programs to benefit one sector to the detriment of another.

In the meantime, Lang said USDA expects a brighter economic picture around the corner. USDA is forecasting the all-milk price to average $11.60 per hundredweight in the third quarter and $13.10 per hundredweight in the fourth quarter. For all of 2010, USDA is projecting an all-milk price of $15.30 per hundredweight.

“We are working our way out of this severe crisis and must let the dairy sector return to a supply/demand balance as soon as possible,” Lang said.

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