Dairy industry could use some assistance

ACCOUNTING FOR PROFITS

By Ralph lizardo

Thank goodness 2009 is long gone. By the time this article is published, the second half of 2010 is also long gone. When I looked at the Class III Milk Futures yesterday, for the months of August 2010 to July 2011, it is roughly in the mid $14 range, an improvement from what we had seen in 2009 and early parts of 2010.  Hopefully this will have increased again by the time this article is published.

Dairy is economic driver

According to the Dairy Farming Today’s website, “America’s dairy industry is more than milk. It’s jobs and economic activity for the people of our country. It’s also a way of life for more than 60,000 farm families.” The worst economic downturn in the dairy industry since the Great Depression has caused many dairies to go out of business and the domino effect is too many to list.

To President Barrack Obama, Secretary of Agriculture Tom Vilsack, Senators and members of Congress, what are you going to do in response to the crisis that is being faced by the dairy industry and the millions of people it affects?

In May 2008, the Food, Conservation and Energy Act of 2008, also known as the 2008 Farm Bill, was enacted. The provisions of the 2008 Farm Bill that are most important to the dairymen include Milk Income Loss Contract (MILC) program, revisions to the Dairy Products Price Support program, and Federal Milk Market Order amendment procedures revisions. However, when the 2008 Farm Bill was enacted, the dairy industry’s economic situation was very different and did not address the issues that concern most dairymen today.

Milk pricing

Based on the Dairy Farm Operating Trends published by Frazer Frost, LLP, average milk income for dairies located in Southern California, the San Joaquin Valley, Kern County, Arizona, Idaho, New Mexico and the Texas Panhandle was between $16.84 – $19.11 per hundredweight during the time when the 2008 Farm Bill was enacted.

During 2009, the price of milk dipped for the same regions to $11.94 – $13.83 per hundredweight. It costs roughly $17 to produce a hundredweight of milk. It doesn’t take an accountant to tell you that the current situation is a recipe for disaster.

USDA investigates

It is highly likely that the next government intervention will not come until the passage of the 2012 Farm Bill.  The USDA is currently in its investigative stages of what will be included in the next Farm Bill.

On Jan. 6, 2010, the USDA established the Dairy Industry Advisory Committee (DIAC). The DIACairy will operate under the rules of the Federal Advisory Committee Act to advise Vilsack on issues impacting the dairy industry. The purpose of the DIAC is to review the issues of farm milk price volatility and dairy farmer profitability. The 17-member committee is to provide a report to Ag Secretary Vilsack on how the USDA should address these issues both short and long term.

The report will also include an assessment on the recent actions taken by USDA affecting the dairy industry. The committee members were selected from more than 300 nominations representing producer and producer organizations, processors and processor organizations, handlers, retailers, consumers, academia and state agencies.

Fair, competitive

In the addition, USDA and Department of Justice recently put on a public workshop in Wisconsin to examine the enforcement of antitrust and other regulations in the dairy industry. According to Vilsack, “the dairy industry has been hit particularly hard over the past 18 months, and, like other agricultural sectors, is experiencing consolidation and shrinking farm numbers. A fair and competitive marketplace is important not only for producers, but also for consumers.”

The milk pricing system, milk supply management and the recession that the nation is currently facing are critical factors in the crisis in the industry and dairymen across the nation must unite to find a common solution. Be active and participate in the various workshops and town hall meetings that are being conducted throughout the United States. While we wait for the results of the USDA’s findings and new rules and regulations are set in place, every dairyman must look at their own dairy operation to find ways to increase efficiencies and decrease costs.

FYI

Ralph C. Lizardo, CPA, senior manager, Frazer Frost, LLP, in Visalia, Calif. Contact him by e-mail at: rlizardo@frazerfrost.com or call, 714-990-1040 ext. 178.

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