Opinion: 2012 numbers are in – it’s time for producers to stand up for change
By Gary Genske
Since the 2012 Farm Bill was delayed for consideration into 2013, it provides an opportunity for dairy farmers to help form new dairy policy for this five-year bill. The Dairy Security Act was proposed for inclusion in the 2012 Farm Bill, and many dairy lobbyists and co-op executives have heavily criticized Congress for not passing the bill. After all, these lobbyists and large co-ops have collectively contributed $4 million to $6 million a year for the last five years to get the Dairy Security Act passed, so I can understand their frustration. More details on who got the money in D.C. another time.
Looking at the numbers
First, some crucial facts (see Table 1):
Table 1. Dairy income/loss ($/cwt.)
|Dairy farm income||$13.03||$16.88||$17.54|
|Dairy farm expenses||$11.82||$16.79||$19.26|
|Operating gain (loss)||$1.21||$0.09||($0.72)|
|Needed for debt payment|
|and owner’s living||($1.75)||($1.75)||($1.75)|
|Overall loss from our data||($0.54)||($1.66)||($2.47)|
|USDA data (loss)||--||($6.02)||($7.03)|
Our clients produce about 12% of the milk in 30 states. Our data is compiled from operating results from our clients, which are mostly larger dairy farms in the Western United States.
The operating results of two decades – the 1980s and 1990s – have revealed an overall 54¢/cwt. loss for the average farm. The average farm did, however, make an average operating profit of $1.21/cwt. during those two decades, not enough to meet all required principal debt payments, but generally enough to reduce some debt and get refinanced annually.
As the table illustrates, the 2009-2012 and 2012 operating results reveal the dairy farmers’ “fiscal cliff”. During the last four years, the average dairy farmer has not reduced, but increased debt in order to pay operating expenses. There remains little or no equity with which to borrow against in the future. There has been very little capital improvement, equipment purchasing or modernization on the farm, and we have lost about 10,000 dairy farms during this period.
These trends must change, and since there are new five-year farm bill discussions beginning in Washington, you, as a producer, must demand meaningful change for your own sustainability. A new five-year farm bill that can help recapture our cost increases through the existing government producer pay price system is essential.
The proposed Dairy Security Act will only, at times, reduce up to one-half of losses in “financially catastrophic” times, and at a one-half billion dollar cost to the government. This is all the help the dairy farmer is being offered in this five-year farm bill proposal. We need a price increase, not a small loss reduction.
If there was a 70¢/gallon retail price increase to help recapture the increased farmer costs, the USDA national average whole milk price would increase to $4.19/gallon, certainly not the $7-$8/gallon reported in the national news media on Dec. 31, 2012. Our solution can come from the marketplace, not the government.
Since I am a dairy producer as well, I not only live this nightmare with my dairy clients, I live it personally. During my 40 years of experience working for dairy farmers, I have seen dairy farmers chase lost revenue (not profit) in low milk price periods by producing more milk. Most disturbing, they wait for others to be forced out of business, while thinking the surviving producers will prosper. From 600,000 dairy producers three decades ago to about 50,000 producers today, how many will be here when the next five-year farm bill is debated? And how well have these strategies worked for us?
Meaningful dairy reform involves:
1) The market, not the CME, pricing our milk through the existing government Federal Milk Market Order System.
2) If you want a responsible price for milk, you have to produce only what milk that can be profitably sold from the producer perspective.
3) Tighten up milk import restrictions where imports are free to enter this country now.
4) Milk export opportunities (reported at 13% of domestic production, should be netted against uncontrolled imports of about 6%) should not be used as the excuse for continuing uncontrolled domestic production that results in very low producer prices.
These four dairy reform issues are necessary farm bill provisions to protect the sustainability of our national dairy farms and protect a fresh, safe and locally produced supply of milk.
• Gary Genske is a CPA and Managing Partner of Genske, Mulder & Co., LLP, Certified Public Accountants, and a dairy farmer and board member of the National Dairy Producers Organization. You can participate in weekly national calls by simply calling 712-432-0900, Pin 782091, at 5 p.m. (Pacific) or 8 p.m. (Eastern).