MPR: Dairy's Turn to Suffer

Dairy's Turn to Suffer
By Tim Post
December 8, 2000

Dairy farmers across the nation are dealing with record low prices for milk. Even with extra assistance from the government, in the form of a check mailed out this month, farmers are finding the dairy industry is no longer as stable as it once was.

THE ROLLING HILLS north of Melrose seem to hold a silo, barn and white farmhouse around every corner. This area is considered one of Minnesota's "Dairy Belts."

Kent Kelly has run a dairy farm here with his family for 10 years, he's been in the business for 20 years, spending a decade farming with his father near Annandale before he moved here. But as Kelly walks from his back porch and across the farm yard, he says this is a scene that won't be a part of the landscape much longer.

"We just feel that something like you're seeing here today is no longer going to be; that a husband and wife raising, raising a family on a small 250-acre dairy farm is going to be a thing of the past," says Kelly.

A thing of the past, according to Kelly, because dairy farmers just can't make a living with the prices they get for milk.

Prices for class-three milk, that's the milk used for cheese, hit a record low base price of $8.55 in December. That's the price for 100 pounds of milk, before premiums from a processor are added and a boost from the federal government is raises the price even more. Eighty percent of Minnesota milk is class-three milk.

Kelly says that's a lower price than he received when he started farming in 1980.

If you ask an agricultural economist why prices are so low, he'll tell you it's a supply and demand issue. There's too much product out there right now. Kelly says he thinks it's price fixing, that cheese processors are driving down the price of class-three milk, so they pay less for milk, and get bigger profits on cheese.

Dave Hahn, director of dairy policy at Land o' Lakes in Arden Hills, doesn't like the accusations of price fixing against his industry. He falls back on the supply-and-demand formula. Land o' Lakes has contracts with 5,700 dairy farmers across the country.

"I would go back and rely on market fundamentals, and the fact that there is still a lot of competition for milk and for dairy products; there's dairy co-ops that represent producers, and they're performing in the best interest of their owners, so I really don't take those charges too seriously," says Hahn.

Hahn says processors feel for farmers suffering under low prices, but he says that's the way the market is moving. Low prices force farmers to expand their operations. Large farms can handle lower prices better than small operations. Minnesota farmers are competing for market share with big dairy operations in the new dairy states of California, Arizona and Idaho. Hahn says from a processors point of view, Minnesota farmers are going to have to start competing with the west for milk production.

Jim Salfer, a Stearns County extension agent in St. Cloud, says the days of a farm family relying on a stable monthly milk check to keep afloat a diversified operation are gone. You have too specialize to survive.

"That's good in one standpoint, but on the flip side it becomes a little bit more of a challenge when the commodity that you are producing is financially not doing very well, it also puts a lot more stress on you from a financial standpoint," says Salfer.

Most of the agriculture industry is struggling with low prices. Some argue that it's dairy's turn.

A few organic dairy farms are making more on their milk - $18 per hundred-weight; several dollars more than traditionally processed milk. But as Kelley sits in his kitchen he predicts a dark future for the dairy industry.

"I have three sons, none of them want to farm," Kelley notes. "They've come out to the barn with me and their mother since they were little tikes and they see at these prices there is no future, so they're not interested. They know that there is better lives out there for them than this. I just think that is going to be the conception of most young people. I can't see a lot of young people being attracted to into dairy farming."

Kelly and about 300 area dairy farmers are starting a co-op called Milk Power, hoping that they can offer a cheese processor enough milk to fill cheese plant, and in return make more on their milk. Kent Kelly says that could keep them on the farm.

Tim Post covers central Minnesota for Minnesota Public Radio. Reach him via e-mail at tpost@mpr.org.

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