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A tough year for dairy farmers
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Dairy farmer Mark Watten is young, only 23, and is running the family farm near Sandstone in Pine County. The small farm, with 90 cows, is breaking even, despite low dairy prices right now. (MPR Photo/Tim Post)
Dairy farmers say the past year has been a tough one. For more than a year, the payments farmers receive for their milk have been less than it costs farmers to to produce the milk. Analysts say the low prices are caused by a supply and demand problem, and they don't think relief will come for months. There's too much milk on the market, and not enough consumer demand. Whatever the reason, the low prices have forced farmers to become smarter business owners.

Sandstone, Minn. — The Watten dairy near Sandstone in Pine County has young blood. At 23, Mark Watten already runs his family's small dairy. He's unusual, because most dairy farmers are twice his age. He's worked hard over the past year to keep the 90-cow operation in business.

Watten keeps close track on milk production by filling out a detailed form after each of the day's three milkings. Watten says that attention to detail is important. He says past generations of dairy farmers didn't keep such close watch on the bottom line.

Until a few years ago, dairy prices were strong and stable compared to other sectors of agriculture. But Watten says when dairy prices turned volitale, the business end of farming took on greater importance.

"We need X amount of dollars a month to pay the bills. In order to pay those bills we need X amount of pounds of milk," Watten says. "We have the goals, so this keeps us on track from day to day, from week to week and from month to month."

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Image Watten prepares for milking time

Watten says his farm is doing OK. He's not making a lot of money, but he's not in the red either -- despite the low prices. Watten was lucky enough to inherit a farm without a lot of debt, and he has kept it that way.

The price for 100 pounds of Class 3 milk, the kind used in cheese and the kind most Minnesota dairy farms produce, has hovered in the $9 to $11 range for about a year and a half. That's several dollars below average. Prices are bolstered by milk plant premiums and some federal money. Still the total amount farmers get for 100 pounds of milk is about $13.50. That's a break-even price for most small dairies.

Dairy analysts say the low prices are caused by supply and demand. Bob Cropp, a dairy specialist at the University of Wisonsin-Madison, says farmers across the nation have produced more than enough milk over the past several years. But demand for dairy products hasn't kept up with the supply, primarily because of the lagging economy.

"People are traveling less. We're not serving meals on airlines, where they would serve some cheese and maybe some butter. There's smaller attendance at major conferences where dairy products are served. It appears to be in that food service area rather than at home," Cropp says.

Cropp says even a slight increase in consumer demand would help. If that happens prices will start to rise. He says the best thing for farmers to do at that point is to sign a contract with a milk plant. Cropp says that way, farmers will have a safety net in case dairy prices take a dive again.

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Image Keeping track of dairy production

David Kohl, an agricultural economist with Virginia Tech, says dairy farmers need to watch their budgets. And they need to realize times are tough for everyone.

"Sit down, evaluate where you're going, where your family fits in -- personal lives and business lives -- and step back and fully realize they are not the only segment of the industry hurting," says Kohl. "A lot of the economy is hurting right now. It's basically going sideways, so it's probably going to take a little different strategy."

Kohl says that strategy includes watching debt closely. Going into debt is a part of dairy farming. But unneccesary debt, like buying a new truck or a piece of unneeded equipment, should be avoided while prices are low.

Dairy analysts think milk prices may increase by late summer. By then the low prices will have forced some dairy farmers out of business. Although many say that's a tragedy, it will also lower the amount of milk on the market. That means dairy farmers who can ride out the low prices and stick to wise business practices should make a profit in the future.

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