Lodi-area dairies feel the pinch of reduced prices and lower demand

Cathy Kaehler maneuvers a well-worn and embattled golf cart among the herds of dairy cows that populate her family's Lodi farm. Uncertain about the future of the business that has consumed her family's life for the past 50 years, Kaehler mutters, "I'm getting too old for this."

Kaehler, in her faded blue coveralls and with her grumpy and protective Queensland heeler Izzy by her side, devotes 12 or more hours of her day to a farm that is running non-stop. Kaehler's 700 cows require milking twice a day, making the line to the milking machines an endless procession. The recent decline in dairy prices has placed an even heavier burden on Kaehler and the other dairy farmers in San Joaquin County.

"It just affected us in December," Kaehler said, adding that her family's dairy, which is part of a cooperative of other dairies, had a good year in 2008.

Dairy is indeed the largest agricultural commodity in the county, worth about $4.6 million last year. California leads the nation in milk production.

However, since September 2008, the price of liquid milk produced by dairies has dropped from $18.20 per hundred pounds (or 850 gallons) down to about $10.68, according to a report published by the Chicago Mercantile Exchange Group. Weigh that against soaring feed prices, and it's a disastrous mix.

"Costs for the dairy farmers have risen dramatically," said Scott Hudson, the San Joaquin County Agricultural Commissioner. Hudson said farmers have to budget for feed, the cost of veterinary bills and paying their employees, and costs related to compliance with state regulations such as water and air quality standards. Environmental regulations passed during recent years heaped extra costs onto dairy farmers, Hudson said.

Many California farmers blame the state's government for the recent reduction in the price of milk.

"The state lowered our price by $0.37 a month ago, which was a slap in the face when we're the lowest-receiving state in the nation," said Hank Van Exel, owner of Van Exel Dairy in Lodi. Prices are set by the California Department of Food and Ag, based on the prices quoted by the CME Group, in order to keep prices fair for farmers.

According to Bill Schiek, an economist for the Dairy Institute of California, the main reason for the low prices is market demand, not the state.

"People think it was due to the Department of Agriculture in California," Schiek said. Not so, Schiek continued. There was an increased demand for dairy, so many farmers increased the number of cows to compensate. However, increased demand also equaled increased consumer prices. "A lot of (consumers of) dairy began to substitute with cheaper commodities. People who were using whey started using corn products instead," Schiek said. An example would be a restaurant seeking more affordable ingredients in order to keep their operating costs down.

That rapid drop in demand for dairy left most farmers with extra milk-producing cows to feed and care for, but no way to unload their product.

Case van Steyn, a dairy farmer in Galt, said farmers didn't prepare themselves for the chance that prices would drop so low.

"The industry was guilty because we never thought the price would get that low again. Now it's coming back to bite us in the you-know-where," van Steyn said. "It's going to take a great big bite out of us."

Van Steyn said he believes dairies around the size of his — about 1,000 head of cattle — will weather the storm, but smaller dairies may not make it.

Van Exel echoes that sentiment: "I would daresay that 20 percent of dairies are going to go out of business."

And Van Exel points out that unloading cattle isn't always an option, as the animals are worth about half what they were in July, and even at bargain prices, nobody's buying.

Rep. Dennis Cardoza, D-Merced, says he's meeting with officials to find a way to help dairy operators squeezed by a sudden drop in prices.

After two years of increased consumer demand worldwide, economic stagnation has reduced milk consumption.

Cardoza said that he has been meeting with Secretary of AgricultureTom Vilsack. So far, the USDA has spent $93 million to buy 115 million pounds of surplus dry milk in an attempt to support prices.

But until something is done, farmers are faced with too much supply and not enough demand.

Kaehler's Dairy, which produces about 6,300 gallons of milk a day, only has the capacity to store 4,000 gallons on premises. A truck from the cooperative hauls away about 6,000 gallons twice a day, so juggling output and storage can sometimes be tricky.

The option to slaughter the cows has been discussed in dairy circles. For Kaehler, that's not an option. "I love animals. I couldn't do that," Kaehler said, suddenly looking contemplative.

At the Kaehler Dairy, where Kaehler runs the daily operations, her sister oversees the bookkeeping and some mechanic work. Their two brothers do a majority of the farming, but measures like growing a portion of their own feed, recycling manure and selling calves, and cutting the budget by 10 percent may still not be enough.

Reducing oat and alfalfa hay feed to parts of her herd to help them produce less milk is another option, but Kaehler hesitates with the reduction since it takes a long time for dairy cows to regain their maximum amount of milk. If demand skyrockets, they wouldn't be able to catch up quickly enough.

"I don't know what we'll do," Kaehler said, patting Izzy and watching over her herds.

The Associated Press contributed to this report.

Contact Business Editor Marc Lutz at marcl@lodinews.com.

Reader Feedback

edumacation wrote on Feb 8, 2009 9:28 AM:

" Got Milk? "

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edumacation wrote on Feb 8, 2009 9:27 AM:

" In what appears to be the result of extraterrestrial encounters, dairy farmers are reporting a rash of cow disappearances in Californias heartland*. Eyewitnesses claim to have seen alien beings combing cow pastures for what they call a magic white serum that enhances bone strength, promotes muscle recovery, prevents cavities, and takes the edge off insomnia and PMS.

This wonder tonic is exactly what weve been looking for, declared one alien scientist in a recent interview. Thanks to DA-IRY, our brittle-boned, sleep-deprived citizens will have relief, at last.**

Reports linking extraterrestrials to cows, inspired GOT MILK? creators - The California Milk Processor Board (CMPB) "

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loadeye wrote on Feb 8, 2009 9:07 AM:

" I'm bothered by the fact that milk is $4.19 a gallon at out little canned foods store, yet when we buy milk for our food distribution for our needy families at Smart& final, it's only $2.30 per gallon if you buy two. It sounds to me like you're stuck in the middle of a situation you can't control and that the powers to be are manipulating you. I feel for you and your plight being stuck in the middle and the one taking it in the shorts. "

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mjp wrote on Feb 7, 2009 9:33 PM:

" Once the Global Warming proponents have Obama initiate the cow farting tax, you can forget about reasonable priced dairy products or even having any at all. "

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Cogito wrote on Feb 7, 2009 5:31 PM:

" I wonder what would happen to dairy farming if the government were to be taken out of the loop. You know, compete in the free market driven by supply and demand. Until they do, I think they need to quit griping about how much they can suckle from the governmental udder. "

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sam wrote on Feb 7, 2009 5:19 PM:

" Mad Dog, your comment was not wasted. Hehe. "

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Mad Dog wrote on Feb 7, 2009 12:36 PM:

" This is a very MOOVING article. "

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Nextel wrote on Feb 7, 2009 12:18 PM:

" WTF - Good post, my Wife and I have been buying organic dairy products for the last seven years. Milk, cheese, half & half, sour cream, cottage cheese, ect. We buy at Trader Joe's for best deal on any and all organics. "

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wtf wrote on Feb 7, 2009 9:19 AM:

" For the smaller dairies, they might want to consider transitioning to becoming an organic dairy and join the Organic Valley Cooperative - if they aren't organic already - the article didn't say. Organics usually favor small owners - farmers, dairies - and people are willing to pay more for a better, cleaner product; but there are strict guidelines regarding being an organic dairy farmer. "

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joesr wrote on Feb 7, 2009 7:14 AM:

" Mark,

If the dairy produces approx 6300 gallons daily how can they ship approx 1200 gallons daily? "

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joesr wrote on Feb 7, 2009 7:08 AM:

" Mark,

Check your math buddy. After some quick google research I find milk weighs between 8.5 and 7 lbs. per gallon. Whole, milk, 2%, slim , non fat etc. "

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