Good for the consumer but not so much for the milk producer.

While lower milk and dairy prices have been a welcome relief to consumers during the Great Recession, dairy farmers have been suffering. Now a series of herd "retirements" is beginning to help some troubled dairy farmers through one of their toughest periods in decades.

Dairies have been culling milk-producing cows, sending them to the packing house through four "Cooperatives Working Together" retirements organized by the National Milk Producers Federation over the last year.

Producers say 2008-09 brought a "perfect storm" of challenges to the dairy industry, with overproduction, higher input costs, the global recession and shrinking exports sinking some operations and causing others to operate under bankruptcy protection.

"It's the worst economic recession the dairy industry's had in probably 50 years," said Les Hardesty, a Wellington dairy owner and former president of the National Dairy Board. "Not only have prices been low but input costs like fuel are high and the length of the downturn has been phenomenal."

Just two years ago, relatively high dairy prices and rising exports were supporting a healthy dairy industry nationally, including in Northern Colorado. But things went sour in 2008, when overproduction caused milk prices to fall precipitously and increasing fuel and feed costs ate into profits.

The global recession that kicked in during the final months of 2008 dropped exports of cheese and dried milk by half, sending shockwaves through the industry.

"In some cases, producers were losing as much as $150 per cow per month," Hardesty said.

An estimated dozen Colorado milk producers have filed for bankruptcy protection over the last year, including the sprawling Johnson Dairy near Eaton that filed for Chapter 11 in January. That bankruptcy was complicated by alleged loan misconduct by the now-closed New Frontier Bank in Greeley.

John Johnson, dairy owner, took advantage of the CWT program last summer to reduce his herd from about 9,000 cows to about 3,000 calves and non-producing animals.

Johnson had to first get permission from the bankruptcy judge to take part in the herd reduction. Proceeds from the sale have been placed in an account set aside for paying off creditors.



Big impact

Jim Tillison, NMPF spokesman, said the CWT program has had a big impact on the dairy industry. "Since 2008 we've removed a total of 277,000 cows that would have produced 4.5 billion pounds of milk," he said. "We believe the herd retirement has added around $1.50 on average per hundredweight to the price of milk since 2008."

Through the CWT program, dairy producers are paid up to $5.25 per hundred pounds of milk for the amount of their previous year's milk production. They also get to keep what they're paid for the animals taken out of production by the slaughterhouse.

The program allows producers to catch their breath and not have to continue losing money on feed and fuel due to poor milk prices. And they can get back into milking cows for commercial production after a year if they so desire.

 "CWT exists for producers who want to stay in business," Tillison said. "The vast majority want to continue to milk cows but they want it to be profitable."

Hardesty notes that those who aren't tired of the business or need to get out for some personal reason can always restart their operations. "If someone does retire their herd, there's the potential they can come back in relatively soon with the younger animals," he said.

"In some cases it's a graceful exit for someone needing to retire," added Hardesty, who is not participating in the CWT program.



Too big for its market

Bill Wailes, head of Colorado State University's animal sciences department, said the repeated dairy herd retirements appear to be having some impact on milk prices.

"Up till the last one they weren't that effective," he said. "It's been a very slow process. It's been a tool that hasn't been near as effective as it could have been."

Wailes said the industry could never get more than about 70 percent of dairy producers to take part in the retirements, which limited its impact.

"They needed 100 percent," he said. "In the last retirement they got just around 26,000 cows when 100,000 would have had much more effect on the production system."

Tillison admits that non-participating dairy producers have hampered the program. "They're benefiting from what these other producers are doing," he said. "It is irritating."

Wailes said the current situation demonstrates that the American dairy industry had grown too big for its market.

"We need to move to more of a balanced system where we're producing as much as we're consuming," he said. "The fact is we have too many cows and we need to get more out of production."

Tillison said the herd retirement announced on Oct. 1 will be the last for 2009.

"We've done so many we need to wait and see what the total impact is going to be down the road," he said. "We don't want to over-reduce because that would encourage milk imports."

Hardesty said the average national milk price per hundredweight is around $12.50; it's only around $10 in Colorado, but as low as about $8 in some other states.

In general, Hardesty said the price of milk has to get back to about $16 per hundredweight for producers to see real profits again.

"The breakeven cost will vary from farm to farm," he said. "In general, someplace around $14 to $16 would be a breakeven cost."

While it's been a rough two years, optimism appears to be growing.

"I'm very optimistic we'll see $16 milk going forward in the next year," Wailes said.

"Historically, eventually things turn around," added Tillison. "(The herd retirements) make what would happen naturally happen a lot faster. By taking action it's moved that timeframe up by at least six months. That's a lot of money saved that would otherwise have been lost."