Dairy farmers brace for recession

By BRUCE ROWLAND
Contributing Writer

March 22, 2009 03:28 am

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Some business owners may be in a state of shock due to the wrenching economic whiplash they've experienced during the current recession.

But not local dairy farmers.

For them, due to the effective deregulation of their industry some years ago, the violent ups and downs of a volatile marketplace are something they've been dealing with on a daily basis for years.

"We accept it as another challenge," said Jon Rulfs, co-owner of Adirondack Farms in Peru. "We intend to be in business in the future. It will get better."

Adirondack Farms' three owners have 1,700 milking cows and 1,400 head of young stock. They grow corn for silage and an alfalfa-grass mix for hay on about 3,100 acres in several townships. They buy their feed concentrate — a mix of corn meal, soybean meal, minerals and vitamins — on the open market.

Despite their experience, the current economic downturn is going to be a struggle for many local dairy farmers. To try and help, Cornell Cooperative Extension has launched a full-court press in hopes of getting as many through it as possible.

"You need to know that you have to get through on $12 (per hundred pounds of) milk," Anita Deming, Essex County Extension dairy and farm business-management educator, advises.

Farmers are coming off a couple good years in 2007 and 2008 when the value of the dollar favored milk exports. The standard of living was up in countries such as China, whose people cultivated tastes for ice cream and cheeses and were willing to pay for it. The price of milk topped $20 per hundred pounds in some instances and farmers increased production to meet the demand.

But things soon changed. "Then, the rest of the world felt the same depression that we have," Deming said. The value of the dollar equalized, exports fell and surpluses built up.

Now, Cornell University dairy marketing and policy specialist Dr. Mark Stephenson expects the average price paid to New York dairy farmers in 2009 to be about $4.70 less per hundred pounds than it was in 2008.

"What will have to happen now is some people will have to go out of business," Deming said, adding that she expects that to happen locally, as there are some dairy operations that are barely making it even in good times. "There will be an impact on local farms."

Since the government's support program — a subsidy that puts a floor under dairy prices — was dropped to levels that have little practical value in the name of deregulation and budget cutting, dairy prices now rarely stay in a range that makes predictable planning possible.

Since milk is a perishable product, holding supplies until market conditions improve is not an option. This keeps farmers at the mercy of the ups and downs of the short-term market. "We just see the fluctuations get greater and greater and greater," Deming said.

Cooperative Extension recommends farmers devise a plan, follow through and communicate with bankers, suppliers and all others business associates of the farm. "The open communication is huge, especially with the lenders," Deming said. "Talk to them up front. Tell them what you're planning."

No member of this "profit team" wants a farmer to fail, which is why communication can do so much good. If a farmer goes out of business, that hurts everyone else, too.

"The feed dealers, everyone wants to work with farmers," Deming said. "They don't want to see the farm sell out. It's to everyone's advantage to have it work. The downturn won't last forever."

Deming said it's important for farmers to shop around for the best supply prices and, where possible, band together to extend buying power. Cooperative Extension can perform a dairy-farm business summary and go through the numbers with a farmer to help them with their plan.

She said farmers should examine every facet of their business to be sure each dollar that goes out is paying them back. "Those kinds of record keeping, pencil-pushing things are really important," she said.

The current downturn is affecting small and large farms alike. "It's really across the board," Deming said. "This is an equal-opportunity downturn."

She said she's worried about some 250-cow farms as well as the smaller operations. "Sometimes the small guys can weather it better than the big guys," she said. "You just don't know."

However, often large farms have economies of scale that can allow them to bear more debt. "But large farms that don't have management can go down quick," she said.

A very complex set of factors influence the profitability of a farm, not just the size. Management skills and cost of production are key.

The North Country dairy industry does have advantages. It's near strong markets such as Boston and New York City, communities are supportive of agriculture, there are good research stations and universities that provide expertise, the cost of production is reasonable and the area provides milk for good brands that are highly valued.

Also, unlike in California, the North Country has rain. Dairy farmers don't have to irrigate and compete with urban centers for water. "I think we're relatively well situated to make it through this," Deming said. "Maybe not everybody."

Help is also available online at NYFarmNet, www.nyfarmnet.org/.

"They have all different levels (of help)," Deming said, explaining that they have retired professors and other experts who can advise about things as sensitive as a farm sale or expansion.

"If you're in an emergency situation, they have emotional counseling as well," Deming said. "They have a variety of specialties on tap."

She said it's not just a farmer's job that can get threatened. "You're on the farm every day. It's where you live. It's very emotional and a lot of pride goes with it, too. When things go good, it's really wonderful."

One characteristic of the milk market is that it has an "inelastic demand curve." Only so many people drink milk, and it's hard to increase that number even when the price goes down. But on the positive side, those who do use milk products do so despite higher prices.

"You're always going to feed your babies, because your babies need milk, and you're always going to put cheese on your pizza," Deming said.

Rulfs said he is emphasizing three things to help get the farm through the recession. They include keeping a positive attitude; keeping open lines of communications among business partners, suppliers and lenders; and getting prepared to take advantage of better times when they arrive.

"There's not going to be a downturn forever, so don't do anything to negatively affect your business," he said.

He explained that Adirondack Farms' business plan is based on three-to-five years, not one year at a time because of the volatility.

"We're going to have tough year, but so are a lot of other people," Rulfs said. "We just have to weather the storm just like the rest of the world."

On a farm, he said, the day-to-day business has to be maintained regardless of cash flow. "In down times, we can't neglect the cows, the land or the people here," he said. "All three of those are very important."

He said the business strategy isn't going to change. "We're not going to cut back on fertilizer or (feed) concentrate rates. Those decisions are made regardless of economic times."

Rulfs said it's more than the price of milk that has to be contended with. The farm has to deal with Mother Nature on a daily basis in good times and bad. "You can have a good milk price, but still not be in a good place," he said.

On the plus side, fuel and feed concentrate prices have come down, but fertilizer remains high. Only the nitrogen component is tied to the price of oil.

Rulfs's goal is to be around to take advantage of better times.

"I think about agriculture in general, it's not a job or profession," he said. "It a way of life, big or small."

And when will the downturn be over? Agricultural experts are hoping for the end of 2009, but it's hard to say.

"The dairy economy has become extremely volatile," Rulfs said. "It's very difficult to forecast 12 months in advance. There was a time when that could be done with some accuracy, but in today's market, who knows? Six months ago, no one would have predicted where we are today."

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