Missouri dairy industry aided by USDA price supports

Thursday, August 13, 2009 | 12:01 a.m. CDT
Cows eat a healthy cassarole mixture of alfalfa, straw and several other ingredients. Eating around 80 pounds a day, the cows produce two batches of milk.

FULTON — Since 1901, the Echelmeier family has been milking a herd of dairy cows in central Missouri.

Brothers Steve and Tim Echelmeier, the third generation to manage the dairy farm in its 108 years, have built a livelihood on their cows. Their farm, Echo-L-Holsteins outside Fulton, has a herd of 500 cows, producing up to 4,250 gallons of milk daily.


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With their long history in dairy farming, the brothers are well aware of the tumultuous, cyclical changes of the industry. Every three years, the Echelmeiers say, dairy farmers enjoy a period of expansion followed by an abrupt interval of stagnation.

Over the past decade, the market for milk has become extremely volatile, with prices often sinking as supplies surge. "2002 was a down year and again in 2006. And now, it's 2009," Tim Echelmeier said. "And each cycle has gotten worse."

When the Echelmeiers  moved their farm from St. Louis to Fulton in the 1970s, they wanted to focus just on the cows, because according to Steve Echelmeier, “That's what we do best, and that's where our money is.” 

The foundation of the farm is in feeding, milking and cleaning the cows, he said. They produce milk for Prairie Farms and transport it with their own trucks to the company's processing plants around Missouri.
This year, the downswing of the industry has hit dairy farmers especially hard, with the price they get for milk dropping by nearly 60 percent. Their operation in Fulton once had 13 full- and part-time employees, but it's now down to 10, including the two owners. Hoping to cut costs, they changed feed-supply companies and now buy hay locally rather than transporting it from Kansas.

The past several months have been the worst for the dairy industry in 25 years, said David Drennan, executive director of the Missouri Dairy Association.

"Dairy farmers are price takers, not price makers," he said.

In July, the federal government stepped in to help dairy farmers such as the Echelmeiers. U.S. Department of Agriculture Secretary Tom Vilsack announced that the government will increase the prices paid for dairy products through the Dairy Product Price Support Program. Farmers began to receive this income boost on July 31.

The program helps dairy farmers indirectly by buying excess milk from the processors in the form of nonfat dry milk, butter and cheese. The government then stores these products on the shelves of warehouses until they can later be sold back into the market or donated to relief organizations.

Current milk production in Missouri is down by 4 percent from a year ago, according to the USDA’s statistics on 23 dairy states. Nationally, production is down by 0.1 percent overall since last summer.

The dairy industry’s slump has a direct correlation to the sharp downturn in the economy. The recession caused demand for milk to plummet across the world. In turn, the price farmers receive for the milk began a sharp decline.

Yet, the farmers’ herds continue to produce milk, and the cost of production began to tower above their income. This trend has persisted for several months across the nation.

John Denbigh, superintendent of the MU’s Foremost Dairy Farm, said few variables can be changed when it comes to milking cows.

“In general, most commercial farms manufacture a diet that will maximize production of milk,” Denbigh said. Much of the research on the MU farm concentrates on nutrition and adjustments to diet. One area that could help dairy farmers in a volatile climate is investigating how to feed a cow adequately at a lower cost.

In order to stay in business, dairy farmers have begun to seek bank loans, using their herds and farms as collateral. Since banks are increasingly reluctant to lend, many farmers have been working on a deficit for the past year, said Joe Horner, dairy and beef economist for MU's Commercial Agriculture Program.

“The creditors we work with understand the situation,” Echelmeier said about a lending company in Minnesota with a number of dairy farmers as customers.  “We may be having them extend us just a bit longer.”

These days, unexpected repairs on equipment are costly drains on the Echelmeier farm. “I have a tire that's going flat. I've got a radiator with two holes and it’s leaking radiator fluid all the time,” Steve Echelmeier said about a tractor motor.

“I can't justify going out buying a new tire. A year ago, I wouldn't even have thought about it.”

A year ago, American dairy farmers were setting records for exporting, Horner said. That's all changed now. 

The demand in Asia leveled off because of a surplus, and now only a very small percentage of the world's dairy production is traded internationally. "For the most part, it's consumed where it's produced," Horner said.

Drennan said that unlike most commodities, dairy is a perishable product. Farmers typically only have two days to send their milk to a manufacturing plant, where it will be processed into cheese, dry milk powder and other food products. 

Dairy farmers either have to dump the milk down the drain or sell their milk at the price given to them, Steve Echelmeier said.

“Everybody is hanging on,” Drennan said. “And the way they’re hanging on is by burning up their equity.”

Tim Echelmeier said the USDA price support will add about 30 cents per 100 pounds of milk, or about 2.5 cents per gallon of milk, to their bottom line.

“It will help us, but it's still a long way to the cost of production,” he said.

The program will raise product prices for nonperishable milk goods, which will translate into higher farm-level prices, according to the National Milk Producers Federation. The USDA estimates that the program will raise farmer income by $243 million. Drennan said that each dairy farmer could see an increase from 90 cents to $1.25 per hundredweight — or 100 pounds — of milk.

“This is the first time they’ve raised prices," he said. "It’s indicative of the seriousness of the dairy crisis.”

“We've always had our ups and down,” Steve Echelmeier said. “I remember as a kid, the price would fluctuate from $12 to $13.50, but it would only fluctuate a dollar to dollar and a half a time.” 

Volatility also shakes predictions for farm-level prices. Prices in July were expected to yield about $15 per hundredweight of milk, Tim Echelmeier said, but right now fluctuates between $10 and $11.  

The cost of producing dairy products from cow to marketplace is considerably more expensive in energy costs than any other commodity, Drennan said.

“Dairy is a big user of electricity,” he said. “For example, you have to keep those milk coolers and milk tanks running at 38 degrees. We use more electricity than any other farm commodity.”

Energy costs continue to escalate, he said, because transportation and processing costs are a substantial part of dairy production.

Although the price-support program is set to expire in three months, it is a step forward in the right direction, Drennan said. The cure to the ailing dairy industry, however, is a combination of things, he said. 

Horner agreed that the program alone “will not save the dairy industry.”

For the most part, consumers rarely feel the immediate effects of the erratic dairy market, he said. The dairy industry cycles over a span of three years, and it takes half that time for market conditions to substantiate.

Drennan suggested that many retailers are making an effort to offload their dairy products, especially cheese. “You’ll see some good bargains in the cheese aisle,” he said. “The processors and retailers are trying to market them.”

When Steve Echelmeier talks about his own children’s relationship with the farm, the prospects are hopeful. He wants to present it as an opportunity for them to develop the solid work ethic and values that the dairy farm gave him so many years ago.   

“I think about that almost every day,” he said. “That's the main reason I do what I do, and I love bringing them here.”

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