SD dairy farmers seek better deal in new farm bill

• Milk prices

This April 2009 shows dairy cattle at a farm near Volga. Milk prices in South Dakota fell as low as $10 a hundredweight in 2009 from a high of about $20 per hwt, according to Secretary of Agriculture Walt Bones. They since have rebounded to $16 per hwt. But the specter of market volatility continues to hang over the industry. (AP Photo)

Talk about it

SIOUX FALLS (AP) — After U.S. dairy farmers collectively lost about $10 billion in income in 2009, safeguarding the industry from another precipitous drop became a priority in the new farm bill.

Milk prices in South Dakota fell as low as $10 a hundredweight in 2009 from a high of about $20 per hwt, according to Secretary of Agriculture Walt Bones. They since have rebounded to $16 per hwt. But the specter of market volatility continues to hang over the industry.

“What is in existence now is what they call a safety net. My board basically says there is no safety and there is no net. Anything new is better than what they have,” said Roger Scheibe, director of industry outreach for the Midwest Dairy Association.

Maybe better, but just barely. While a new dairy proposal in the farm bill would pay farmers when the margin between their feed cost and the selling price of milk grows too narrow and would also give farmers the option to buy federally subsidized risk management insurance, farmers have to agree to limit production when milk prices fall below a specified level.

The goal is to ensure an adequate milk supply but also to prevent price-dampening milk surpluses from developing.

In a state such as South Dakota, though, that is trying to build its dairy industry to reclaim export share, even by recruiting existing dairies from out of state, the concept of production limits is troubling. Scheibe said producers in the Midwest Dairy Association reluctantly agreed to endorse the new farm bill proposals only because participation in the program is voluntary for farmers and because the safety net that exists now is so inadequate.

But Jon Davis, president and CEO of Davisco Food International that owns the Lake Norden Cheese Co., testified before a U.S. House Agriculture subcommittee April 26 and said the dairy title is anathema to processors such as Davisco who seek to expand.

“We’re ready to double our investment in Lake Norden,” Davis said. Other regional milk processors are similarly poised for growth, he claimed. But to accommodate that they need more cows producing more milk without the threat production will be slowed if milk prices dip too much.

“Supply controls are not good for dairy, and certainly not for a state like South Dakota. We’ve got 90,000 cows, and we want 200,000 in the next five to seven years. We’re not going to do that if they put a cap on us,” he said. South Dakota now has 320 dairy farms milking 92,000 cows, according to Scheibe.

Davis is so eager to see South Dakota get more dairy farms that he joined Gov. Dennis Daugaard, Bones and David Skaggs, the state’s dairy development specialist, at a dairy industry show in February in Tulare, Calif.

Afterward, he paid to erect billboards in Tulare enticing California dairies to move to South Dakota because, unlike California, South Dakota has no production limits of its own. Davis noted that California has cut milk production by its dairiy cooperatives 6 percent.

“We’d love that 6 percent in South Dakota,” he said. But if national production controls are in place, the ability to entice California dairy farmers here is lost.

Marv Post is a dairy farmer near Volga and is president of the South Dakota Dairy Producers. The dairy industry was hit so hard in 2009 that preventing a similar calamity now colors the approach to new the farm bill legislation for producers such as Post.

“It was devastating,” he said of 2009. “I heard a lot of stories of 50 to 60 percent equity losses.”

For farmers who are more heavily leveraged, many of them young farmers who have just gotten into the industry or those who have recently expanded, accepting production caps might be worthwhile to gain risk management protection.

“You realize you are not going to take the hit that many producers did in 2009,” Post said.

“The opposition by some dairies is they don’t want any supply control in it. But the way I look at it if these producers don’t have some risk management, some way to take the big hits out of there they may not be in production.”

The state remains on the sidelines as the debate about the farm bill dairy provisions unfolds, Bones said. He notes the sharp opposition of people such as Davis and the support, if only tepid, of the Midwest Dairy Association.

“I’m not sure, honestly, if there is total agreement between the processing side and the producer side. Those things still need to be worked out,” Bones said. “We haven’t taken a position on it yet.

“We are there to support the industry, once the industry figures out what they want.”

The Senate Agriculture, Nutrition and Forestry Committee passed the 2012 farm bill April 26 by a 16-5 vote. Sen. John Thune voted for it and hailed the bill as a victory for South Dakota agriculture. Now the measure goes before the whole Senate.

Congress is under pressure to adopt a new farm bill; the current one expires in September.

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