Low Milk Prices and Hard Times Hurting Central California Dairys

While California is the home of “happy cows,” the state’s dairies are less than delighted about high production costs, low milk prices, and falling property values.

After the boom times of 2005 and 2006, the fortunes of dairy owners took a dive the following years when milk prices sank.  Add to the drop in income was a jump in feed costs, climbing fuel prices and a generally slumping economy.

“The overall (weak) economy has spilled over to the ag sector,” said Larry Matos, president of Century 21 M&M and Associates and a partner in a family dairy.

Matos said with the dairy business down, values of dairy properties and milking cows also dropped at least 30 percent.  “Not as severe as residential property, but it’s been soft,” said Matos.

Century 21 M&M is the largest ag real estate company in the Central Valley, said Matos.  He also noted the 20-office firm is licensed by the state to sell milk pool quota, which can be sold by a producer to another producer.

Just years earlier, banks were freely loaning money to dairy owners wanting to expand and develop their plants.  Suddenly, with the dairy slump, loans were scarce and terms were tough.

“Banks gave them large credit lines with blank checks,” said John Melo, CEO of Century 21 M&M, about the quick financial transition.  “To now pulling the plug.”

Derrick Upton, a farm specialist at the Century 21 M&M office in Madera, said many dairies had used their cows as collateral on their loans.  When times became difficult and loans defaulted, the banks called in the collateral.

“Many dairies are milking the banks’ cows,” said Upton.  “I foresee a lot of dairies and dairy land going up for sale in the future — flooding the market.”

According to Western United Dairymen in Modesto, at the abyss of the dairy slump, a dairy milking 1,000 cows was losing an estimated $100,000 a month.

Such financial instability is largely the reason 109 dairies in California closed their barn doors last year.  The Central Valley accounted for 56 of the closures.

With the closures came opportunity for surviving dairies to expand, said Will Amador, an ag specialist based at the Turlock office of Century 21 M&M.  He noted it is tough to qualify for a dairy loan.

“Banks probably look at them closer than anyone right now,” said Amador.  “Banks won’t loan you money unless the dairy is in compliance with its waste management plan.”

In addition to finances, dairy owners also are in a fight on another front.

“Right now, farmers, particularly in California, are coming under an aggressive movement by environmentalists, who are not qualified to make the claims they’re making,” said Amador.

Dairy owners fight back — against such groups as the Humane Society of the United States and People for the Ethical Treatment of Animals — by supporting such associations as the West United Dairymen, said Amador.

“They are assessed money to educate consumers in regards to being in compliance,” he said. “They’re spending their own money and it’s very expensive for them.  It’s a never ending public relations campaign.”

There is a light at the end of the milking barn.  Feed costs are down.  Corn, for example, is now selling for about half of the $325 a ton peak in late 2008.  Industry observers also are predicting a rebound in milk prices by midyear.

“It’s still kind of hard to tell,” said Clarence Oliveira, a Century 21 M&M Realtor and dairy expert in Turlock, about the projected recovery.  “The later part of this year is what the conversation has been.”

NEXT FRIDAY: The future of agriculture

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