Dairy farmers look to autumn sales to cover losses from rough summer

Drought, heat, fluctuations in price caused instability

October 03, 1999|By Anne Haddad | Anne Haddad,SUN STAFF

After a summer of drought and a sharp dip in the price they get for milk, dairy farmers are hoping -- in some cases desperately -- that the autumn market will help make up their losses.

"It's a roller coaster, and the way milk is priced these days, it will always be a roller coaster," said Joe Schwartzbeck, a Union Bridge farmer. "We never know what we're getting."

After summer losses, he's looking forward to the prices paid for this month through January, which are better than the rest of the year because milk and dairy product consumption goes up.

"The kids are in school" and drinking milk more regularly, Schwartzbeck said.

November will send cooks into the grocery stores to buy butter for stuffing and pie crust, whipped cream to top the pies and egg nog by the gallon. December's holiday cookie bakers pick up the momentum, buying lots of butter. And in January, football fans buy more cheese for Super Bowl weekend than any other time of the year, according to the U.S. Department of Agriculture.

The question will be whether fall and winter can make up for the thousands of dollars that family dairy farmers such as Schwartzbeck and his neighbors Melanie and Rodney Stambaugh have lost to the drought and to a fluke that left them with an unexpectedly short August income for their milk.

The Stambaughs both work outside the farm to pay their two mortgages that amount to nearly $300,000. They are seriously thinking of selling almost half of their land to reduce their debt, said Melanie Stambaugh.

The Stambaughs bought their farm four years ago and built barns and a milking parlor.

"We had everything planned down to the bottom line, but it's gone way beyond the bottom line," said Melanie Stambaugh, 37. They solicited advice from extension agents and other experts and took the risk of investing in a new dairy farm after having grown up in the business and worked for other farms.

But two serious droughts -- in 1997 and this year -- have made them more vulnerable to the fluctuation of milk prices.

For example, Schwartzbeck said he got about $6,000 less -- a 12 percent decrease -- than he expected for his August supply of milk. Part of it was the market, and part was decreased production due to the summer heat wave. The hotter it is, the less milk a cow will produce.

Milk prices are regulated by the federal government in a system intended to guarantee farmers a minimum price for their milk. But the formula for the price is so complicated that many farmers say they cannot project their income.

"How they price it, I still have not figured it out," said Melanie Stambaugh. She comes from several generations of farmers. So does her husband.

"It's very confusing. We never know anything until the check comes," she said.

When the checks arrived in mid-September for milk sold in August, they were unexpectedly short for the nation's dairy farmers because of a sluggish cheese market two months earlier in June.

The price farmers get for their milk is based on a combination of what is happening in the current market and what happened two months earlier, said Allen O'Hara, a manager with the Maryland and Virginia Milk Producers Cooperative Association.

That makes it difficult for farmers to accurately project what they will receive, he said. Changes in milk pricing have been drafted, but are not implemented. The proposals have sparked disagreements about whether portions of the country would be unfairly affected.

The core of the current pricing formula for milk is based on what cheese, butter and powdered milk producers pay farmers for milk in the open market: When the demand is up and the supply is down, farmers get more money. When the demand is low, farmers get less.

Cooperatives pool milk from their farmer members, sell it to buyers and split the profit among members, depending on how much milk each farmer produced.

Although the checks can dip some months, as they did in August, they usually go up later, said O'Hara. Farmers should see bigger checks this month for the September milk, and an even higher one in November for the October supply.

The sharp rise expected this month and next is due to a mistake: a monthly USDA survey of cheese inventories in private producers' warehouses inadvertently left out one warehouse in July, said David Walker, an official with the USDA's mid-Atlantic region. That made cheese supplies appear to be low, which prompted cheese companies to buy more milk to boost their production. The increased demand jacked up the price paid to farmers.

But once the mistake was discovered in August, O'Hara said, the price for cheese milk went way down. Farmers will see this dip in the checks that arrive in December and January.

Some of this variation is normal over the course of the year, and it usually evens out, said O'Hara and others in the dairy industry. But when it hits at a rough time, such as after a drought, farms that have high mortgages and other expenses feel the pinch most severely.

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