Dairy farmers hoping to avoid 'bloodbath'

Herald Times Reporter–

MANITOWOC — These days it is tough to be a dairy farmer.

While just about every person and business is taking a huge financial hit during tough economic times, this year has been equally brutal for the dairy industry.

Last June, milk prices topped out at $20.25 for 100 pounds of milk. Right now, that price has been cut by more than half to $9.97.

"The cost of milk production is between $15 and $17 per hundred pounds of milk," Manitowoc County Dairy Agent Scott Gunderson said. "There are farmers who are losing $100 per cow per month."

While farmers have survived tough times before, Gunderson said there is a real worry among local farmers about what will happen if things get worse.

"If it does, we're really going to see a bloodbath," Gunderson said. "Farmers are very resilient people, but if it gets much worse there are going to be farmers who just have to get out of the business."

With farmers hemorrhaging money, Gunderson said it's getting to the point where farms could start closing very soon.

"I've heard about farms closing. To my knowledge no one in Manitowoc County has shut down yet," Gunderson said. "We're probably pretty close to that happening, though. Farmers are very resilient people and I think part of the reason why they keep going is because there are no opportunities in the general work force either."

Brad Englebert is a farm loan manager for the United States Department of Agriculture and said he knows of one small local farm that is shutting down and knows of a few others outside of Manitowoc County that are shutting down as well. Englebert would not name the local farm that is ceasing operations.

"They're selling their cows and getting out of the business," Englebert said. "It's a cash flow issue. They're just losing too much money."

Gunderson said the reason milk prices have dropped so low is because people are eating out less and consuming much less cheese than usual. Gunderson said 90 percent of the milk produced in Wisconsin is used in cheese.

"People are still buying milk since it's considered a staple item like bread or eggs," Gunderson said. "But they say that 60 percent of cheese is eaten outside of the home and people are eating out a lot less than usual. I know I am. Everybody is cutting back."

One of the ways local farmers protected themselves from a huge dip in milk prices was with "forward contracting" where the price of milk is locked in for a period of time. Dale Wagner, a dairy farmer in Manitowoc with 230 cows, and Brent Sinkula, a dairy farmer in Two Rivers with 475 cows, both had the foresight to lock in the higher prices so they weren't hit as hard as some by the drop in price. But milk prices have been under $10 for more than six months and most farmers who had locked in higher prices have seen those deals expire.

"My contracted milk ran through June," Sinkula said. "We are at the mercy of the market now."

With milk prices low, farmers are desperately looking for help.

"It is not pretty," Sinkula said. "One month of awful prices has us borrowing money to keep going."

According to Gunderson, borrowing money or restructuring loans has become the norm for local farmers. While the price of milk has gone down, farmers have had a hard time reducing their production costs since cows still need to be milked daily.

"The costs are still there," Gunderson said. "People are selling off portions of their herd or looking to the banks for help. I was with a farmer the other day who had to go to interest-only on his loan so he could continue operating. That's hardly an ideal situation, but it will save him $5,000 a month. I think a lot of farmers are doing similar things with the hope that when prices go back up they can start paying off the principal again."

Englebert said it's at the point where there just isn't enough relief out there for some farmers.

"Interest-only is the popular trend these days, but in many cases, interest-only isn't enough," Englebert said. "Farmers are going to lose between $800-$1,200 per cow this year and that's a hit some of them just can't afford to take."

Joe Debilzen, the senior vice president for Bank First National in Manitowoc, which works extensively with local farmers, said his bank has been willing to work with the farmers during tough economic times.

"I recently went through our portfolio and 14 percent of our customers have needed some payment relief or to restructure their debt," Debilzen said. "Others have gone to interest-only."

Debilzen believes the dairy industry will turn around.

"Every industry hits some kind of bump or dip and we know there are cycles in agriculture prices," Debilzen said. "But good managers facilitate success and we want them to be around when this gets turned around."

Englebert wasn't as optimistic.

"I've been doing this since 1988 and this is the worst I've ever seen," Englebert said. "It's been like this for nine months and it doesn't appear that it's going to end anytime soon."

Dylan B. Tomlinson: (920) 686-2135 or dbtomlinson@htrnews.com.

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