Fallon-area dairymen still pinched low milk prices
Northern Nevada Business Weekly
Even though dairy prices have staged a slight recovery from the record lows that hammered northern Nevada dairymen last year, Fallon-area farmers say they’ve got a long way to go to recoup 2009’s large losses.
Recent prices received by dairy producers were running about $16.44 a hundredweight (about 11.6 gallons) for high-butterfat whole milk.
Although that’s down a bit from the $18.22 that prices reached in January, it’s still well above the $11 prices last year that forced many dairy farmers in Fallon to significantly cull their herds – and reach deep into their savings.
Bill Christoph, co-owner of Liberty Jersey Farms, says the majority of Fallon dairies received prices that were about 20 percent under operating costs for 2009. Liberty Jersey’s revenues declined more than 25 percent last year.
“Huge amounts of equity were just burnt,” Christoph says. Newell Mills, owner of Mills Jersey dairy, says his operation lost more than $300,000 from December 2008 through December 2009, although he brought just as much milk to market as he had in previous years.
“That is how severe the price swings are,” says Mills, 80. “We have been profitable again since the first of December, but we haven’t made up for the losses we took during that 12 months we were off. Things are looking a lot better than they were, and we still have a lot to make up for -you can’t recover $300,000 in three months.”
Larger dairies took an even bigger hit.
Dan Alegre, owner of A&A Dairy, one of the three largest milk producers in Churchill County, estimates his dairy lost close to $2 million in 2009.
A&A Dairy has been in operation for 16 years, and the family has been in the dairy industry for three generations. But Alegre worries about his ability to keep the dairy running, and the frustration of an uncertain future is clear in his voice as he tries to forecast what will happen in 2010.
“You can’t figure it out,” says Alegre, 66. “We don’t have any idea. I don’t know if I will be here in another year. It is a bad situation – and it’s not just me.”A & A, which employs 16, including Alegre’s two sons, was forced to cull its herd by 350 head in 2009.
David Perazzo, who runs Perazzo Brothers Dairy with his brother, Alan, estimates the dairy lost close to $500,000 in 2009. Perazzo Brothers Dairy has about 500 milking cows. David Perazzo says dairy prices need to average about $15 per hundredweight for the dairy to break even.
Dairy prices historically have swung drastically, but they hit a 15-year low of $11.13 per hundredweight in March of 2009 – one of six months in the year with prices in the $11 range. That was down dramatically from the 15-year high of $23.50 that prices reached October of 2007.
(Those prices are for whole milk with the highest butterfat content; most farmers don’t see that price for their entire delivery of milk to processing facilities.)
Liberty Jersey’s Christoph says what Churchill County dairymen hope for is stability in pricing.
“We have been on kind of a roller coaster the last several years,” Christoph says. “The highs have been good, but the lows have been extremely difficult. We can’t survive that kind of wild price fluctuations. Many of us are looking at hedging strategies, but it’s really not something we prefer to do – we are not financial investors.”
When prices plummeted last year, many northern Nevada dairymen sold off part of their herds, says Mark French, executive director of the Nevada Dairy Commission.
The sell-off helped reduce inventory and stabilize pricing. Improvements in overseas economies also spurred greater demand, he says, which further balanced supply and demand.
But the key for Fallon-area dairy farmers – there are nearly two dozen dairy ranches in Fallon, Fernley and Yerington – is whether they can hang on while they ride out the wild fluctuations in pricing.
“Dairymen are still hurting,” French says. “A lot of them have been paying bills with the equity on their farms, and that is not good, and it is hard for them to get more loans. They know it will turn around, but can they survive until the turnaround?
Mills says because all agriculture is cyclical, farmers know they need to sock away funds in the flush times in order to weather down cycles. He says his operation entered the downturn in 2008 debt-free, but that certainly isn’t the case today.
French says economists predict northern Nevada dairy prices to stabilize around $16.50 per hundredweight.
He feels the price may be 50 cents less based on the January to February drop of almost $2 per hundredweight. Fallon-area dairy farmers need prices to average at least $17 per hundredweight to see any profit, he says.
“They still are producing milk at a loss,” he says.
Perazzo says one dairyman in Fallon and another in Yerington closed their operations as a result of 2009’s depressed milk prices. He says Perazzo Brothers will stay in business because it’s all he knows how to do.
“We will still be here just because we are stubborn,” he says. “I don’t have anything else to do; I am educated in the dairy business. What other choice do I have?”