U.S. dairy farms in crisis as milk prices turn sour

By Karl Plume

CHICAGO (Reuters) - Illinois farmer Linnea Kooistra expects to keep her 250-cow dairy farm afloat despite a rising tide of red ink caused by a collapse in milk prices, but other U.S. dairy farmers may be forced out of business.

Many of the more than 60,000 dairy farms in the United States have been cutting costs, selling off their cows, or leaving the dairy business altogether as milk prices plummet 35 percent in just the past two months while dairy farm operating costs remain uncomfortably high.

Some farms are losing $200 per head every month.

"We've dealt with 18 percent interest. We've dealt with farm recession. We've dealt with droughts and floods and this is by far the worst economic situation we have ever dealt with in our years of farming," said Kooistra, who has run Kooistra Farms in Woodstock, Illinois, with her husband since 1980.

"Right now, the price of milk will barely cover our feed costs and to pay our veterinarian. I'm not even counting all the other expenses that go along with keeping a farm running, the utilities, the fuel costs," she said.

"Our plan right now is to try to weather the storm. I just hope this doesn't last very long."

TUMBLING PRICES

Milk prices are down more than 50 percent from last summer after hitting all-time highs in 2007 and notching the second highest prices on record in 2008.

"Given the suddenness and severity of the plunge in farm-level milk prices, a significant number of farmers won't survive the winter," Jerry Kozak, president and chief executive of National Milk Producers Federation, said last month.

Analysts expect milk prices to remain depressed through at least the first half of the year, and prices later this year may only be high enough to cover production costs.

Benchmark Class III milk futures on the Chicago Mercantile Exchange fell to a six-year low of $9.24 per 100 lbs (45 kilograms) in January.

The U.S. Agriculture Department forecast the Class III price to average $10.60 to $11.40 in 2009, down from a $17.44 average last year.

"We could see the lowest prices here in January or February. By March or April, we could see prices come up about a dollar or so, but as we move into the second half of the year we could be moving closer to $15 or $16," Bob Cropp, dairy economist at the University of Wisconsin at Madison.

"It's going to be a tough year and we're going to get a supply response," he said, citing an industry herd culling program known as Cooperatives Working Together, or CWT.

Farmers have an opportunity to get paid for culling their herds via the farmer-funded CWT program, which was in the process of securing a line of credit to augment its efforts in 2009, according to NMPF's Kozak.