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Dairy prospects curdle under economic stress

Things have been going well for Jason Raymond as he works to grow his dairy farm business. Recent declines in milk prices have delivered a jolt to Raymond and producers like him.

Jason Raymond always loved farming. So when he started to research ideas for a future career, dairy farming seemed like a good idea at the time.

Little did he know he'd be riding an economic roller coaster for more than a decade.

Raymond, who milks 100 head of dairy cows in rural New Richmond, is one of dozens of producers in St. Croix County who have experienced the ups and downs of the farming industry over the past few months.

Six months ago, milk prices peaked at around $22 per hundredweight. It was a rare time when dairy farmers were feeling good about their financial stability.

Over the past 20 years, dairy farms statewide have been on the decrease as small producers found the volatility of the market too difficult to weather.

But by 2008, demand for milk products was on the rise and dairy exports were at historically high levels. Many farmers were expanding production to take advantage of the higher prices.

The bright picture has dimmed considerably since then, as milk prices have been cut in half. A world and national economy in retreat has prompted consumers to buy less milk, cheese and other dairy products. Producers wonder if the market has hit bottom yet.

"The whole economy is in crisis," Raymond offered. "Fewer people are eating out, which means that less cheese is getting used on pizzas. The economy has been tough for everyone."

A solid start

Raymond bucked the downward dairy trend in 1996, when he jumped into dairy farming with the help of Fred Ball, a long-time producer in the area.

Raymond attended a farming short course at the University of Wisconsin to better prepare for running his own operation. He rented land and contracted out some services to get his start.

Eventually Raymond bought out Ball, who also provided the financing the new producer needed to begin his own farm.

"It helped that Fred helped finance it," Raymond said. "That would have been hard to get through a bank."

By 1997, Raymond was set up in an 87-stall barn owned by Bump Peterson and he was crop farming rented acres nearby.

Gradually, Raymond bought the machinery and equipment he needed to be completely self-sufficient. He also bought the Peterson farmstead.

Raymond's dad, Dwayne, went into partnership with his son in 1999.

"After 29 years at Norlake in Hudson, he was ready to do something different," Raymond recalled.

Since then, the dairy operation has been "moving ahead" a little every year, Raymond said.

The past two years (2007-08) were "quite good" for Raymond's bottom line, even though dry conditions in the summers and a 2007 hail storm dampened his crop success.

But as optimistic as things looked last fall, things are considerably gloomier as this spring approaches.

High prices for seed and fertilizer will force many producers to seek ways to cut costs, as the prevailing price for grain fails to cover the "input" cost of growing the crops.

That, coupled with incredibly low milk prices, could be tough on dairy producers particularly, Raymond said.

"This year will be a challenge," he admitted.

Raymond expects his milk check for February deliveries to be about $1.50 less per hundredweight than the previous month's check. The current price is hovering around $10 per hundredweight right now.

Fortunately, Raymond pointed out, the federal government provides a subsidy to dairy producers once prices drop below a certain level.

The Milk Income Loss Contract (MILC) program is a safety net to save farmers from disaster when prices drop precipitously. The subsidy will kick in this month, he said.

Raymond remains hopeful that milk prices will rebound by May or June. Once dairy supplies are reduced and demand picks up, the farming picture will improve, he said.

"Everything has to reset itself," he said. "But overall, I can't complain. I've made a decent living at this. I just have to buckle down, cut costs and wait it out. The economy will straighten out eventually, I hope."

Helping out

The huge drop in raw milk prices have yet to mean a big savings for consumers. Prices for cheese and milk at the grocery store remain relatively high, keeping demand lower and supplies higher. Prices have dropped some in the past week or so.

The scenario means that many farmers are stuck selling dairy products at a loss. Local producers are feeling the pinch.

"The dramatic drop in the price of milk is quite something," said Lee Milligan, agricultural agent with the University of Wisconsin Extension office in Baldwin. "It's put the squeeze on people. A lot of producers are wondering what the future will hold."

Milligan said his office is working with farmers to develop plans for maintaining profitability during tough economic times. In many instances, Extension officials are helping farmers and lenders negotiate new credit terms in an effort to keep dairy operations afloat.

"We're trying to help them develop a positive cash flow," he explained. "We're all working together on this. The bankers don't want to be in this situation either. They don't want to be taking over farms."

Milligan said the financial crisis in agriculture goes beyond just the dairy industry. All farming operations are feeling the pinch and struggling to stay in operation.

The crisis is reminiscent of the late 1970s and early 1980s, Milligan noted, when interest rates were high (15-17 percent) and farmers had a difficult time staying profitable.

"It's not a pleasant time right now, being a farmer," Milligan said. "Many people are not sure they're going to make it through this. Some of them have been in the industry a long time and they're not sure if they want to stick with it."

Businesses that supply the farmers in the area are also feeling the hurt, Milligan said. If producers can't afford to buy equipment and other supplies, some suppliers could see a significant drop in sales this spring.

"It's really a difficult time for everyone right now," he said.