Northern Nevada's dairymen are losing money.
Prices have plummeted 31 percent and stand at their lowest level since the 1980s. Dairy farmers are selling 100 pounds of milk just over 11 gallons with high butterfat content for $11.27. That compares with $16.42 in January.
Nearly all of the state's 32 dairy farms are in northern Nevada: 22 in Fallon, four in Yerington, one in Fernley, and the Nevada State Prison Dairy in Carson City.
Jeff and Greg Whitaker have operated Whitaker Dairy in Fallon since 1992. Jeff Whitaker says the dairy is selling milk at about $10 per hundredweight (due to butterfat content), and his break-even cost is around $14 or $15 per hundredweight.
The dairy is operating on savings the Whitaker brothers banked during recent years, when prices peaked near $22 per hundredweight in July of 2008 and $23 in October of 2007.
"We are losing money. That is the only way to put it," Whitaker says. "With the cost of inputs fuel, commodities such as feed if we keep going like this too much longer we will go broke. You can't lose money forever."
Much of the problem stems from over- supply.
The U.S. Department of Agriculture says that in 2007 Nevada's dairy industry produced more than 64 million gallons of milk and generated $98.5 million in revenues. Production in 2008 topped 65 million gallons. With the high prices, dairymen began increasing herd sizes and producing more milk.
"It is just human nature," Whitaker says. "My experience in agriculture is that when you are able to sell all of what you produce at a nice price, you figure out way to produce more of it."
When Nevada dairymen can't sell their milk, it often is shipped to a powder processing plant in Hughson, Calif. Dairymen receive the lowest prices when they sell to powdered milk processors.
Mark French, executive director for the Nevada State Dairy Commission, says the booming global market of the past three or four years spurred demand for U.S. dairy products. But demand fell with the onset of the global recession.
"Drought conditions in major dairy-producing countries, such as New Zealand and Australia, is changing, and those countries are again competing for foreign sales," French adds. "Also, the U.S. dairy industry is seeing a decline in the food-service business, which accounts for about 40 percent of dairy consumption; people are not eating out as much as they have in the past."
Alan and David Perazzo are second-generation dairymen at Perazzo Brothers Dairy in Fallon. Alan Perazzo says two things are hurting business the most: the dairy contracted for commodities alfalfa, corn, soybeans, cottonseed until next harvest and is locked into higher prices than what currently is available on the open market; and the Real California Milk initiative of 2007, which basically booted Nevada's dairymen out of the California market.
Perazzo Brothers Dairy has sold off about 20 percent of its herd to dairies in Texas and Idaho and laid off several farmhands. Alan Perazzo says if things don't turn around soon he'll be forced to scale back even more.
"Last year at this time we had 550 cows, and now we have about 430. But with that being said, we will be more efficient and hopefully that will keep us on top of the game," he says.
Perazzo says he's receiving about $9.50 per hundredweight for the milk sold by his dairy, and his break-even point is $15 or $16.
"Right now we are going in the hole," Perazzo says. "I think we have to get some cows out of the system; there is just too much milk. Right now we have more supply than demand."
Libby Lovig, vice president of the Dairy Council of Nevada, says correction of oversupply isn't an easy process.
"It is not like just shutting off a valve. With cows it takes time to scale back production," Lovig says. "But because we have very good farm practices, and farmers are good managers of their resources, they will prevail in the long run. Consumers understand the value of dairy products and dairy farmers. As long as they manage their assets and farms I think they will weather the storm."
Whitaker and French don't expect much of a turnaround for the dairy industry in 2008. Whitaker says his only option in the meantime is to sell off cattle.
"Hopefully everyone else ends up selling, and a shortage will help price go up with a reduction in milk," he says.
