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Patty the milkmaid and other dairy fables

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Dairy basics - Management
Written by Ben Yale   

Aesop in his fables relates this tale of “The Milkmaid and Her Pail.”

“Patty the milkmaid was going to market carrying her milk in a pail on her head. As she went along she began calculating what she would do with the money she would get for the milk. ‘I’ll buy some fowls from Farmer Brown,’ said she, ‘and they will lay eggs each morning, which I will sell to the parson’s wife. With the money that I get from the sale of these eggs I’ll buy myself a new dimity frock and a chip hat; and when I go to market, won’t all the young men come up and speak to me! Polly Shaw will be that jealous; but I don’t care. I shall just look at her and toss my head like this.’ As she spoke she tossed her head back, the pail fell off it, and all the milk was spilt. So she had to go home and tell her mother what had occurred.”

Today the tale goes a different way. Patty the milk producer was going to the Farm Service Agency (FSA) to collect her government check for producing milk. As she went along she began calculating what she would do with the money she would get for the milk.

“I will pay some money to Farmer Brown who sold me feed. And I will use some to replace some of my cows to make more money so I can pay the bank. I will be able to lift my head again!”

Just as she completes that thought she walks into the FSA office and picks up the check. Her smile turns to anger as she sees the amount.

“This is but a small percent of what was promised. What happened to my check?” “The Secretary gave it to other producers,” the county executive director explained.

020410_yale_pattyThe word “fable” has two uses in the English language. One is to tell a story which probably never happened to express a truth that is enduring. Aesop’s fables are examples of this. The other use is to describe something as not only not happening, but not expressing any truth either. The expression, “That’s just a fable,” is an example of that usage.

During the week of Christmas, USDA deposited $290 million in dairy farmer bank accounts in response to producer distress. The distress of producers is no fable. No one disputes the pain. Dairy farms nationwide, big and small, East and West, suffered enormous, even historic, losses in 2009, estimated to be as much as $1,000 per cow for the year. It was not just low prices, but high input costs (the result in part from billions of dollars used to subsidize a new market and demand for corn). The negative margins of dairy farmers bled tens and tens of billions of dollars out of their equity. This drained not just dairy farmers, but sucked the life out of other rural businesses, mostly family owned. Stories of feed suppliers, nutritionists, custom choppers, veterinarians, refrigeration repair services and others supporting dairy not being paid and forced out of business, come from all corners of the country.

Congress felt it had to do something to save dairymen. Once it was decided to do something, the fight fell into the classic “small farm versus large farm.” Now we were approaching the land of fables.

Unlike the industry in the past, even the recent past, the losses to dairy production in 2009 were not only on or more on the smaller producers. All dairy producers, large and small, hurt and hurt badly. No one owned the franchise to higher financial pain. Despite lower milk prices, production grew in areas with smaller-sized herds and shrank in areas with larger-sized herds. When all of the factors that contribute to dairy farm margin are considered such as labor, out-of-pocket cost for inputs, debt service or rent, delivery to market, and price of milk, the range in net margins between producers, irrespective of size, has narrowed. The 2009 dairy crisis tells us, among other things, that there is no longer that reserve of milk coming from less-efficient producers that quickly leave production when margins lower or go negative. In the past these less-efficient farmers were predominantly the smaller dairy farmers. Today, such a stereotype no longer proves true. To describe profitability and survivability solely in terms of size is no longer valid.

Nor is the geographical region a basis for distinction. The dairy crisis saw no boundaries. Because of their business models, many if not most of the larger farms were particularly hard-hit by the economy in 2009. Although the larger farms dominate in the West, their numbers are growing in the East as well. According to USDA’s statistics for 2008, 58 percent of milk was produced on farms with 500 or more cows. More than 71 percent of the milk in the U.S. was produced on farms with more than 200 cows. Farms with more than 200 cows represent more than half of the milk production in all of the top- 20-producing states, which includes the Upper Midwest and the East. Our national milk supply is becoming homogenized.

This greater equality in staying power during the poor times means the poor times are longer and deeper. That describes 2009. That is why in spite of the worst 12 months of milk margins in generations, the milk supply dropped nationally a meager 1 percent. With such equality any distribution of aid other than on all production disrupts the equality, creating winners and losers. That is why larger dairy farmers who received a very small per-hundredweight payment were so disappointed with the DELAP formula.

The second wrong assumption is that the government can help producers in times of bad markets. In response to real on-the-farm pain, Congress dreamt it could help by giving producers money it really did not have to give. The idea of spending money came in a Senate amendment to the Ag Appropriations for 2010. Bernie Sanders of Vermont proposed an additional $300 million to fund the temporarily raised dairy product price supports beyond September. Since this provision was not in the House version, the two chambers had to work it out. Several other ideas were floated. One urged the Secretary to purchase cheese and give it to food banks. Another suggested support of CWT for another herd buyout. Some suggested nothing. And then there was the idea of paying producers.

In retrospect, no money would have been as effective as the proposed payments in any form. Cheese prices and markets are already significantly higher without government help. Even the $290 million distributed equally on production would amount to a small percent of the total liquidity drain. Markets did more for dairy farmers than the government could have or even did.

When Congress considered some emergency aid (August), the average all-milk price was $12 per hundredweight, up 70 cents from the lows of June and July. The November all-milk price (the one being received from the market by producers when DELAP was distributed) was $15 and December will be even higher. All told, the market, not the government, has added approximately $2 billion to dairymen, all dairymen, without caps.

Reduced input costs for feed, again for all farmers and without caps, further contributed to wider margins and more money in producers’ pockets. The improved market prices for milk and lower market prices for inputs have provided more financial relief than any government payment could. Both higher milk prices and lower input costs promise to continue for some time. Projected all-milk prices for 2010 suggest that an additional $10 to $15 billion in cash will come to all dairymen next year from the market, not the government.

But Congress did appropriate money to producers and the fight turned to how it would be spent. As the language was reaching its final form, Senator Boxer and other Senators pressed the Secretary for assurance that the economic losses in their states would get the same treatment as others. The assurances appeared to have been given. In speeches around the country the Secretary and his lieutenants suggested a new day for dairy policy with an equal distribution of funds.

Rumors, fueled by phone calls from county FSA offices seeking updated production for February to July, fed the belief, wish, dream that there would in fact be no cap on production eligible for this new government program. Thoughts of how the money would be distributed were made. But, alas, that fable was exposed when payments were subject to a production cap. Using the six months of February through July stood as a proxy for one-half a year’s production, USDA handed out the government money to dairy farmers at a rate in excess of 30 cents per hundredweight, but only up to a limit of 6 million pounds (less than 275 cows). The milk pail fell off of the head.

The element found in each of Aesop’s fables which brought it into speaking the truth was the moral at the end. After Patty the Milkmaid told her mom of her catastrophe, “Ah, my child,” said the mother, “Do not count your chickens before they are hatched.”

Frankly I think the story suggests a moral different from that mixed metaphor of milk and eggs. Some that come to mind include, “Don’t carry milk on your head!” or “Eggs do not come from milk.”

(That, and a couple of hundred years, is probably why they are not called Ben’s fables.) But what was true so prematurely acting as if the result had arrived, can deny the desired end itself.

Even in DELAP no-caps fable there is a moral. The moral is, “Don’t count your government checks before they are cashed.” Reliance on the government to save us is futile. Whether it is government checks, control of production, or changes in demand – government will fail. Government by its nature is a drain on economic advancement, the opposite of business.

Dairy farmers will not get success by driving to the FSA, but by going to the market. Rough at times? You bet it is. But for ultimate business success, the market is the only place that can bring dairymen the money they deserve, and that is a truth, not a fable.  PD

Ben Yale
Yale Law Office
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