What's going on in California dairying? Are they really closing some of California's big dairy operations?
Those are two questions Wisconsin dairy folks have been asking me recently knowing that I've visited (and written about) California dairying regularly over the years.
Over the past few days I've talked with dairy producers, auction markets, lenders and dairy plants in order to get a "handle" on what west coast dairy folks call a dairy dilemma at best and a dairy tragedy at worst.
First and foremost, everyone I've talked with in California agrees that their dairy industry faces its most serious financial challenge ever - or at least for as long as they can remember.
Yes, dairy farms are being forced out of business as refinancing becomes tighter or, in many cases, impossible. Yes, there have been foreclosures and, yes, some dairies, small and large, are now empty, unlike in past tight credit times when empty barns were soon filled with cows from expansion dairies.
A Fresno bankruptcy attorney reports 28 San Joaquin dairies have filed for bankruptcy so far this year as compared to 24 all last year and 10 in 2010. "And it's not over," he says.
Vernon Crowder, senior agriculture economist for Rabobank at Fresno summarizes that, since last early spring, many dairies are not covering costs; debt is indeed being accumulated; many producers have not forward contracted milk price or feed inputs; many don't grow their own feed and there are still many inefficient dairy operators.
Feed costs are "a killer" to many producers.
"The cows are being sold for slaughter and they are coming in very skinny and often weak," the owner of a Chino auction market in southern California says. "What you hear is true ... I know of one major bank that has about 24 dairies in a 'special asset' group, which means pay or bankruptcy, and the producers have no money."
"Many dairymen have pulled most of the grain from rations and milked them as long as they could," he says. "The cows go downhill fast, with most going to slaughter. Other producers don't have money to buy them as milk cows."
Pier van der Hoek, who milks some 2,000 cows in Fresno County, says he knows of several large dairies that are going to get out, if they can. The barns would remain empty.
"Losing money on every cow, every day, just doesn't work," he says.
As for his plans: "I'm going to cut back a bit on grain and accept lower milk production," he says. "What else can I do?"
Michael Marsh, CEO of Western United Dairymen, a Modesto-based voluntary membership organization representing more than 60 percent of the milk produced in California in legal, environmental, pricing and legislative issues, sees the possibility of as many as 100 dairies going out of business (there are only 1,660 dairies in California) as a result of the current financial situation.
Marsh says that Wells Fargo Bank, a major lender to dairy farmers, is getting out of that business.
"That leaves only Rabobank and Farm Credit Services as the major dairy lenders," he says. "The California dairy industry is going through a major change in its infrastructure."
A producer, Warren Hettinga, with four dairies in the central valley who was shipping eight loads (semis) of milk per day, is getting out, longtime friend Arnold Freitas, a dairy field representative for CDI Inc. says.
"That's a big one and there are a good many 600-1,000-cow dairies that are empty. No one is moving cows in," Freitas said. "In past years there was always someone waiting to fill the barn with cows."
"There are reports that some dairy producers are only getting grain COD," he says. "It's a very stressful situation. Our dairy (CDI, Inc., the state's biggest dairy co-op) has instituted a "hot line" that producers can call for assistance.
I called Pete Belezzuoli, of Overland Stockyard at Hanford, CA, about the reported auction of several thousand dairy cows.
"Yes," he said. "We're selling 6,000 heifers on Aug. 31 at our stockyard and 3,000 dairy cows on Sept. 7 at the dairy in Pixley. This is the Warren Hettinga dispersal, they are a large and well-known dairy in California."
Belezzuoli says that the herd was actually 8,000 cows, but 5,000 have already gone to slaughter. These are the 3,000 best cows that are going through the auction.
He says there will be more herds sold as banks do not renew their financing to the already highly leveraged dairy producers - so the producer will leave dairying before foreclosure.
The closure of Central Valley Meat Co. at Hanford, CA, last week and its reopening a week later was everywhere in the news. Belezzuoli says that the slaughter facility is located near his sales barn and he feels that successfully reopening the facility will be difficult.
"All their markets are gone, including several fast food companies (In and Out Burger, McDonalds, Wendys) and the government," he said. Note: With the Hanford plant closure, cow prices reportedly dropped at least 20 cents a pound as other area plants were overcrowded.
Still hanging in there
I checked with Martin DeHoog, at Ontario, who is a "small" dairy producer by California standards, who I've visited annually for many years. He is located in the former Chino Valley Dairy Preserve and has been milking about 500 cows in a corral setting for over 40 years.
"We (he, his wife Elizabeth and son Martin, Jr.) are still hanging in there," DeHoog says. "But, it's getting scary and we're living off equity."
DeHoog says he paid $367 per ton for rolled corn recently - just about double of a year ago.
He bought first crop hay this spring for $300 a ton. "That's about $100 too much," he says.
Although the old dairy area in the Chino Valley still has a good many dairy herds (about 80 or so), DeHoog tells of his neighbor who milked at three locations who sold his 1,800 cows and got out of dairying.
No, DeHoog has not cut his dairy ration.
"If you cut your grain (and energy), you get no production," he says. "No production, means no money."
A jump of $5 per hundred in milk price would really help," he added. "More would be better." (Note: California producers receive about $2 per hundred less than Wisconsin producers.)
So what does the future hold for California dairying?
Good question and one that even Californians can only guess at.
California dairying faces some real challenges: People pressure problems increase as the central valley cities grow; a much-discussed high speed railroad may cut many rural dairies into pieces; fruit and vegetable crops compete for land: and the labor shortage issue is becoming ever more serious.
There is not a lot of sympathy expressed by many Wisconsin dairy producers for the plight of California dairying.
"They grew big on our (the midwest's) two and three dollar grain," a friend says."Then they borrowed to build ever-bigger dairies without raising their own crops. Now that corn and soybeans are higher priced, they can't make cash flow."
Those comments have been heard time and again over the years since California milk production zoomed past Wisconsin in the early 1990s. It appears that Wisconsin will continue to grow in dairying and remain the nation's true dairyland. The ability to grow lush crops of grain and alfalfa without irrigation on the actual dairy farms is a big plus.
Time will tell, and I, for one, am optimistic.
John F. Oncken is owner of Oncken Communications, a Madison-based agricultural information and consulting company. He can be reached at 608-222-0624 or email him at email@example.com.