Farmers' incomes dry up as milk prices plunge about 50%

WEST GROVE, Pa. -- Milk prices have plunged by about 50% from the historic highs of last summer, pummeling producers such as Walt Moore, a fourth-generation farmer whose family has worked the rolling fields of southeastern Pennsylvania for nearly a century.

"If these prices stay low through 2009, there's going to be a lot of producers that don't make it," Moore says, noting that several nearby dairy operators have already decided to sell their herds and get out of the business.

While many producers managed to sock away profits early last year, they still might not be able to survive. "This time, the rainy day will last a lot longer than one day," Moore says.

Dairy operations across the country are taking an enormous hit as prices plummet. The number of dairy cows being sent to slaughter has risen by about 20% from last year, as desperate farmers cull their herds and sell at fire-sale prices. Adding to the problem, banks are less willing or able to extend farmers' loan payments amid the financial turmoil.

The U.S. Agriculture Department has begun providing emergency aid, though the National Milk Producers Federation (NMPF) in a recent letter to President Obama warned that thousands of farms and tens of thousands of jobs could be lost this year without more aggressive federal efforts.

"Demand really dropped off the cliff in the last quarter of last year, and things aren't looking much better this year," says Chris Galen, NMPF spokesman. "It's one more indication of how much the global economy has slowed."

Pennsylvania producers received about $11.50 per hundred pounds of milk in February, while production costs ranged from $15.50 to $18.50, says the state's Center for Dairy Excellence. The USDA is providing special payments to dairy farmers, but the program fills only a part of the gap. Payments are capped, making them of less benefit to larger farms.

Producers are reeling because of not just the size of the decline, but the speed. Futures contracts for Class III milk, a measure of wholesale prices, reached a high of $20 per hundred pounds in June on the Chicago Mercantile Exchange. By January, the price was below $10, though it has since ticked up to about $10.50.