VEGUITA, N.M. (AP) — Second-generation dairymen Laurent and Maurice Othart say they're losing thousands of dollars a day because of falling milk prices — a situation so dire that their 78-year old father, Leon, is using his social security checks to help keep the business afloat.
Overproduction, sagging demand and a drop in exports are driving down milk prices for dairy farmers. The result: Big revenue losses each month, even as expenses for feed and fuel continue to rise.
"The current state of dairy in New Mexico and throughout the country can only be described as dire. It's a perfect storm," said Sharon Lombardi, executive director for Dairy Producers of New Mexico.
To break even, the Othart family's 46-year-old dairy business in Veguita needs to receive at least $15 per 100 pounds of milk sold to processors. Last month, they got $9 — a 60 percent cut from last year's price, Laurent Othart said.
The brothers can't just shut down for a few days to rest the books.
Their 1,250 milking cows must be fed and milked twice every day — racking up high feed costs, utility bills, trucking fees and pay for 15 employees.
"The whole dairy industry is going to ruins," said Laurent Othart, sitting before a stack of bills and trade magazines.
"You keep cutting and cutting, but it gets to the point where you can't anymore," Maurice Othart said, shaking his head in frustration. "We've seen low prices before but this is the worst."
It's like choking down sour milk for what otherwise has been a robust industry.
Over the last 15 years, dairy production tripled to become New Mexico's top agricultural commodity, worth more than $1 billion annually. New Mexico ranks eighth nationally in total milk production.
In January 1993, New Mexico's 127,000 dairy cows produced 206 million pounds of milk. The industry has climbed to more than 340,000 dairy cows that produced 670 million pounds in June 2009.
Terry Crawford, professor of agriculture business and economics at New Mexico State University, said milk prices have been down for a year after consumer demand dropped off.
Of the state's nearly 170 dairies, four closed recently. More closures are expected if things don't improve by 2010, said Alfred Reeb, dairy division director for the New Mexico Department of Agriculture.
Milk prices are set by the federal government based on commodity markets. Most dairy farmers in the state need $16.50 to $17 per 100 pounds of milk to offset production costs.
Lombardi said dairy owners are selling off older, low-producing milk cows for beef. Since dairy cows are worth more than beef, the farmer will lose money and runs the risk of harming the beef market.
The dairies' rough ride also means tough times for corollary industries, including alfalfa and grain growers and equipment dealers.
Last month, the U.S. Department of Agriculture announced temporary increases in the price paid for milk through the federal dairy price support program.
Lombardi has her doubts such efforts will help.
"It's just a short-term solution, and it is too little, too late," she said. "And dairymen aren't the type to want a handout."
Crawford said forecasts show milk prices rising this fall — if dairies can survive that long. Many dairymen can't afford to make loan payments and are "eating their capital," he said.
Mesquite dairyman Joe Gonzalez, vice president of the state association, said he's going "deeper and deeper" into debt and had to sell off some cows and a farm he owned for 20 years.
He just sold 100 pounds of milk for $9.97. In July of last year, he was paid $16.39.
"All of my other costs haven't come down 50 percent. My grain is not cheaper, hay is not cheaper and the pay to my employees isn't cut in half. The equity that you've built up over 30 years is gone in four to five months," Gonzalez said.
The way to restore supply and demand is to take cows off production, said Robert Hagevoort, extension dairy specialist with NMSU.
He said a producer-run program called Cooperatives Working Together has retired 87,000 cows nationwide earlier this month. In July, a record 101,000 cows were removed.
Maurice Othart said changes need to be made in the milk pricing system. He wants a fair price for his product.
"If the cheaper milk prices would be reflected in the price for milk, yogurt and cheese, (the situation) would just cycle its way out," he said. "The consumers are paying more for a product that farmers are going broke to produce."