Posted on Sat, Feb. 14, 2009

The state's dairy industry plans to sell off a sizable number of its cows to deal with a milk surplus that is swamping farmers.

The reduction -- perhaps a sixth of California's 1.8 million cows -- could help bring the milk supply in line with demand, which has dropped with the recession.

The culled cows would come from farms that are closing down amid the low milk prices of recent weeks. Some are in the Northern San Joaquin Valley, where milk is the No. 1 farm product.

"Today, we're in such a dire position that we're hopeful there will be a significant retirement," said Michael Marsh, chief executive officer of Western United Dairymen of Modesto, one of the groups involved in the effort.

Under the program, used from time to time to adjust the milk supply, a national industry-funded group will oversee the sale of entire herds to the beef market. The departing farmers will declare the prices they would like to get, then get paid under a formula that includes both the beef value and the cows' milk output.

The group, Cooperatives Working Together, approved the effort this week. The approval did not include a specific number of cows, but Marsh said culling about 300,000 -- much more than in recent reduction efforts -- would help stabilize the market.

Marsh said about 15 of the state's 1,750 dairy farms closed in January, when the low prices hit, and the total could reach 175 this year with the culling effort. The losses would be twice as high if the program were not carried out and milk prices stayed down, he said.

The prices were high for much of 2007 and 2008. Global demand was growing, a weak dollar aided U.S. exports, and drought in Australia reduced supplies.

The market has since collapsed, and so have the minimum prices that California dairy processors must pay to the farmers, adjusted monthly to reflect market conditions.

This month, the minimum in Northern California is 97 cents per gallon for milk to be bottled for direct consumption and even less for milk bound for cheese, butter and powder plants. The fluid milk minimum was $1.87 a year ago.

"It's really bleak," said Arlan Van Leeuwen, a dairy farmer in the Oakdale area and board member with the Dairy Council of California.

He said the price drop was the worst in his 30-plus years in the business. Farmers with a lot of equity could make it through, he said, but others might not survive.

"Supply has got to contract, and unfortunately, that means producers going out of business," Van Leeuwen said.

Selling dairy cows to the meat market is nothing new. Farmers often do it to get rid of animals past their milking prime, though they tend to go to the low-priced ground beef market because of their advanced age.

The organizers of the culling program hope to complete the sales before spring, which is the peak for cattle sales in the beef industry in general. Having too many animals on the market could depress beef prices, which already are low.

The program has been used six times since 2003, Marsh said. The new effort, combined with the hoped-for recovery of the global economy, could get the industry back to health, he said.

In the past, cows from closing dairy farms often have been bought by other farmers, increasing the average herd size. Marsh said that is unlikely this year because milk prices are far below the cost of production.

Van Leeuwen said the cost of feed, which is more than half a dairy farm's expenses, has dropped, but he is still using rations that he bought at last year's high prices.

Farmers have done about all they can to cut expenses in general, said Van Leeuwen, who also is on the State Board of Food and Agriculture.

The industry is seeking federal help to deal with the milk surplus, including export assistance for dairy products and increased purchases for nutrition programs at schools and elsewhere.

Rep. Dennis Cardoza, D-Merced, said he has high hopes for such action after a meeting last week with Agriculture Secretary Tom Vilsack.

"Given the magnitude of agriculture and dairy operations in the Central Valley, I wanted to ensure that Secretary Vilsack was well aware of the difficulties dairymen and women are currently facing in California," Cardoza said in a news release.

Bee staff writer John Holland can be reached at jholland@modbee.com or 578-2385.