COLLEGE PARK, Md.—
“You can’t turn these cows on and off,” said Bill Kilby, whose family has owned a dairy farm in Cecil County, Md., since 1961. “You cannot stop feeding the cows, you’ve got to take care of them.”
Farmers, unlike computer companies or automakers, can’t ramp up production when demand spikes and they can’t easily decrease their expenses when prices for their products drop. The crops need to be planted and tended to, the animals need to be fed, regardless of what the market is paying for their goods.
The U.S. is currently without a farm bill, a massive legislative package that includes financial support programs for farmers. The last one expired Sept. 30, and has not been renewed by Congress.
Most farmers are not yet feeling the pinch, as most provisions of the expired farm bill remain in place until 2013. But a key farm bill program for small dairy farmers expired Sept. 30, leaving them at the mercy of the volatile milk market.
The Milk Income Loss Contract, or MILC, program guaranteed small farmers a minimum price for their milk, no matter how low wholesale prices dropped. That program expired and has not been replaced.
The program established a target price for milk by taking into account things like the cost of feed for cows. If wholesale prices fell below that target price, the program reimbursed farmers a fraction of the difference.
A farm could collect payments only on its first 3 million pounds of milk produced each year — the approximate amount produced by 150 cows — so small farms, as opposed to large agribusinesses, were reaping most of the benefits.
Because his farm has 500 cows, Kilby was only eligible for MILC benefits a few months out of the year, but he still called the program “extremely valuable.” Kilby said MILC functioned as an insurance blanket for farmers in case prices dropped unsustainably low.
“Speculators have gotten into the milk business. Milk was the most speculated commodity last year,” Kilby said. “We have to take out insurance because we’re not eligible for MILC. Last year it cost us $40,000 to basically buy insurance for low milk prices. We feel we need to do that to protect our investment.”
“So,” Kilby said with a sigh, “it seems like one thing after another.”
The Dodd-Frank financial reform bill contained a provision that limited speculation on 28 commodities, including milk, but the provision was thrown out in September after a court challenge by a group representing Goldman Sachs, JPMorgan Chase, Morgan Stanley and other banks.
For smaller farmers, the end of MILC poses an even bigger burden.
Jason Myers owns Windsor Manor Farm in New Windsor, Md., where he has a herd of 36 Holstein cows.
“It helped us a lot, being a small producer. We were able to use it on all our production,” Myers said. “If there’s no new farm bill to give us any help as far as pricing, especially with the high corn prices, we’ll just be at the mercy of hoping that the price of milk goes up.”
The expiration of MILC comes at an especially inopportune time, just as feed prices are near historic highs.
In 2011, feed costs accounted for 80 percent of the operating costs of dairy farms, according to USDA data.
“Feed that we get for our cows used to be $6,700 a load. It’s now $13,000 a load, and that’s every two weeks,” Kilby said.
From 1970 to 2005, feed corn prices averaged $2.27 per bushel. In 2012, they have averaged $7.90 per bushel, driven upward by the emergence of the ethanol industry, and more recently, by the severe drought that hit the Midwest.