"Somebody’s getting a cut of this, but it’s not the dairy farmer,” he said.
At the heart of the problem is the nature of milk. Unlike grain farmers who can hold out for better prices by storing crops in a silo, dairymen must sell raw milk to processors or else it spoils. And cows keep on producing whether the national economy’s expanding or in recession.
The price paid by processors to farmers is set by the U.S. Department of Agriculture based on commodity markets, which rise and fall with global demand. Some of the raw milk is processed into milk for stores as well as butter, yogurt and other products for U.S. consumption.
U.S. milk exports soared last year. U.S dairy exports jumped to $3.82 billion, or 11 percent all milk production in 2008 according to the U.S. Dairy Export Council.
But once the global recession accelerated last fall, demand, particularly exports, fell off a cliff.
U.S. farmers were suddenly faced with too much milk and too many cows. Wholesale prices crashed. Farmers found themselves spending more to maintain their herds than they were being paid for raw milk.