Farmers struggling with low milk prices find little help from safety net

Dave Schwartz, who farms near Slayton, is just breaking even on milk.
Dave Schwartz, who farms near Slayton, Minn., is just breaking even on the milk his dairy cows produce at his southwest Minnesota farm, here on Tuesday, January 9, 2018.
Mark Steil | MPR News

Dave Schwartz has been milking cows full-time for nearly 60 years, through boom times and busts. And since the late 1950s, he's seen a lot of both. He tries to keep an optimistic outlook, but that's been a difficult thing to do lately, as milk prices fall — prices in 2018 so far are nearing a two-year low.

Schwartz says that's putting a lot of financial stress on his dairy farm near the southwestern Minnesota community of Slayton.

"It's just a survival thing and hopefully you can hang in there until it turns around," said Schwartz. "That's kind of the way dairying is. It's ups and downs."

Milk prices hit an all-time record high of over 24 cents a pound to farmers in 2014 — but they have fallen by more than 40 percent since then.

That hit for farmers is giving consumers a break at the grocery store. A gallon of milk four years ago cost about $3.85, and now the price is hovering at about $3.15, down by about a fifth.

Schwartz said he's at break-even on his milk sales, but many dairy farmers are losing money. Making the current situation even worse is the failure of a federal program designed specifically for dairy farmers. It's supposed to provide some financial help during unprofitable times.

"It has not done anything for me as far as that goes," said Schwartz.

The margin protection program, as it's known, was created in the 2014 farm bill.

It's basically an insurance program: Dairy farmers pay a premium to buy protection against falling milk prices.

"I think the dairy industry was pretty enthusiastic following the 2014 farm bill," said John Newton who works for the American Farm Bureau Federation, a group with thousands of farmer members that lobbies for agricultural issues. "About 80 percent of the U.S. milk supply was enrolled in the program — 24,000 out of 40,000 dairy farmers signed up to participate in the program."

But that enthusiasm faded as milk prices fell and farmers saw little return for premiums paid. Enrollment in the program has fallen sharply since then. The most recent figures show dairy farmers across the country have paid $100 million in premiums, but only received back about $12 million from the program, Newton said.

That's a much lower rate of return than in other federal farm programs, where the basic rule is that these types of insurance systems should pay out about as much as they take in.

"Dairy farmers need a safety net that works," said Newton.

Newton and others who've researched the program's failure believe its main problem is that it underestimates the cost of producing milk. Because of that, it paints an overly optimistic picture of dairy farm finances, leading to low payout rates. That's something that even the designers of the program agree with.

During a hearing last year, when dairy farmers were already struggling, U.S. House agriculture committee chair Michael Conaway of Texas put it this way.

"While we often say that the farm safety net is designed for times like these, the margin protection program in the 2014 farm bill has provided virtually no assistance," said Conaway.

That leaves dairy farmers like Schwartz in southern Minnesota and Steve Schlangen, farther north, wondering what's ahead.

Schlangen has seen the economic struggle dairy farmers are going through up close. He's the board chair for Associated Milk Producers, a large dairy co-op headquartered in New Ulm. Milk prices are projected to rise later this year, but Schlangen wonders if that will be too late for some producers. He said many have struggled for years, and need some federal assistance.

"A lot of farms have left the business over the last three years," said Schlangen. "Are they going to want to support dairy farmers or not?"

The answer to that question will likely come later this year, when Congress completes work on a new farm bill. Lawmakers have tweaked the margin protection program a bit already, and farmers are hoping for a major overhaul during the farm bill debate. But facing tight budget constraints, it's unclear if Congress and the president will approve expanded funding for dairy farmers.