COVER STORY: Minnesota's Wayra Dairy trims the fat to keep the milk flowing
TRAIL, Minn. -- With 25 years in the business, dairy producers Deb and Wayne Vettleson have been through hard times on more than one occasion. They know the drill when the dairy market sours: Cut back the spending to just those things that keep t...
TRAIL, Minn. -- With 25 years in the business, dairy producers Deb and Wayne Vettleson have been through hard times on more than one occasion. They know the drill when the dairy market sours: Cut back the spending to just those things that keep the milk flowing.
"We put anything off that doesn't need to be done," Wayne says of their operation, Wayra Dairy Farm, in northwestern Minnesota. "I mean, the cows got to get milked."
But Wayra Dairy Farm, like others around the country, has been operating in the red for several months. They are getting as little as $10 per hundredweight for milk, which costs more than $16 to produce. The Vettlesons milk 220 cows twice a day and ship 26,000 pounds every other day, leading to a loss, on paper, of more than $750 each day.
But they expect they'll be alright in the end.
"It's one those things you just got to go through, the lows and the highs," Wayne says.
Built over time
The Vettlesons bought their land 30 years ago. Wayne had grown up on a farm just down the road. He and Deb got right to work.
"We built everything out here," she says. "Wayne was a carpenter, and he built most of the buildings."
They had a comfortable home and a few outbuildings in the early days, and Wayne was doing well enough as a carpenter. He was able to milk on his father's dairy farm in the winters when building was slow, so it wasn't long before they were able to start their own herd of 12 Holsteins. They kept adding to it until they couldn't fit any more into their barn. In 1989, they built a tie stall barn for 36 cows and ended up milking 42 cows there.
"Then we decided that wasn't the way to go, so in 1993 -- we had a big hay shed -- we made that into a free-stall barn and then we were milking 110 cows," she says. "Every year, we're doing a little more and a little more."
They have 500 to 600 cows, including the heifers and the young stock, Deb says. They also raise and butcher corn-fed steers. They seldom buy new cattle.
"We raise all our young stock, and I take care of all the calves," she says. "I take care of the babies because no one likes to do that. We calf all year around, so I've been really busy, lately."
She's currently feeding 35 calves in one of their two calf barns.
"That's just the babies. I feed from two months down," she says.
They have four groups on feed in another barn. As they mature, they'll progress from there to grazing out in the nearby woods, then to another group of grown cows. And then they get bred.
"It takes two years before you can get them milking," she says. "So you got to have a lot of room for a lot of calves."
The dairy industry had been enjoying a two-year stretch of good prices before the fall. In early 2008, the Vettlesons were getting more than $20 per hundredweight for their milk. As the U.S. dollar weakened, export demand rose and production increased to meet it.
"Now our dollar is stronger so our exports have dropped," says Bob Lefebvre, executive director of the Minnesota Milk Producers Association.
But the production levels remained until supply began overloading demand. USDA predicts 2009 dairy exports will drop 25 percent from last year.
"As a result, we've got an oversupply situation, along with high feed costs," he says.
The global economic crisis only added to the troubles, making lenders nervous at a time when consumers were buying less milk. Except for a slight increase in summer 2008, dairy producers have been watching milk prices fall steadily ever since.
"We've been identifying it as a perfect storm," Lefebvre says.
Not everyone will be able to weather it, he says.
"The unfortunate thing is the poor judgment that some made within other financial sectors," Lefebvre says. "Other sectors of the industry have made it more costly for dairy producers to line up credit to try and make it through this difficult time where they're losing about $5 for every 100 pounds of milk they produce."
The Milk Income Lost Contract program now is in effect, providing a buffer milk producers against their losses. MILC is paid on a monthly basis whenever fluid milk prices fall below $16.94 per hundredweight.
Lefebvre thinks there is room for improvement there and wants to see USDA step up and buy more dairy products for food programs.
"The packaging standards that USDA has are different than the packaging and grading standards within the Chicago Mercantile Exchange," he says. "For a processor to sell dairy products into USDA, it's going to cost them several cents per pound of cheese to make those changes."
He thinks USDA could relax these standards temporarily, negating the added cost to producers.
"One penny can equate to 10 cents a hundredweight," Lefebvre says. "I recognize that that's not everything, but that's a very simple thing that USDA can do."
He also wants to see the fluid processors, wholesalers and retailers drop their prices in a more proportionate ratio to the lower prices they are paying producers for the milk.
"We recognize that our product does not make up all of that cost, but if, for example, it makes up 35 percent of the cost of their product, we certainly haven't seen it going down 15 (percent) or 20 percent," he says. "Someone needs to call this to task."
Like dairy producers around the country, the Vettlesons now are upside-down on their hundredweight dollars. Every time a milk truck leaves the farm loaded with their milk, they're left with less money in hand than it took them to produce it.
"I think we hit $22 about a year and half ago, but it went from $15.30 to $15.40, and January dropped down to $10, and now February is $9 something," he says.
According to the futures prices, it will be May before the prices even hit $11 again. Meantime, "my cost of production is pushing $17 right now," Wayne says.
Wayne and his crew will have to operate in the red until prices recover. They now plan to go to three milkings a day -- not to take advantage of higher prices, but to help offset their fixed costs with more pounds of milk.
They've also got the new barn to think about. They took out the loan for it last year "when things were looking a lot better," but until it is holding the 80 milking cows called for in their plans, it is a drag on the Wayra Dairy Farm economy.
"I actually wasn't planning on putting cows in there because of how expensive cows were," Wayne says. "We need to remodel part of the old barn. They're getting kind of beat up and the stalls are undersized. They're saying cow comfort is one of the bigger things you can do for cattle, and so that's one of the reasons we built this barn."
They're down to just some finish work on the new barn and now are having specialized bedding put in for the cows. After that, getting the stalls and a rail put in will finish the job.
Some dairies have culled herds to lessen feed expenses and increase cash flow. But the price of heifers also has tumbled, following the price of milk. A healthy heifer that would have brought $2,500 last year now is more likely to go at $1,200 or less, he says.
Better to put them into production.
"Basically, it just brings more income in," he says. "Not that it's profitable income at the price milk is, but so many of our costs are fixed, and so if you've got more pounds to spread those fixed costs over, it should reduce your total cost per hundredweight."
It also inflates expenses, as does milking a third time each day.
"For our size operation, it probably means one more full-time person," Wayne says. "And there's a little more feed and more supplies because you've got (to use) your cleaning equipment one more time."
Where to cut?
While milk prices have dropped, grain prices still are high.
Deb and Wayne own about 720 acres and rent another 100. About 600 of those acres are tillable, which Wayne plants with corn and alfalfa.
On the other hand, the power bills have been "awful," Deb says.
"Our electricity went way up and that was a shocker. When we got the last bill, it was like, 'We got to shut every light off when you leave.'"
But it's been a cold northern Minnesota winter, so they still have to keep all the tractors plugged in. They have to keep the waterers heated and the calves warm, and the cows eat better when the barn is lighted. And of course, the shop also is heated.
"Wayne said every time he opened the door it was like letting $25 worth of heat out the door," she says.
They just had to replace their feed mixer, Deb says, noting that it wasn't a good time to have to buy something.
"But you have to replace what you need. That's the hardest thing. You think, 'Well, we'll just ride the storm,' but you can't always do that," she says.
Given their plans to ride it out, cutting their crew doesn't make any sense.
"You can't cut people just because the price is down," Wayne says. Besides, "if you quit milking cows, you aren't going to have milk when the price comes up."
All in all, the Wayra Dairy has had a rough ride this winter.
"It's been really tough, so with the milk price dropping, you just have to ride the storm," Deb says. "But how many people would keep their job if they told you you were getting a 40 percent cut in your wages?"
According to the futures markets, the second half of the year is expected to see $13 or $14 per hundredweight for milk.
And that price "is still below my cost of production," Wayne says. "But that's better than it is right now."