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There will still be dairies in California for a long time, despite the current financial crunch. The Verwey dairy in Fresno County survived the 2009 economics and added this pond and trees.

There will still be dairies in California for a long time, despite the current financial crunch. The Verwey dairy in Fresno County survived the 2009 economics and added this pond and trees. Photo By John Oncken

California's dairy disaster continues

Dec. 6, 2012 | 0 comments

Over the past several months there has been much in the news about the financial straits of some California dairies, including possible foreclosures.

In this column of Aug. 31, I summarized the situation after talking with a number of California dairy producers, lenders and ag suppliers. At the time I wrote of the dispersal of some 8,000 cows and 6,000 heifers on four dairies owned by Warren Hettinga, a well-known central California dairy producer.

Much has happened on the California dairy scene since and, after many phone calls and conversations, it seems that the dairy situation in the #1 milk production state remains serious - terminally serious for some producers.

Consider this news item that appeared in newspapers a couple of months ago:

"A husband and wife owning several dairy farms with 9,800 cows filed for Chapter 11 reorganization on Aug. 24 in Fresno, CA, owing almost $100 million to two secured lenders. The farms operate under names including John Visser Dairy Inc., Graceland Dairy Inc., Lariat Dairy Inc. and Dairyman's Calf Ranch Inc. They are owned by John and Grace Visser.

"Between them, the farms have 34,200 animals. The operation is based in Strathmore, CA. The Texas farm is in Muleshoe. Wells Fargo Bank NA is owed $64.5 million on several loans. Farm Credit West FCLA holds $32.7 million in debt.

"The farms filed bankruptcy when Wells Fargo sent notices to customers demanding they turn their payables over to the bank."

On Nov. 3, the Lariat Dairy at Muleshoe, TX, was sold at auction by Overland Stock Yard of Hanford, CA. Included were 6,700 cows, 5,800 replacements, 1,200 Holstein steers, two 72-cow carousels, and 2,500 acres of farmland.

Pete Belezzouli of Overland said that there were 150 registered buyers and a crowd of over 250 people with the cattle selling $200-$300 higher than expected to buyers from a dozen states.

"It was unbelievable," he says. "Buyers were so eager to buy."

Arnold Freitas, field representative at CDI, Inc. (California's biggest dairy co-op) at Fresno, tells me that a 3,000-cow dairy he and I visited a few years ago has quit milking and is tearing out the freestalls and converting to beef. He also mentioned and that another 1,200-cow dairy was sold to a foreign investor who is converting the property to raising grapes.

Freitas also told of one of his longtime milk producers, Manuel Galhandro, at Lemoore, who sold his 600-cow dairy herd at auction on Nov. 27.

"This was not a forced sale," Freitas says. "He just didn't want to fight the income/expense battle anymore."

Same for Danny and Teresa Visser of Clovis, NM, who are dispersing their Dutch Valley Farms 12,000-animal Jersey herd (6,000 cows, 6,000 heifers) at auction on Dec. 15.

"No," it's not a forced sale," Danny says. "My wife and I decided to get out of the high priced feed, low milk price battle."

The Vissers (no relation to John, mentioned above) moved from California about six years ago and are well-known in the dairy industry.

On Dec. 19, Marquez Registered Holsteins will be dispersed in Ontario, CA. The herd that dates to 1930 and has been A.I. bred since 1959 includes 5,000 Holsteins (3,200 cows, 750 dry cows, 1,000 heifers) and is located in the old Chino Valley dairy dome.

For decades, the rest of the dairy world watched dairying expand in California as it moved from the Los Angeles area to the Chino Valley to the San Joaquin Valley with ever-bigger herds housed in free-stall barns producing ever-more milk.

Real estate and cheap grain brought in from the Midwest were often cited as the real reasons behind the ever-expanding California dairy industry.

Milk pricing debates

Now, after decades of receiving lower milk prices than most other dairy areas, in October the California all-milk price of $19.20 was over $2 behind Wisconsin's $22.40 and dairy producers are in a turmoil and are on the warpath to "do something."

The popular option seems to center on joining the Federal Milk Marketing Order (FMMO) system that most of the other dairy states participate in. It's not a sure thing, however.

On the one hand, change seekers like Cornell Kasbergen, who milks 3,000 cows at Tulare (and owns Spring Grove Dairy at Brodhead, WI, with his brother George), want to get rid of the pricing system used in California for decades and join the rest of the FMMO milk states.

Kasbergen says he "can't understand why any of his fellow dairy producers wouldn't want the additional $1 per hundred he believes they'd earn if the state adopted the FMMO system."

In contrast, dairyman Jamie Bledsoe (son-in-law of the well-known Doug Maddox who died about a year ago), who milks 1,300 cows at Riverdale, thinks a move to a federal pricing structure would bring California's dairies only 30¢ per hundred more, and only for the short term.        

So the debate goes with a lot of talk, theories and questions.

In order to get some better answers, CDI, Inc., the state's biggest dairy cooperative, whose members produce 43 percent of the state's milk, has commissioned a comprehensive modeling study of a California federal milk marketing order - the first of its kind.

CDI (along with LOL and DFA) has contracted with Mark Stephenson, director of dairy policy analysis at the UW-Madison College of Ag and Life Sciences, and Chuck Nicholson, professor of supply chain management at Penn State, to conduct a five-month study and assess what can be expected by replacing the state milk marketing order with a federal counterpart.

There are 10 FMMOs in the U.S. today. Idaho eliminated its FMMO in 2004, but Idaho producers are considering a resolution that supports returning to an FMMO.

The California dairy business model, built on purchasing feed from outside the state and maintaining a cost-of-production advantage, has taken a beating, a CDI official says. "That model is not going to be sustained by overlaying a different regulatory system on the California dairy industry."

David Ahlem, vice president of dairy procurement and policy for the privately owned Hilmar Cheese Co., says "The only way to create sustainable increases in price or value is through incentives, innovation, investment and competition for milk in the state."

Without doubt, California dairying faces serious conflicts. Add in water shortages, and a proposed fast train through dairy country cutting dairies in pieces, and people issues.

Yes, the leading milk production state does indeed have problems.

Be thankful for the many acres of corn, soybeans and alfalfa in Wisconsin that fuels our dairy herds. Even in a drought year, dairy economics are better than in the West and Southwest as their herd dispersals might show.

John F. Oncken is owner of Oncken Communications, a Madison-based agricultural information and consulting company. He can be reached at 608-222-0624 or email him at jfodairy@chorus.net.

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