Oregon dairy farmers have been losing money since the financial crisis drove down milk prices last fall.

Farmers don’t see many options besides continuing to sell at a loss, since cows must be milked regularly and farms can’t cut costs without compromising their health and milk. No one wants to buy dairy cows, and selling cattle for ground beef is a last resort. Most farmers are now relying on credit and savings to stay in business.

A program created and funded by dairy producers offers buyouts to farmers who are ready to retire, but it has raised the price of milk by just $.71 per hundred pounds. The average price paid to Oregon dairy farmers in 2008 was $20.11 per hundred pounds of milk; the average for 2009 to date is $10.94. Most farmers need prices in the $15 range in order to break even.

A few Oregon farmers have gone out of business, says Jim Krahn, executive director of the Oregon Dairy Farmer’s Association. He expects more farmers will close down before prices stabilize at a sustainable level.

“I’ve essentially lost everything that I’ve worked for in the last 20 years,” says Louie Kazemeir of Rickreall Dairy in Polk County, where 1,600 cattle produce 4 million pounds of milk a month. Kazemeir estimates he’s losing between $6,000 and $8,000 a day, totaling $1.2 million so far in 2009.

The good news is that milk prices seem to have turned around; the futures market shows enough of an increase in November’s prices to make some farmers a profit. But even as farmers recover, complex subsidies and pricing formulas ensure that the industry will continue to boom and bust. The answer is more regulation, Kazemeir says.

“We need to get production controls across the country to avoid this again,” he says. Milk prices were low in 2005 but rose to historic highs in 2007, when farmers added cows to cash in. When prices dove back down, some farmers were still paying off the loans they had taken out to add capacity.

U.S. Agriculture Secretary Tom Vilsack said last month that the dairy industry must be restructured to be less volatile. In the meantime, dairy farmers are getting a modest bailout: $290 million in direct payments and $60 million for the government to buy cheese.

ADRIANNE JEFFRIES

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