If the United States is facing a fiscal cliff, many dairy producers may already be in free-fall.

With the government setting a floor on the price of milk, U.S. dairymen are price-takers not price-makers. However, when that bottom-line price doesn’t cover the input and operational costs required to maintain a minimum profit it’s only a matter of time before their bottom lines begin to hemorrhage. And that’s exactly what is happening according to dairy producers – and, increasingly, peripheral businesses servicing the dairies -- across the nation.

Milk Income Loss Contract (MILC) payments are supposed to bridge the producers’ financial gap. With the massive 2012 drought and skyrocketing feed costs that bridge already didn’t span the divide. Regardless, any chance of the MILC program helping to maintain the operations went away with the late September expiration of the 2008 farm bill.

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And it could get worse. Already facing a 30 percent drop in milk consumption since the 1970s according to the USDA, the prospect of a coming spike in milk prices -- perhaps a doubling of the price of a gallon -- is very real.

That last possibility is largely tied to the inability of Congress to agree on a new farm bill. Without a new bill by the end of December, 1949 law would come into force, requiring the government to buy dairy products at much higher prices. Those costs would ultimately end up on consumers’ tabs.

All this was pointed out to a lame duck Congress the week of Dec. 10. A joint letter from nearly 200 organizations and businesses that work with dairies in farm country stated that, "Federal dairy policies have been hammering dairy farmers for more than 30 years. There were 600,000 U.S. dairy farms in 1976, dropping to 131,509 by 1992, and to 51,481 by 2012. It is unthinkable that Congress continues to formulate policies that will likely be responsible for a continued decline in the number of U.S. dairy farms. … This crisis is not just affecting farmers and their families, but also the entire rural economy."

Read full letter here.

A handful of dairy producers explained their predicaments during a Dec. 11 conference call sponsored by the National Family Farm Coalition. None were enamored with the preferred solution to dairy woes – a Margin Insurance Program – currently backed by lawmakers and large cooperatives.

“The Margin Insurance Program has been put together by (Minnesota Rep. Collin) Peterson and the dairy co-ops. The margin insurance will be paid by the taxpayers,” said Arden Tewksbury, a Pennsylvaniadairy producer. “It doesn’t cover the dairy farmers’ cost of production. It does help subsidize some of the difference between the feed cost and milk price. It doesn’t do anything towards the other 45 to 50 percent of the dairy farmers’ costs, at all.”

The group backs a second proposal: The Federal Milk Marketing Improvement Act.

The act, said Tewksbury, “uses a national average cost of producing milk as the starting point for all milk prices across the United States. If that passed it would eliminate a lot of the problems they have in California. … The big difference is our bill uses a national average … to decide milk prices and doesn’t cost the government any money.”

Also among those on the call was Stacey McCallister, a dairy producer who works north of Mountain Grove, Missouri. “The processors are getting rich and the farmers are going broke. I’ve farmed since 1998 with my own cattle and have been around (the business) my whole life.”

McCallister said Missouri used to have 150,000 dairy cows. It was common wisdom that “if we ever got below 100,000 financially the infrastructure would (dip) rapidly. We’re at 90,000 cows now. Certain counties out West have over 500,000 cows.

“The drought is devastating – if that word is (adequate) for what’s going on. It’s been more than devastating. This is over a 50-year drought.”

The lack of response by the government has left McCallister shaking his head in disbelief. “Ten years ago – even five years ago – who would think there’d be a record historic drought and it wouldn’t be addressed? It isn’t being addressed for production agriculture! Where people think their food comes from, I don’t know. Times are changing.”

Dairy blood bath coming?

Dairy producers’ plight has been evident for a long time, though. The awful drought is only “the straw that broke the camel’s back.”

There are more problems on the horizon, as well. An example is aflatoxin in corn from drought-hit regions. “We can’t feed that corn. Corn (prices) are at an all-time record high and they’re talking about them getting even higher,” said McCallister. “We were told to expect that aflatoxin-free corn will have a premium over normal corn.”

Dairy cows consume about 55 pounds of feed per day.

If McCallistercan locate diminishing feed, a MILC check won’t cover the cost, “let alone stay current on my bills. That’s the scary part. You know, $16 and $17 feed at the mill and we’re getting $17 to $19 milk. I know those not in agriculture may not understand that. But it doesn’t even cover the cost of buying the feed and the electric bill, let alone running the farm and keeping current.

“There are no answers. We’ve heard, ‘Well, you can get (Dried Distillers Grains, DDGs, a byproduct of ethanol production that can be used as feed). You can buy other things to get through.’ Right now, I’d be scared to death to feed my cows DDGs because of all the aflatoxin in the corn and the other stuff that goes with it. Besides that, (DDGs) is very limited and very (costly). We don’t even get enough in our MILC check to cover that kind of stuff.”

It’s an ongoing battle to stay afloat, says McCallister, who also laments the conditions for rural businesses tied to dairy. “We used to have three (dairy suppliers) in my county. There’s one left and he’s part-time. If you can catch him, he’ll be here to work. Otherwise, I have to go two counties over to get someone to work on our equipment. And we’re still the Number One county in Missouri in milk production. We’re declining rapidly.”

As for those charging the producers only want government hand-outs, McCallisterpushed back. “There’s not one farmer on (this call) that actually wants a subsidy. He just wants a fair price. … We’re not asking for a hand-out, a welfare check or anything else. But if the government is going to come in here and tell (consumers), ‘We’re going to keep costs down on food and give you low prices,’ then they’d better be standing in to help out during economic messes and droughts. It isn’t working!

“If the lame duck session or next Congress doesn’t immediately fix (this), we’ll have the biggest blood bath in dairy that you’ve ever seen.”