A story in The St. Ignace News' ongoing series bringing our readers fresh perspectives on the top issues facing the Straits area and the Eastern Upper Peninsula.

A tough year is predicted for dairy farmers, and the fewer than 20 dairy farms in the EUP, collectively producing about 72,000 pounds of milk per day, will be no exception. Even though grocery store shoppers see consistent milk prices on the shelf, farmers say milk is putting less money in their pockets than it has in years. Even so, farmers can't lay off workers when profits go down, as other businesses do, because livestock must be fed and the daily work on the farm must continue.

Since 1999, milk production in the U.S. has increased 17%, producing about 190 million pounds of milk per year, reports the U.S. Department of Agriculture. Although production has steadily increased in the last decade, dairy analysts are predicting a tough year for dairy farmers.

As it has with almost everything else, the sluggish economy is taking its toll on the dairy market. That, combined with increased production costs and decreased exports, means the demand for dairy has dipped to recent record lows.

Much of that demand comes from restaurants.

Christopher Wolf, assistant professor of dairy farm management at Michigan State University, said because people are spending less money, they are eating out less. When people eat out less, less dairy is sold to restaurants, one of the largest buyers of dairy products.

"People are eating out less, and when they do, they're going to cheaper restaurants," he said.

"Cheaper" fast food restaurants use less expensive processed American and cheddar cheeses, while a sit-down restaurant will more often use more expensive Italian cheeses, like mozzarella.

"The demand for Italian cheese has really come down," he said. This small example reflects much of the rest of today's dairy market.

"Everything was booming. Foreign merging markets were buying. Everybody was gearing up to make more," said Sault Ste. Marie dairy farmer David Bell. "Now it's record low. The production has outpaced the demand and we've got to go through a bad downtime."

Because demand is lower, the price at which dairy farmers sell milk to production facilities is rapidly declining. Last summer, dairy farmers were being paid as much as $22 per one hundred pounds of milk (CWT), but in February, that figure was cut nearly in half, to $13.97 CWT, reports the Farm Service Agency, a division of the Department of Agriculture.

The federal government does offer financial subsidies to dairy farmers when the price per hundredweight falls below a certain point. The aptly named Milk Income Loss Contract (MILC) government subsidy pays farmers a percentage of the difference when Class I drinking milk prices fall below $16.94 CWT.

There is a limit (2.98 million pounds) on how much milk it will pay on, but that only impacts larger dairy farms, Mr. Wolf said. Larger farms produce more milk and meet the limit quicker.

"It's definitely going to save some people. Is it going to save everybody, probably not," he said.

In the EUP, most dairy farms have an average of 100 dairy cows, which means it will take longer for them to meet that subsidy limit, said Ben Bartlett, a dairy and livestock educator at Michigan State University (MSU) Extension in Chatham.

"It will help many of our U.P. producers," he said of the subsidy. "Our producers are really resilient and they'll probably hang in there. There is no doubt that it is going to be tough."

Analysts expect the price per hundredweight to drop to as low as $10 this year, Mr. Bartlett said.

There are fewer than 20 dairy farms in the EUP, collectively producing about 72,000 pounds of milk per day, which is equal to about 8,470 gallons of Class I retail milk.

Milk is sold in four different classes. Class I is beverage class used for drinking; Class II is used for fresh products such as yogurt, sour cream, and ice cream; Class III is turned into cheese, and Class IV is used for butter and powdered milk products.

Economic downturn and decreasing exports hurt industry

The lagging national economy is forcing a lot of businesses to downsize their workforce to save money and stay in business. But the dairy industry isn't like other industries, Mr. Bell said. If the demand for milk goes down, he is not able to lay off workers and reduce production to weather the storm. He has to keep on working.

"Some industries, you can see the market is bad and you can lay some guys off," he said. "Cows have to be milked twice a day. All the work still has to be done. The only real fix we have is to find cows that aren't going to be the most productive and sell those cows.

"Instead of laying off our workers, we've got to keep clogging away at it because we just have no choice."

When cows aren't producing, they are sold to a slaughterhouse to be turned into meat for human consumption, he said.

"Enough cows are going to be sold for hamburger," he said. "It's just a matter of surviving."

A high volume of U.S. dairy exports helped drive increased milk production over the past few years, but fell off last year.

In 2007, the value of U.S. dairy exports increased 48% over 2006, reports the Michigan Farm Bureau. Those figures continued to grow through 2008, increasing another 32%, but declined rapidly last November when the U.S. dollar grew stronger, making U.S. exports more expensive. The decrease in foreign sales has left more dairy to be sold domestically.

"The international market is so tight, there's not a great opportunity to export," said Pickford dairy farmer John Kronemeyer.

Mr. Kronemeyer, who has been farming for more than 50 years, says the prices at which he's selling his milk "are as low as they've been in the last 30 years." He has 250 dairy cows on a 1,200-acre farm, the largest dairy farm in the EUP.

Mr. Bell, whose herd is second only to Mr. Kronemeyer's in size in the EUP, has 200 dairy cows that produce about 11,000 pounds of milk a day. He employs two fulltime and five part time workers to help run the farm.

Every other day, Mr. Bell ships about 22,000 pounds of milk to Jilbert Dairy in Marquette through the Michigan Milk Producers Association, a co-op that manages the sale and shipment of milk for 1,430 of the 2,500 dairy farmers in Michigan.

The number of companies that own dairy processing facilities is shrinking. Although there are multiple brands of milk sold in stores, many of those brand names are owned by only a few parent companies. The smaller number of owners creates less competition at retail outlets, which is why the low cost of milk sold by dairy farmers isn't reflected in the price of a gallon of milk at the store.

"In a normal free market system, the price in the stores would start trickling down," Mr. Bell said. "There's a lot less competition in the stores, so it doesn't."

Dairy is the largest sector of Michigan's agriculture industries, providing a $5.1 billion impact on the economy, according to the Michigan Department of Ag- -riculture.

The high cost of dairy farming

In January, the U.S. milk-to-feed price ratio was listed at 1.69, meaning that for every one pound of milk sold, farmers could purchase only 1.69 pounds of feed. The higher the ratio, the more feed farmers can afford to purchase. This is the lowest recorded value since the USDA began reporting the ratio in 1985.

Feed costs are one of the largest costs to dairy farmers. Many EUP dairy farmers, including Mr. Bell, grow their own hay for feed to alleviate some of that cost.

The cost of corn, which some farmers feed their cows, has doubled over what it was four years ago. In 2005, a bushel of corn cost less than $2, and now a bushel costs about $3.60.

When the price of gasoline topped $4 a gallon at the pump last year, and interest in corn-based ethanol as an alternative fuel was on the rise, corn was listed as high as $7 per bushel.

This price increase of corn is costing farmers more to feed their livestock. When corn prices go up, so do prices for oats, hay, and other commodities fed to livestock, Mr. Bartlett said. Cows are typically fed hay, oats, corn, and barley.

Market analysts aren't predicting a turnaround in the dairy market until August or September. Mr. Bell, however, said he is optimistic and thinks the market will rebound at the beginning of this summer.

Mr. Bartlett said a turnaround in the dairy industry will likely depend on an overall turnaround in the national economy.

"We've got more capacity than consumption right now," he said. "I think it's going to mirror the economy. We kind of need the economy to turn around."