Dairy industry slump hurting other businesses
Published: November 18, 2009
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Kurt Kulick, owner of Lenox Farm Supply and Lenox Farms, harvests hay on a Gibson Township property. TIMES-SHAMROCK PHOTO/LINDA MORGAN
Kurt Kulick, owner of Lenox Farm Supply and Lenox Farms, stands with hay freshly harvested in Gibson Township. TIMES-SHAMROCK PHOTO/LINDA MORGAN
Bob Kinsman's farm equipment sales trace the dairy industry's slump.
"When you're dangling zero percent (interest) for 60-month financing in front of people and they don't buy, it's pretty serious," said Kinsman, president of George W. Kinsman Inc., an implement dealer in Honesdale. "Farm equipment sales are way off. I'd say we're down 30 percent" from 2008.
Semi-retired Tunkhannock veterinarian Bryan Lee provides care for fewer and fewer cattle as the dairy crisis hastens the trade's decline.
"I've been in the business going on 50 years and it's always been tough, but this is worst I've seen it," Lee, 73, said. "There's not that much demand for my services.
"They don't call because they don't have the money."
As dairy farmers struggle with an imbalance in milk production costs and payments, businesses and services in rural communities feel the strain, too.
"This ripples through a small town in a fairly big way," said James Dunn, an agricultural economist at Penn State University. "It doesn't just affect the people who sell directly to farmers. You've got the grocery store, the barber and a variety of other people who feel it.
"The feed dealer is struggling to pay bills, the lumber mill is struggling to pay bills, the hardware store is struggling," he said. "Nobody in the community is exempt from this."
A hardy period in the cyclical dairy industry reversed suddenly late in 2008, as the international economic crisis deeply depleted U.S. dairy exports and a glut of milk led to a nationwide collapse in prices.
Pennsylvania dairy farmers who were paid an average of $20.50 for 100 pounds of raw milk in September 2008 - a standard measure equivalent to 11.6 gallons- saw average payments drop to $13.50 by February and bottom out at $12.90 in June. Through the same period, average production costs for the same amount of milk consistently ran in the $17 range.
"The best dairy farmer in Pennsylvania didn't make money this year," Dunn said.
The results forced some dairy farmers out of business. Between 1997 and 2007, 44 percent of U.S. dairy operations ceased. In Pennsylvania, there were 8,400 dairy farms in 2007, 26 percent fewer than in 1997.
Others hang in, cutting every corner to control expenses.
"People have got things worn out."
Equipment dealers feel the effect. Sales of tractors, haybines, balers, wagons and other implements are off 30 percent this year at Lenox Farm Supply in Hop Bottom, owner Kurt Kulick said.
"People are trying to patch old stuff together and are delaying new purchases," he said. "Farmers aren't even buying new parts. They are buying used parts."
Things are so tough, he said, some farmers try to dispose of needed equipment to generate income.
"My phone has been ringing a lot in the last 30 days with farmers trying to sell excess machinery," Kulick said. "They are hoping to make some payments and buy some grain for the winter."
A related downturn pinches granaries.
Some farmers accumulate oversized account balances because they cannot keep payments current.
"We had a farmer that we actually had to cut off," said Scott Brown, a former dairy farmer and co-owner of Ross Feeds Inc., in Hop Bottom. "It's really hard for me to say no to these guys."
Cash-poor, debt-loaded farmers take their financial problems to bankers, who see more loan delinquencies among their agricultural clients.
"We've had some people who are really struggling," said Mark Graziadio, a vice president at Honesdale National Bank. "We're trying to work with people as best as we can. We don't want to see them go under." Rick Lochen, chief administrative officer at Hallstead-based Peoples National Bank, summarized the bind.
"We're redoing a lot of debt. We're trying to give lines of credit where there's room available," Lochen said. "The last thing we want to do is foreclose on somebody who worked the land all their life.
"But we keep saying, how long can this last?"
Merchants wonder the same thing, because agriculture helps drive the region's rural economy.
"There's one thing about the American dairy farmer, when times are good they spend it," Kulick said.
"When a farmer has money, it makes the economy move," Brown said. "Two years ago, when milk was high, the economy was just banging. Everybody had money."
There are social aspects involved, too.
Farmers are known for their diligence and honesty. People who do business with them understand their plight.
"Agriculture is a way of life that really develops a mindset and a work ethic and the kind of people that you want to live with," Graziadio said.
"Typically, good people that would pay their bill when they get it just don't have anything left to pay it," Kulick said.
