Outside forces at work
- April 27, 2009
Farmers are prepared to deal with the unexpected: the sudden hailstorm that destroys their corn crop, the tractor that breaks down during harvest season, the cow that escapes in the middle of the night. Much harder to handle have been the market swings and consumer panics brought on by a new era of global economics and high-speed information.
Two Virginia farming sectors have been especially hard hit by these new 21st century realities: milk and peanuts.
Virginia dairy farmers are in bad straits less than one year after one of the best years on record for milk exports. In 2008, wholesale milk prices charged by domestic farmers topped $20 per hundredweight. The price increase was caused by unprecedented demand from China, India and other emerging markets for cheese and powdered milk, a falling dollar and a pinched supply of product brought on by droughts in dairy-intensive markets such as New Zealand and Europe.
By the end of the year, though, with supply back on track and demand for food products starting to fall because of the global recession, milk prices began plummeting. In early 2009, wholesale prices were at $10 per hundredweight, a 50 percent reduction over the previous summer’s high. At the same time, the cost of supplies has failed to decrease at the same pace, putting a real squeeze on the nation’s milk producers.
“There’s no point in sugarcoating it: Probably more dairy farmers than usual will go out of business this year,” says Tony Banks, assistant director of commodity marketing for the Virginia Farm Bureau.
Gerald Garber, who runs a dairy operation of 500 cows in Weyers Cave, is even more blunt. “If we go into 2010 anywhere near like we are right now, there’s going to be a bloodbath in this industry,” he says.
Banks notes that dairy farmers are taking extreme steps in hopes of minimizing losses this year. These include aggressively culling their least productive cows, utilizing less expensive feed, reducing fertilizer applications as much as possible for hay and corn crops, and putting off any capital expenditures or improvements.
Peanut farmers, on the other hand, have had to deal with an increasingly common threat to the food industry: instantaneous (but sometimes incomplete) reports about food-borne illnesses that can inspire consumer panic. The industry was blindsided last fall by response to a salmonella outbreak traced by the Food and Drug Administration to contaminated peanut butter from one company, Lynchburg-based Peanut Corporation of America. Thousands of products using the company’s peanut paste were recalled, but none was a major peanut butter brand such as Jif and Peter Pan. Nonetheless, people didn’t just avoid peanut butter, they shunned peanuts altogether.
“The way the media reports it, the consumer gets so confused and so frightened by what they are hearing that they just throw up their hands and say, ‘I’m just not going to buy anything made with that product,’” says Dell Cotton, executive director of the Peanut Growers Association of Virginia, noting that Virginia farmers grow crops that generally are sold as shelled or in-shell peanuts.
The peanut industry already faced pricing and oversupply problems, Cotton says. That largely was the result of 2008 harvest that yielded an optimum 3,000 pounds per acre in every peanut-growing state. The salmonella scare “was just the icing on the cake,” he says.
The contract price for peanuts has dropped over the last year from $600 a ton to between $450 and $485 a ton. As a result, Virginia peanut farmers are reducing the number of acres planted in peanuts by 50 percent in 2009 and replacing them with soybeans, according to the U.S. Department of Agriculture.
Media attention eventually moved on to a new salmonella outbreak in the pistachios, but the peanut industry remains stuck in a PR nightmare. The Virginia Department of Agriculture and Consumer Services recently launched a consumer education campaign, and Cotton’s organization is raising funds to put more peanut butter on the shelves of local food banks. “It’s important for people to realize that peanuts are safe, because especially in an economy like the one we’re in now, peanut butter and peanuts are a cheap but highly nutritious food source for people having a tough time,” he says.