Marin dairy farmers face hard times as corn costs rise

Turning corn into ethanol may eventually help the United States reduce its dependence on foreign oil.

But the demand for ethanol has meant hard times for Marin's dairy farmers, who depend on corn to feed their cattle. Already struggling with low milk prices, dairy farmers now have to cope with corn prices that have doubled in the past year.

With 29 dairies in Marin, milk is the county's premier commodity, generating about 65 percent of the county's agricultural output, which totaled $53 million in 2005.

"Corn is now about $65 (a ton) more than it was at this time last year," said Bill Zimmerman, general manager of Dairyman's Milling Co., a Novato feed store. "That expense gets passed on to the dairyman, who's already looking at low prices for milk. It's been a very difficult year."

The increase in corn prices has led to staggering costs for local farmers, said Fred Krowder, county assistant agricultural commissioner.

"The price of corn has gone up, on average, about $40 per ton," Krowder said. "The average milk cow eats about 15 pounds of corn a day; the average heifer, or dry cow, about five pounds a day. A 500-cow dairy consumes about three tons of corn a day. So these additional feed costs come to about $120 a day, or more than $40,000 a year."

George Grossi, a Novato rancher, bought corn at $138 a ton two months ago from a San Francisco milling company. This month, the same corn cost Grossi $191 per ton.

"The price took off about three or four months ago, and it hasn't stopped," said Grossi, who uses about 25 tons of grain every two weeks to feed his herd of 200 cows. "It's because of all the new ethanol plants that are coming online."

The U.S. ethanol industry is booming, with more than 100 operating biorefineries and dozens more under construction, according to the National Corn Growers Association. Those refineries added about 5 billion gallons of fuel to the country's gasoline supply in 2006.

The state of California helped to fuel the ethanol boom by banning the gasoline additive MTBE in 1999.

"The state Legislature specified that ethanol was to be used instead," Krowder said. "Corn has become the largest primary source of ethanol."

Corn use for ethanol more than doubled between 2001 and 2005, the National Corn Growers Association reported. During that time, the nation produced its three largest corn crops in history, passing the 11 billion-bushel mark for the first time in 2004.

"Just this year, they were reporting the third-largest corn crop ever," Zimmerman said. "And yet there was still a dramatic change in cost."

That's because many Midwestern farmers are holding on to their corn crops, hoping that demand from energy suppliers will drive prices even higher.

"There's been a lot of speculation driving the market," said Bees Butler, a dairy economist with the University of California at Davis. "The market for ethanol produced from corn has absolutely taken off in the last six months."

Some dairy farmers managed to insulate themselves from the price hike by purchasing their corn ahead of time.

But many decided to wait, believing reports that an expected bumper harvest would lower prices this fall.

"I was going to contract for my corn, but everybody I talked to said not to do it this summer, that the prices were too high, that it was going to come down," said Novato rancher Jim McIsaac. Now, the jump in the price of corn is costing McIsaac about $5,000 per month, he said.

Cows don't live on corn alone, of course. Yet the jump in corn prices has also driven up the price of canola, hay, soybeans and other traditional cattle foods, Krowder said.

However, the demand for ethanol has also increased the production of distillers grains, a by-product of alcohol production that can be used as a high-protein cattle feed.

"The dairy industry is the one that's most compatible with distillers grains, which has a makeup of about 19 to 22 percent protein," said Kansas farmer Ken McCauley, speaking on behalf of the National Corn Growers Association.

Local ranchers say they appreciate distillers grains, but don't see it as a substitute for corn.

"Distillers grains is a good product, but it doesn't produce the same energy level," Grossi said. "It's hard to find a good product to use. If you're cheap, you're not going to produce as much milk."

While lower milk production may cut into the short-term profits of dairy farmers, in the long run it could be "just what the doctor ordered," said dairy economist Butler.

"With lower energy intake, cows will produce less milk," Butler said. "The milk supply will drop, the price of milk will rise, and the market will achieve equilibrium. It's almost magical."

Magic, or something like it, would come as a refreshing change to dairy farmers who have faced years of rock-bottom milk prices.

"These days, you pay more for a bottle of water than you do for a bottle of milk," Krowder said. "The mega-farms in the Central Valley are driving the price of milk down. It's hard for the family operations we have in Marin to compete."

Organic farmers earn about twice as much for their milk as traditional farmers. And because energy companies don't use organic corn in making ethanol, organic farmers haven't been affected by the recent price spike.

But transforming a ranch into an organic farm isn't easy.

"It takes about three years for your pasture to go organic," McIsaac said. "It's not something you just jump into. But it does make a big difference in terms of dollars. Quite a few ranchers are considering it, and many are working toward it."

To be certified as organic, ranchers must not have used any pesticides on their pastures for at least three years. Organic cows must be free of antibiotics and growth hormones.

"It requires a huge amount of record-keeping," Krowder said. "Everything has to be documented, audited and recorded. There's a lot of time involved as well."

Krowder and other county officials are trying to help more Marin ranchers go organic by adding staff that can help ranchers work through the certification process. The county is also encouraging ranchers to diversify their operations, developing cheesemaking facilities or adding bed-and-breakfasts to their farms.

Neither farmers nor officials believe the current corn crunch will last long.

Scientists are searching for ways to harvest ethanol from "cellulosic biomass" - plant materials that include brush and sawdust, according to the U.S. Department of Agriculture.

And corn growers are already planning to take advantage of demand by vastly increasing supply, which should help to lower the price for ranchers.

"Next year, we'll be planting about 85 to 86 million acres of corn, as opposed to about 70 million this year," Kansas corn farmer Ken McCauley said. "We think there will be a big demand next year."

Until that happens, Marin's ranchers say they'll continue to do what they've always done: accept their losses, tighten their belts, and hope for better milk prices next year.

"Most farmers, especially dairymen, were already leveraged to the hilt even without the high price of corn and low milk price," Grossi said.

"We'll borrow money to pay the bills," McIsaac agreed.

Contact Rob Rogers via e-mail at rrogers@marinij.com