Future sours for some small dairies

Those happy California cows just keep making more milk – so much, in fact, that they're threatening to run close to half of Sacramento County's dairy farmers out of business.

The problem: While the state's milk production has risen nearly 50 percent in the past decade, the capacity to process it – mainly by turning it into cheese or powder – hasn't.

As a result, California has more milk than it can handle. But as anyone who has checked out the dairy case in the past year knows, milk prices are up, giving dairies an incentive to add cows and pump out even more product.

Until recently, the looming glut wasn't a problem for the local farmers who had contracts to sell milk to Sacramento's century-old Crystal Cream & Butter Co.

But last year, Crystal was bought by East Coast dairy giant HP Hood LLC, which sold off the Crystal label and is revamping the former Crystal plant in the Power Inn Road area. In December, Hood announced that starting July 1 it will get all its milk from just five local dairies – the result of weaker than expected sales forecasts, a company spokeswoman said.

That leaves 21 other farms – including 14 of Sacramento County's roughly 35 dairy operations – shopping their milk around the state and as far away as Oregon and Nevada.

So far, nobody wants a sip.

"The story they tell us is it's too hard to build plants in California," said Elsie Machado, 46, who runs a 425-cow dairy south of Elk Grove with her husband and two sons.

On a recent morning in the dairy barn his father built, Dave Machado's milking machine hissed as it finished its work on 16 cows. Machado wears a mustache that reaches to the back of his jawbones and has a dairyman's cracked, powerful hands.

While the Machados started doing business with Crystal in 1972, their herd's local roots go back further. Many of the cows, Dave Machado said, are descended from a herd owned by the Hansen family, which ran Crystal from 1921 until 2007.

Now, Machado and other local farmers are contemplating a sell-off.

"I'll give it 60 days. If I don't find a home for my milk, I'm calling a broker," he said.

Eddie De Melo, who milks 180 cows near Galt, said even if he has to sell his milk cows, he'd like to try to keep farming, perhaps raising calves for other dairies.

"It's all I know how to do," he said.

De Melo, 37, took over the farm from his father, a Portuguese immigrant. He has one employee, and the twice-daily demands of milking mean that he's taken only two overnight vacations in the 14 years he's been married to Maria.

As relatively small operations – the average California dairy milks about 950 cows – the De Melos, Machados and other former Crystal suppliers are in a tough spot. Collectively, they produce seven to eight truckloads of milk each day out of more than 2,100 statewide. Picking up that amount of milk from 21 farms and trucking it south to the big processing plants in the San Joaquin Valley is expensive – a tough sell to potential buyers already running their plants at full capacity.

"We don't have any power," said Elsie Machado.

Hood spokeswoman Lynne Bohan said the company picked the five local dairies it is retaining based on their location and their milk quality record, though she said all of Hood's suppliers meet quality standards.

Today's milk squeeze traces back, in part, to a long-running struggle between the state's dairy farmers and cheesemakers over billions of dollars in revenue.

Fresh milk sales have stagnated for years and now account for just one-seventh of the state's milk production. So the dairy industry's expansion has depended on the rapid growth of cheesemaking. Today, more than 47 percent of the state's milk is used to make cheese; production last year was 2.29 billion pounds, up 83 percent since 1998.

Here's where it gets complicated.

The price cheesemakers pay dairy farmers for their milk is set by a state formula linked to market prices for globally traded dairy commodities – cheese, milk powder, butter and whey.

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• Call The Bee's Jim Downing, (916) 321-1065.