DAIRY DILEMMA: Embrace technology, boost production but face an oversupplied market

Surely, the farmers thought, this spring would be better.

“We were all kind of hoping for a good crop year this year so we could build our inventories back up. But we had a very wet spring and it was very hard to get the crops in. We need those crops to feed the cows,” said Ontario County dairy farmer Kerry Adams. “The biggest stress to farmers in this region right now is the weather.”

Biggest stress, perhaps, but far from the only one.

Across New York and in some other parts of the country, dairy farmers are facing lean times as they operate under economic pressure with multiple causes: An over-abundance of milk, flagging demand for the product, dramatically lower prices, higher operating costs and two straight years of unfavorable weather.

It’s enough to make some farmers give up, and some have. But most say they’re staying the course, believing that the market will turn as it always has before.

“We all chose to be dairy farmers and we do this because this is what we want to do in our lives,” said Adams, who runs Black Brook dairy farm in Manchester, Ontario County, with her husband, Hal. “Most of us just expect that it’s part of farming. You’re going to have the good times and you’re going to have the bad times.”

John Hanchar, a farm business management specialist for Cornell Cooperative Extension, said dairy farmers have coped with too much milk, too little demand and low prices before.

“You’ll see adjustments made. Things will readjust and settle back in,” he said.

For consumers, the falling price of raw milk has not translated into lower retail prices for dairy products. A number of market factors influence those retail prices, including the federal dairy price support program.

In June, the average price of a gallon of whole milk in Northeastern cities was three cents above the average June price that consumers paid over the last decade, according to data from the federal Bureau of Labor Statistics.

In New York alone, the dairy industry is an estimated $2.4 billion-a-year business, accounting for 45 percent of all farming revenue in the state.

Nationally, the dairy industry accounts for nearly $36 billion in sales annually. If it were a single company, the dairy industry would rank No. 84 on the Fortune 500 list, about the same size as Allstate.

Today’s dairy farms combine the gut instinct of the farmer with technology advancements — everything from enhanced feed formulations, scientific breeding methods and almost constant monitoring of herd health.

The end game: Raise the milk yield from each cow.

At some farms, cows are outfitted with a “Fitbit”-like device that monitors, among other things, digestion. An alarm sounds if the cow stops chewing her cud. Barn temperature is closely tracked — 70 degrees is ideal. In reproduction, genetics are closely monitored to produce a disease-free herd.

Feed can consist of hay cut at just the right time to ensure the highest protein content and other natural ingredients designed to make a herd more productive.

Robotic milkers and monitoring the nutrition levels of the herd are key ingredients in getting “Bessie” to bring more milk into the farmers’ holding tank.

“The farmer has to be to be nutritionist; they have to be a computer expert; they have to be a maintenance guy; they have to be the operations guy. It all falls on them,” said Bradd Vickers, president of the Chenango County Farm Bureau.

Even with a 22 percent decline in dairy farms over the past 10 years, and a 3 percent drop in the number of cows, New York’s dairy farmers are producing 22 percent more milk over the same period, according to the most recent figures compiled by the New York state Department of Agriculture and Markets.

Those numbers are not unique to New York. Nationwide dairy farmers are producing more milk than the market can absorb, creating an oversupply that has sent milk prices plummeting.

“Production per cow is on a straight line upward and it is a line that increases faster than the rate of population,” said Andrew Novakovic, professor of agricultural economics at Cornell’s SC Johnson College of Business.

Supply up; demand flattens

The abundance of milk in New York is also due to farmers expanding herds in anticipation of demand that never fully materialized.

“They made decisions in terms of growth,” said Hanchar, who works with Cooperative Extension’s Northwest New York Dairy, Livestock and Field Crops team. “When that growth isn’t realized, you’ve got the situation you have now supply-and-demand wise”

Some of that herd expansion dates to 2012, when Gov. Andrew Cuomo convened a “yogurt summit” to highlight the then-remarkable growth in the state’s yogurt industry.

A huge new yogurt-products plant was under construction in Batavia and many expected that demand for milk would only grow more. The state encouraged dairy farmers to grow their herds and relaxed environmental rules to facilitate such growth.

The dairy industry was doing well at the time, Adams recalled, and many farmers were ready to grow their operations.

“I don’t think farmers expanded solely to meet the yogurt need. They expanded because they thought it was a better business decision for their farm,” she said.

But the big Quaker Müller plant in Batavia closed 2½ years after it opened; a new operator is planning to move in but has not yet done so.

“Projections were made that demand was going to increase … for the dairy products coming out of the plant in Batavia,” Hanchar said. “But the demand wasn’t there.”

While the much-heralded New York yogurt industry continues to do well, factories such as the one operated by Chobani in Chenango County cannot swallow the amount of surplus on the market.

There have been other market disruptions, much like the one being confronted by Bob Nichols, a fourth-generation dairy farmer in Steuben County.

His Addison co-op had a contract to sell his supply to the Kraft plant in Campbell, which used 2 million pounds of milk per day to produce Polly-O string cheese and mozzarella.

When Upstate Niagara Cooperative acquires the plant later this year, it plans to cut cheese production in half. Nichols expects to be forced to find a new buyer.

For a time, there was a hearty export market for the Northeastern farmer. Russia and the European Union were fertile markets for products such as butter, but sanctions put in place following Putin’s invasion of Ukraine and increased production by Euro dairy farmers put a significant crimp into dairy exports.

“People don’t realize how big trade is,” said David Fisher, president of the New York State Farm Bureau. “It’s crucial. We exported 17 percent of our dairy supply. Last year it was down to 11 (percent).”

Earlier this year, President Donald Trump lamented Canadian government protections for that country’s dairy farmers. Those protective measures largely prohibit dairy imports from the United States, further limiting the export potentials for U.S. production and severely affecting dairy farmers in both the Northeast and Wisconsin.

While Nichols and Fisher understand why Canada wants to insulate and protect its dairy industry, those international diplomacy dilemmas have a direct impact on their bottom lines, and it’s not good.

California, with its mega-dairy farms, some boasting herds of more than 2,000 head, is exacerbating the problem. They operate on such a large scale that new technology to enhance production becomes most justifiable from a cost standpoint. And while export markets for the Wisconsin and New York farm offer no prospect of expanding, dairy shipments to Mexico and Pacific Rim are soaking up much of the production not destined for domestic consumption.

“What we’ve seen is the center of milk production has moved west,” said Novakovic. “The West Coast is booming because they have all the Pacific market opportunities.”

Too much milk

“There’s a lot of milk on the market,” Fisher said.

And that leads directly to one result: lower prices paid to farmers.

In July, farmers were being paid $16.59 per hundredweight — about 12 gallons of milk — for the raw product. And while that price is higher than the $15.20 in May, it still represents the lowest average price for milk since 2009 when it dipped to about $14. One Pennsylvania farm organization puts the national average cost of production at nearly $22.

The disparity between the cost of production and revenue from sales can sometimes lead to milk dumping — the disposal of the excess product.

“It’s a situation that’s deeply troubling to the dairy industry because these guys work their butts off to make a high-quality product and to stick it into the manure pit is literally heartbreaking,” Novakovic said.

Lower prices have a significant impact on the profitability of the typical farm. For instance, the average gross income for a dairy farmer when dairy prices were at their peak in 2014 — when the average price was pushing north of $25 per hundredweight — was slightly above $700,000. In 2016, that income dropped by about 20 percent — larger on an inflation-adjusted basis — to $545,000.

Dairy farmers are hammered on other fronts as well. The increase in the minimum wage has raised their costs, as have higher interest rates on the loans needed to build new barns or buy more livestock.

“Where lots of businesses have wanted to grow, the interest rates will give people pause,” Kerry Adams said. “It’s hard to expand when you have lower prices and higher interest rates.”

Then too, the cost of the latest technology needed to make dairy farms more efficient and competitive is an ongoing burden.

For New York, which ranks third nationally in total annual milk production, lower prices mean more dairy farmers are considering giving up their herds and closing.

Adams said she doesn’t know of any Finger Lakes dairy farmers who have closed up shop for financial reasons, but imagines it does happen from time to time.

“I’m sure there are some farms that are selling out,” she said. “But I don’t see a mass exodus.”

SOrr@Gannett.com

JPlatsky@Gannett.com

Steve Orr is a staff writer with the Democrat and Chronicle and Jeff Platsky is a staff writer with the Binghamton Press & Sun-Bulletin, both part of the USA TODAY Network in New York.

By the Numbers

Average number of cows per farm in New York:

2006: 638

2010: 611

2014: 615

2016: 620*

Production per cow (pounds) in New York:

2006: 18,879

2010: 20,807

2014: 22,325

2016: 23,815*

Total New York milk production (millions of pounds):

2006: 12,045

2010: 12,713

2014: 13,730

2016: 14,765*

Number of New York dairy farmers:

2006: 5,964

2010: 5,370

2014: 4,955

2016: 4,624*

Number of dairy cows (by county)

Monroe

2013: 1700

2017: 1700

Number of farms as of May 2016: 9

Orleans

2013: 2300

2017: 2300

Number of farms as of May 2016: 21

Livingston

2013: 22,000

2017: 22,000

Number of farms as of May 2016: 62

Genesee:

2013: 29,000

2017: 29,500

Number of farms as of May 2016: 68

Ontario:

2013: 19,500

2017: 19,900

Number of farms as of May 2016: 102

Wayne:

2013: 8200

2017: 8400

Number of farms as of May 2016: 48

Wyoming:

2013: 46,500

2017: 47,500

Number of farms as of May 2016: 143

Yates:

2013: 15,600

2017: 15,800

Number of farms as of May 2016: 255

Average milk price under federal milk marketing order (per hundredweight)

2006: $12.78

2010: $16.17

2014: $23.53

2016: $15.15

*preliminary

Source: New York Agriculture and Markets

 
Source: Democrat and Chronicle

Link: http://www.democratandchronicle.com/story/news/2017/07/21/dairy-dilemma-embrace-technology-boost-production-but-face-oversupplied-market/496390001/

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