Dairy producers must brace for turbulence as milk prices have fallen below production costs.
SALEM, Ore. — With milk prices falling below the cost of production, dairymen need to brace themselves to withstand financial turbulence, experts say.
Losses could extend into next year, so farmers must plan for survival until consumption unexpectedly rises or — as is more likely — production is forced to decline, said Gary Sipiorski, an economist and former banker who spoke Feb. 26 at the Oregon Dairy Farmers Association’s convention in Salem, Ore.
“Something’s got to give,” he said.
Dairy producers should “stress test” their operations to find ways of controlling production costs while planning with lenders now for potential cash flow shortages, Sipiorski said.
There are dairymen who can “crank out” milk at a lower cost, he said. For example, reducing crowding can cut down on costly metabolic problems, though producers don’t want to significantly dent their production.
“There’s a fine balance there,” Sipiorski said.
Gary Genske, a dairy farmer and certified public accountant, took a tack other than focusing on expenses.
“I’m not going to tell you how to feed your cows better, I’m not going to tell you how to breed your cows better,” he said Feb. 27 at the convention.
Dairy producers who’ve managed to stay in the business must know what they’re doing, even as financial downturns have “eaten through a lot of equity over the years,” he said.
“There are a lot of people feeling they can be the last man standing,” Genske said. “Everybody feels that way.”
While dairymen have focused on becoming more efficient, they haven’t spent enough time trying to increase the price they’re paid for milk, he said.
“That’s our fault. That’s on us,” Genske said. “It comes down to us not managing our co-ops.”
Cooperatives have “dropped the ball” in terms of making profits for their farmer members, even though that’s the theoretical purpose of such organizations, he said.
Board members who approve cooperative decisions are often too passive, allowing corporate executives to “hide behind” them, Genske said.
Genske advised against allowing cooperatives to accept more milk or make capital improvements unless the actions are shown to improve milk prices for members.
Everything on the agenda at a cooperative’s board meeting should be explained in terms of milk price impacts, he said.
“We’ve got to change the way our co-ops do business,” Genske said.
Cooperatives are often geared toward earning profits that result in executive bonuses but do little to help dairy producers, he said. “That profit does not make up for the milk price.”
By: Mateusz Perkowski
Source: Capital Press