Three years of low prices test dairy farmers’ ability to survive
By: Chris Kick
Source: Farm and Dairy
Dairy farmers know to expect years of low milk prices and big price swings. In the past decade, milk prices have swung from lows of $10 per hundred pounds, to record highs above $20.
The problem is when prices stay low, year after year, as they’re doing right now.
Over the past three years, the all-milk price has averaged below $18 per 100 pounds, the first time that’s happened since 2006, when feed costs began to rise. And, according to the latest market summary from the U.S. Department of Agriculture, based on January information, the all-milk price this year is forecast at $15.80-$16.60 per hundredweight.
“It’s pretty clear that we’ve got more producers on the ropes this year than we’ve seen in the last two to three years,” said Mark Stephenson, director of dairy policy analysis at the University of Wisconsin.
Dairy producers saw a good price in 2014, topping $20/hundredweight. But prices were much lower from 2015 through 2017, and 2018 is off to a rough start.
“We’re now going into the fourth year of these relatively low prices and we’re seeing substantial (carryover) declines,” Stephenson said.
The continued lows have farmers eating into their equity, and looking for any way they can to reduce inputs and increase their profit margin.
“Somehow, we’ve got to figure this out,” said Jim Rowe, a Tuscarawas County dairy farmer whose family operates Jimita Holsteins.
Rowe said there are ways producers can borrow more money, if they must. He said it’s important to keep paying businesses like veterinarians and dairy service providers, because “if the majority of their customers are dairy, they’re probably not in the greatest shape either.”
Keep the best
One of the biggest things a farmer can do, he said, is make sure you sell any cows that are underproducing, including those cows that have become “your pets.”
“This might be the time when we’ve got to be a cold-hearted cow culler,” he said.
But producers have to be careful not to cull too many cows, or they’ll hurt the future of their herd genetics, said Knox County dairyman Paul Haskins.
Another area producers can save is with equipment — fixing up what is broken and limiting new purchases.
“Things are tight and people are more in the mode of fixing stuff up instead of buying new,” said Haskins, who milks about 100 Holsteins near Butler, Ohio, and serves as the president of the Ohio Holstein Association.
Haskins said that each dairy farm’s situation is different, but what it all comes down to is being more efficient.
Dairy policy experts and farmers seem to agree that the over-arching problem is supply and demand. There’s simply more milk on the market than there is consumption.
Milk per cow
Over the past 10 years, per-cow production has increased by 1 to 2 percent a year, or about 13 percent across all 10 years, as a result of better genetics and cow management, according to USDA. For 2017, the average cow produced 22,938 pounds of milk.
“We continue to get more and more efficient at producing milk,” said Andrew Sandeen, a dairy educator with Penn State Extension.
The increases are also geographical, and vary from state to state. In Ohio, total milk production increased a little more than 1 percent in the past year, according to information provided by dairymarkets.org, a market analysis program managed by Stephenson.
Pennsylvania saw a nearly 2 percent production increase, while nearby states saw much higher increases, like Michigan (5.2 percent), Indiana (3.08 percent) and Kentucky (4.85 percent).
State to state
Because milk can move freely across state lines, it can sometimes flood the market for under-producing states. But dairy experts like Stephenson say that’s the nature of commerce in the U.S., and it’s protected in federal law.
He said one thing Michigan could do is increase its own milk processing capacity, which might keep more product from moving into Ohio. But in the end, he said the overall dairy market would still feel the impact of higher production.
Another option could be to send more milk into Canada and Mexico, and overseas, but trade agreements are in a state of flux, as President Donald Trump is re-negotiating the North American Free Trade Agreement with Canada and Mexico, two of our largest trade partners for farm commodities.
Matt Saal, whose family runs Sterling Heights Dairy just outside Sterling, Ohio, said opening up the export market could be the answer.
“Low prices are really about trade,” he said. “There’s tons of products here in the U.S. that need to get consumed because we’re not exporting it.”
Saal’s milk buyer, Dairymens, recently cut most of the premiums it offered farmers, and other milk buyers have done the same.
“I think the only thing we can do is try to limit our expenses,” Saal said. “It’s tough. I don’t enjoy these times, but it is what it is.”
Stephenson said it’s unlikely low prices will continue, but if they do, they’ll continue to put dairy farms to the test.
“I don’t think it is the new norm, but it’s a longer down cycle than we’ve had in a long time,” he said.
The low prices have led some producers to the ultimate decision of selling out, but even that isn’t easy. There may not be enough money left to cover expenses, and it could mean the end of a way of life that’s supported the family for generations.
“Everyone has to realize that it’s a hard decision to sell cows,” said Rowe. “You’ve still got to get up every morning and see that barn empty.”
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7 options for dairymen in a tight market
Here are a few things that dairy farmers and dairy experts say can help during this time of low prices:
Sell some equipment. If you need money now, you might be able to sell some farm equipment or machinery that’s not essential to your operation. There’s no use keeping something around if you’re not going to use it, especially if it is depreciating.
Cull weak or under-performing cows. When your paycheck depends on milk production, you need a quality herd of cows that are earning their keep. Look at each cow critically and ask yourself if you could do better with or without her.
Raise some calves as beef. Instead of selling your bull calves, you may be able to realize some profit by feeding them out as beef. This depends on your feed availability and your capacity to house and care for additional animals, but it could add some value to your operation, especially if you find a good market for the finished animals.
Watch your margins. The key to being profitable is to know your numbers and watch your margins. The price of milk does not necessarily determine the profitability of your farm. Profitability comes down to your ability to manage feed, labor and other input costs. If you choose, you can sign up for the federal Dairy Margin Protection Program, which protects against catastrophic losses and allows producers to buy additional margin coverage.
Convert to crop farming. While you may want to continue dairy farming, you might be able to reduce the size of your milking herd and use some of your land to raise cash crops. Unfortunately, crop prices are low, as well, but you might be more profitable by selling crops than selling milk.
Take a second job. Working off the farm can be challenging, but the benefits of a second income can greatly improve your financial situation. You might even be able to secure a job with paid benefits, which can help mitigate the cost of health insurance and retirement savings.
Speak up for trade. Let your federal lawmakers know the importance of global trade, and the importance of exports for dairy farmers. Dairy exports represented 14.7 percent of U.S. milk production in 2017 and equalled $5.48 billion, according to the U.S. Dairy Export Council.