The low current milk price may cause some dairy farmers to think that now may be the time to exit the industry. Many are not covering variable costs of production, to say nothing about meeting their overhead cost of production. But should a farmer exit?
Like any other business, economic pressures affect agriculture. And like many small to medium businesses in the United States, farms are family-owned and quitting touches more than just the farmer. According to the 2012 U.S. Dairy Association farm census, half of all farms also had a family member working off the farm. These farms also employ others, so getting out of the business distresses them also.
Farms base their business model on a revolving five- to seven-year economic cycle. Dairy historically had three-year cycles of up and down process but the down cycle has now progressed into its third year with no up in sight. Market volatility, supply and demand and international trade put prices received mostly out of the control of the farms. What they can do, however, is strive to be the best, least-cost producer to be in position to ride out the lows and then capture the highs when that breaks in their favor.
Farmers often stay in business and operate at a loss with the expectation that the future will get better. But sometimes the economics just don’t work anymore.
Dairy farmers can’t just quit and close the barn doors. It takes many years of planning to sell a farm and its assets. Other opportunities are always there, such as downsizing or mothballing the operation temporarily. And sometimes, it is simply time to retire.
Answered by Ron Kuck, dairy/livestock educator
Source: Watertown Daily Times