The dramatic drop in milk prices is causing Ohio’s dairy farmers to leave the business at a higher than usual rate, according to The Ohio State University’s (OSU) College of Food, Agricultural & Environmental Sciences. While some farmers retire and give up their dairy licenses every year, there has been an uptick recently. In March 2018, there were 2,253 licensed dairy farms in Ohio – a drop of 59 farms in five months.
“Farmers are deciding they can no longer dig any deeper into their equity to pay for what I call ‘the privilege of milking cows,’” said Dianne Shoemaker, Ohio State University Extension field specialist in dairy production economics.
Profits for milk are low because the price dairy farmers get paid for their milk has dipped in recent years. In 2014, dairy farmers nationwide basked in high prices as worldwide demand was high and the number of cows producing milk was comparatively low. Since then, however, milk prices have been steadily sliding, as have dairy farmers’ profits.
Milk prices in 2014 averaged $23.16/cwt., but so far this year, the average is $14.43 — a 38% decline.
In other words, the supply of milk is outstripping the demand — by far — and driving down the price.
“There’s just so much excess milk right now, and it looks like that’s going to continue to be the case for a while,” Shoemaker said.
In Wayne County, Ohio’s top dairy county, Rory Lewandowski, the county’s OSU Extension educator, is increasingly hearing about farmers selling their farms or their cows; others are seeking out bank loans in order to continue operating.
“Nobody is doing really well in this situation,” Lewandowski said. “Definitely, people are depressed.”
Some of the dairies in Mercer County that recently closed did so because making more of a profit would have required them to expand, purchase new buildings and/or modernize their milking equipment. The investment was too great a risk given the low prices, said Dennis Riethman, an OSU Extension educator in Mercer County. About a half-dozen farms in that county recently closed — “and I anticipate there will be more within the next year,” he added.
Some Ohio dairy farmers are having to seek out new markets because Dean Foods, the second-largest dairy company in the U.S., recently sent a letter announcing that, beginning May 31, it will cut its contracts with more than 100 dairy farmers in Ohio, Pennsylvania, New York, Indiana, Kentucky, Tennessee, North Carolina and South Carolina.
In addition, milk cooperatives as well as independent milk processors have sent out letters in the past two years dropping some dairy farmers due to low demand and an oversupply of milk on the market, Shoemaker said. Previously, farmers typically were only dropped from cooperatives when they produced poor-quality milk.
Dairy farmers no longer receive a bump up in pay for producing more milk in the fall, when the demand is typically highest and production lowest, Shoemaker explained.
Once a farmer leaves the dairy business, it’s not necessarily easy to get back in when the price of milk improves, Shoemaker said, adding that farmers typically spend years, even decades, developing a productive herd of cows and replacement heifers.
Alternatively, if a farmer sells off the milking herd and keeps the replacement heifers, there’s no income, she said, “and you’ve got all these mouths to feed. That’s not usually an attractive option.”
In terms of alternatives, OSU said dairy farmers can consider other ventures to make money on the farm, but making the switch typically is not easy. A farmer raising field crops for a living needs to plant 1,000-2,000 acres to earn enough to rely solely on that income, but with low prices for corn and soybeans, that’s especially tough.
While organic milk and other products have gained in popularity in recent years and typically offer higher profits than traditional milk, the organic milk cooperatives that take on independent milk suppliers have no openings right now, Shoemaker pointed out.
Like the price of anything, what goes down must come back up – at some point. Demand for milk will increase, or supply will decrease or a combination of the two.
However, Shoemaker said, “we’ve been waiting three years for that to happen.”