Thin margins, labor issues and a plethora of other challenges make the dairy industry a difficult place to compete.
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What You Need To Know

In this week’s edition of Ag Report, anchor and reporter Chuck Ringwalt and agriculture expert Andy Vance discuss the state of the dairy industry

Thin margins make dairy a difficult industry to thrive in

Each week, Ringwalt and Vance discuss a topic of importance within agriculture

Ringwalt:

“Andy, many of us never think twice about what goes beyond the price of a gallon of milk, so can you give us some insight into the industry?”

Vance:

“Yeah, you bet, Chuck. It’s a really challenging industry to be. And you hit the nail on the head when you said thin margins. If you think about the price you pay for a gallon of milk in the grocery store, that’s typically a loss leader at retail. There’s not a lot of money that you’re paying for a gallon of milk. It’s a buck something usually, right. And oftentimes on sale at the local grocery store. You look, it’s a very labor-intensive industry, so you’ve got to have people milking cows twice a day, every day at the same time, every day, 24/7, 365 days a year. Cows don’t take holidays. Animals have got to be fed. You’ve got to be dealing with feed production, so we’re dealing with a lot of variation and variability in crop production cycles due to climate change. The availability of hay, which is a main feed source for these dairy cattle, is really challenging right now because of. Some of those climate-related production issues. And so it’s one of those things that farmers in the dairy industry have really been struggling for several years now. And a lot of farms have simply gone out of business because of the struggles [of] lower prices for their product, higher feed costs, challenges getting labor on the farm.”

Ringwalt:

“And now the World Dairy Expo was held last week. You were there, so what was discussed?”

Vance:

“Yeah, I love World Dairy Expo. Great event up in Madison, Wisconsin. And as I was meeting with dairy farmers there, you know, there’s some optimism about the price of dairy products. So dairy exports from the United States abroad are extremely strong. Products like cheese. We do very well selling cheese abroad [and] whey powders and other dry milk powders that we can export handily. Those have all been very strong. At the same time, you know, fluid milk, as I kind of mentioned at the top of the segment has been in crisis, as one producer described it to me. Basically, the entire 20 years I’ve been covering this industry, you know, we haven’t really seen an appreciation in milk prices. Milk consumption among Americans is pretty flat. And so that’s one of the big challenges facing the industry is how do we get the domestic demand maybe to continue growing. We have some great stories to tell in terms of yogurt and other products that people are consuming more of now. There’ve been some dairy categories that have done extremely well, but one of the biggest concerns is how do we keep people on the farm? One of the things that people don’t like to talk about is that dairy farmers have gotten bigger. And you’ll hear consumers say, ‘Oh, you know, I wish they could be small again,’ but with the thin margins dairy producers have, the only way they can afford to maybe have that next generation [and] bring the kids back into the farm when they want to, you know, start a family is to have more cows, so the unpleasant reality for a lot of us is that in order for dairy farms to survive, they have to get bigger in order to stay viable.”

ASB hiked its expectations for Fonterra’s milk price to farmers to the top of the co-operative’s range, saying declining milk production will push payments to a record high this season.

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