Dairy farmers faced tight margins for the past couple years and another predicted year of low milk prices is causing even more concern for the whole dairy industry.
Recent milk production numbers from the United States Department of Agriculture’s website show the United States dairy industry will produce an estimated 218.8 billion pounds of milk this year. While it’s a 0.5 billion pound reduction than what was predicted at the end of 2017, prices continue to drop because the demand for US dairy products are low.
“It’d be just like if you cut yourtake home pay from your own job,” said Mike Enge, who is the owner of a third generation 700 dairy cow operation in Sauk Prairie. “Where are you going to make ends meet? Well you got to do what you can and that’s basically the scenario we’re in right now.”
Lower paychecks mean dairy farmers have to make sacrifices on their operation and watch more carefully on where they spend every dollar. While the milk prices has fluctuated, other costs like feed, facility and labor costs on dairy operations have not changed.
“A few years ago, this price was approximately $23. It’s a significant loss and the costs they do not go down,” said Joan Holig of Cattail Dairy in Mauston. “We have significantly more costs. Each year the prices of everything seem to continually go up, but the milk price does not follow.”
While farmers remain optimistic the market will improve and continue doing what they can to watch their expenses, federal and state legislation is working to create an improved protection program for dairy farmers.
Oversupply
One reason for the oversupply comes from the limited amount of exports currently available to ship dairy products as well as a decrease in domestic demand.
“Our supply is high, demand is not growing fast enough to use up the supply, therefore prices will be suppressed,” said UW-Columbia County Agriculture Educator George Koepp.
An article from the Wisconsin State Journal by Larry Avila said Canada implemented a new pricing structure which increased the price of United States dairy exports and encouraged the purchase of Canadian dairy products. As a result, Grassland Dairy Products, located in Greenwood, sent a letter to over 70 dairy farmers telling them they would no longer be accepting milk from their operation.
Mark Heinze was one of those farmers who received the letter in his mailbox. While he was in shock, he had little time to mourn. He had 30 days find another buyer who would take his milk on his 300 dairy cow operation in Portage. He was able to find another buyer a couple weeks after receiving the letter.
“It’s a real eye opener about some of the problems in the industry where there really is too much supply of milk,” Heinze said.
Koepp called what happened with Grassland Diary Products a “small reaction of the market to overproduction and lower demand.” It also provided a glimpse of the fierce competition global markets are currently facing with dairy products, especially with countries with low milk production costs.
“We’ve got to compete with New Zealand and Australia for some of the Chinese market,” Koepp said. “The European market is not very open to the US because they’ve got more milk than they need.”
Renk Professor of Agribusiness Department of Agricultural and Applied Economics at the University of Wisconsin-Madison Brian Gould said something that “put a strain on the world’s dairy market” was when the European Union lifted its milk quotas in 2015. This created not only an oversupply of dairy products in Europe, but also creating more competition with other countries for dairy product exports. Gould said the exchange rate also plays a factor in the demand for dairy products.
“If the dollar exchange rate goes up our exports become more expensive and there’s a lot of other people exporting dairy products in the world,” Gould said.
Overproduction
Another reason for the oversupply is also the overproduction and having too much supply of dairy products. While the number of farms has decreased, milk production per cow has increased.
According to Gould’s website Understanding Dairy Markets in 2016, annual milk production per cow in Wisconsin was 23,552 pounds of milk, higher than the national average of 22,770 pounds per cow. In 2006, the annual national milk production per cow was 19,895 pounds while milk production per cow in Wisconsin was 18,824 pounds. In 2006, there were over 14,000 dairy farms in Wisconsin in operation compared over 9,000 in 2016.
The reason for the overproduction with less farms is because dairy farmers produce milk more efficiently, utilizing components like genetics, feed and atmosphere management as well as replacing older cows with a less efficient yield with younger cows with a higher production yield.
To make his cattle more efficient, Mike Turner of Baraboo starting breeding cattle through artificial insemination using genetics in 2009 when he started to manage the herd of what was then his father’s 100 dairy cow farm. It wasn’t only the use of genetics, but also a change in feeds rations that he said made his cattle more efficient in milk production. He said these changes caused close to a 400,000 pound increase the year Turner took over the farm with the same amount of cows on their operation. The operation now produces around 6,500 pounds of milk a day.
“I was making stuff more consistent for the animals,” said Turner, whose also the president of the Sauk County Farm Bureau. “We don’t push our animals by any means. For what I am feeding the cows they are actually giving more milk than the ration supports. An animal that stays healthier longer has a longer life.”
Ralph Levzow, who son Kenneth will be the fourth generation of their 170 dairy cow operation in Wyocena, said the lower prices forces farmers to become more efficient.
“You’re trying to balance your rations so you get the most out of your cows and you want to get the most production you can per cow,” Levzow said.
His wife, Becky, whose on the Wisconsin Milk Marketing Board for Columbia and Dodge County and was recently appointed to the National Milk Marketing Board, also described about management dairy farmers have taken on their operation to further increase the milk productivity of their herd as well as create healthy and longer living cattle.
“We’ve gone to where a lot of the farms now have three cell barns,” Becky Levzow said. “They have better ventilation, better atmosphere for the cows to live in. You work very closely with a veterinarian on a health program because a healthy animal produces more products.”
Making sacrifices
With milk prices dropping, farmers have had to take a closer look at their expenses and make decisions about what to sacrifice in terms of updating equipment and in some cases switching processors.
Turner said with the low milk prices he’s finding ways to save money on fertilizer and seed for crops as well as personal expenses like satellite television and not seeing his wife’s family in Westfield as much.
“Basically, it’s cutting back some of that stuff people take for granted that you normally don’t think about,” Turner said. “I’ve been running everything pretty tight as it was.”
Sarah Lloyd and her husband, Nels Nelson, is a part of a 350 dairy operation east of the Wisconsin Dells. She said recent milk prices have not only made it difficult to cover the cost of production but also cover unexpected expenses.
“My husband and I had to put a new furnace in our house this year and when there’s no money in the family business it’s difficult to cover those larger, unexpected expenses,” Lloyd said.
In addition to a base price for milk, dairy farmers receive an incentive for components like high butterfat, protein percentage and other components. However, the oversupply not only affects the base price, it also affects how much is offered for incentives.
In an average year, Kenneth Nolden, who owns a 150 dairy cow operation in Rock Springs, produces over 3.6 million pounds of milk annually, around 9,900 pounds a day. Nolden said his “take home average” was around $16.84 per cwt of milk in 2017. He estimated premiums were about 60 cents per 100 pounds lower in 2017, contributing to around $21,000 less in his take home pay last year.
“That’s the margin between just scratching by and having nothing and having a decent year,” Nolden said.
While he said he’s making a profit on his farm, with an estimated $50,000 of income and $48,000 of expenses he said margins can get tight. In order to obtain a wider profit margin, Nolden said he will be downsizing to a smaller cooperative that offers a higher incentive for milk contents. He hopes the switch will contribute an estimated $30,000 to his annual income in incentives. However, he said the switch doesn’t guarantee he will have an increase in profit.
“That’s a bit of a risk to make that decision,” Nolden said.
Enge said their operation plans to cut back inputs on fertilizer and buying cheaper seed for feed. He said they won’t cut back on milk production, a lesson he learned from 2009 when prices dropped to around $9 per cwt. During that time, Enge said they cut back on milk production and ended up losing close to $1,000 a day on his operation.
“What we did was we pulled out all the goodies,” Enge said. “That’s what we learned from 2009 is don’t do anything that hurts your milk production. That’s what we’re going to do this year too, cut back in other places but don’t cut back where you think you are going to lose milk production.”
While premiums are low, Enge said it’s the only component they can control in terms of increasing their milk check. Enge said raising butterfat components by one tenth of a point amounts to a 25 cent per cwt increase in pay. If his operation lowers the somatic cell count by 16 points it amounts to a five cent increase per cwt.
“It may not sound like much,” Enge said. “But with today’s tight margins it may make the difference of profit or loss at the end of the month.”
Providing security
While farmers keep an eye on their expenses and focus on incentives, state and federal legislatures are working to try to address providing more security to farmers while the dairy industry is finding new exports and uses for products.
A bill introduced late last year in the state senate is hoping to create some flexibility for Wisconsin dairy farmers. Introduced by State Sen. Howard Marklien, R-Spring Green, Senate Bill 599 makes changes to the Agricultural Producer Security Program administered by the Department of Agriculture Trade and Consumer Protection and will allow dairy farmers defer a portion of their pay for up to 120 days. Marklien said it could reach the Senate floor this month or next month and head to Gov. Scott Walkers desk for signing.
Marklien said the bipartisan bill would give farmers the “flexibility they do not currently have right now.”
“In years when prices are really, really good there are farmers who have wanted that option to delay some of that income into the following year,” Marklien said. “Current statues do not allow them to do that.”
On the federal level, United States Sen. Tammy Baldwin, D-Madison, has been pushing for a better Dairy Margin Protection Program in the 2018 Farm Bill. While there was a dairy margin protection program passed in the 2014 Farm Bill, Baldwin said the program “hasn’t been working as well as it should.”
“Farmers have been paying in but it hasn’t provided the meaningful insurance coverage that they want and we need to fix that as soon as possible,” Baldwin said.
Looking forward
Focusing on exports and finding new markets has been a major focus in addressing the oversupply of dairy in hopes of increasing milk prices. But it’s something Koepp said isn’t going to happen overnight.
“We’ve got to try and increase market share and come up with products that people will buy that are dairy products find some new uses and manage the supply, demand situation,” Koepp said.
Becky Levzow said the Milk Marketing Board at the state and national level has been increasing the promotion to spread awareness of the value of Wisconsin dairy products at a domestic level to restaurants, delis as well as working with dietitians and attending trade shows to not only increase domestic consumption, but also focus on obtaining additional exports.
Research is also being conducted to find ways to expand the uses of dairy products. Levzow said there’s ways the market is working on expanding its uses in the pharmacy industry by using components of dairy products in coating of pills and researching about the benefits of adding dairy components, like whey, into nutrition drinks and health products.
“There’s a lot of different applications for the use of dairy products,” Becky Levzow said. “Right now it’s just a challenge trying to find a market for all of this milk… we have a lot of surplus out there.”
However, behind the economics, trade, politics and concern facing the industry, area dairy farmers continue to work hard and remain optimistic the markets will one day improve.
“We just deal with the low times and hope we get good times again soon,” Kenneth Levzow said. “You just keep working at it.”
Source: Reedsburg Times-Press
