Following record-high milk prices in 2022, dairy farmers’ incomes have plummeted in recent months, with more businesses battling to remain in business and others shutting their doors permanently.
Their condition has drawn analogies to the 2009 economic crisis, which pushed thousands of dairy to declare bankruptcy. Some believe it will be worse this time owing to increased inflationary pressures and rising interest rates, which make it more expensive for firms to borrow money.
“This is a real downturn,” said Jack Hamm, a dairy farmer in California’s San Joaquin County. “The last two months have been every bit as bad as they were in 2009.” Every week, there are dairies for sale.”
As the global crisis took hold in 2009, dairy producers faced an unparalleled financial disaster. Milk prices plummeted due to a sharp drop in export market demand and a global milk surplus. Simultaneously, dairy producers were facing record high feed prices.
While milk prices in 2009 were lower than they are today, Hamm noted that total production expenses were “so much lower” back then.
Dairy producers are now not only paying more for feed, but all of their other expenditures, including labor, gasoline, and fertilizer, have surged.
“It’s tough right now to make ends meet,” Hamm said. “But it’s not the first time we’ve been through it.”
Milk prices have fallen, according to dairy economists and researchers, since the weakening economy and increased food costs have dampened demand for milk and dairy products.
The growing supply of milk hasn’t helped. RaboBank observed in its June report that worldwide milk output is still increasing, but it is slowing.
At the same time, food producers continue to raise prices because they “have learned that higher profits are to be found in ever-higher retail prices,” despite customer resistance by purchasing less, according to CoBank analyst Rob Fox in his May research.
According to Peter Fredericks, market administrator for the California federal milk marketing order, most dairy product prices may continue to fall before rebounding in the fourth quarter, according to his June report.
Dairy producers have sent more low-producing cows and calves to auction to earn more money as their milk checks have shrunk and beef cattle prices have remained robust.
“That’s definitely one of the bright spots, and it’s definitely helping us,” said David Barroso, a dairy farmer in California’s Merced County.
The milking herd has not diminished throughout the country. According to the USDA, total U.S. milk cows were at 8.929 million head in June, up from 8.915 million head at the same time previous year, with U.S. milk output up 0.2%.
Forward contracts and insurance may assist with risk management, but there are expenses connected with them, and they can “only do so much,” according to Tom Barcellos, a dairy farmer in Tulare County, California.
While some producers may postpone farm upkeep and other repairs until financial conditions improve, Barroso said this year’s modifications to assist cool cows from the heat had helped to sustain milk output. It’s too soon to say how much, he says, but “there have definitely been improvements.” He said that without the adjustments, his farm lost 20% to 25% of its milk yield last summer.
“We’ve put a lot of money into it,” Barroso remarked. “I’m not sure we picked the best year to do it, just because of cash flow and financial issues, but hopefully we’ll start paying it off when that upswing happens.”
