None of the well-known factors — cow numbers, expected domestic and global milk production, high dairy product inventories and current trade patterns — give much optimism for improvement in dairy prices.
However, a number of tense areas of the world could cause a future disruption in ways that could change price forecasts.
If the prices forecast for 2018 are realized, most Pennsylvania dairy producers will need to have a cost of production below $17.50 per hundredweight to provide adequate cash flow for the year.
This fact poses a significant challenge to a number of our state’s dairies, especially as some have delayed in replacing equipment and making repairs hoping for better years.
Dairy producers continue to focus on shipping more components as the main way to improve income.
The Northeast Market Administrator’s Bulletin for September contained some interesting statistics on butterfat and protein tests on milk shipped in Order 1.
Over the past 17 years, butterfat tests have increased an average of 0.14 percent, and protein tests have increased an average of 0.11 percent.
However, those average increases do not reflect the increases observed on many well-managed dairy farms in the state.
During many dairy advisory team meetings, the conversation focuses on the forage quality and management needed to produce a daily average of 6 pounds of components from each cow in the herd.
Although there are dairy producers in most of Pennsylvania’s counties, the majority of dairy farms are in the south-central and southeast portions of the state.
A recent study of Pennsylvania’s dairy industry, commissioned by the Center for Dairy Excellence, indicated that the industry is continuing to grow and concentrate in areas where it is already located.
This area has a tremendous transportation network, which the dairy industry has always seen as a benefit in moving milk to market.
However, over the past 10 years, this extensive transportation network has also attracted a large number of warehouses, or logistics centers.
Proponents of logistics centers forecast that there is no end to the number of these structures that will be needed as an increasing share of consumers purchase an increasing number of products online.
These logistic centers are along this transportation grid in southeast Pennsylvania for the same reason that an extensive food processing industry is there — because half the population of the United States can be reached within a 12-hour drive.
Some in our state’s dairy industry would say the biggest impact on dairy from these logistics centers is the amount of farmland that has been taken out of production to build them.
However, these logistics centers are affecting the dairy industry in a much less obvious way. Anecdotal information indicates that average laborers may earn a wage of $14.50 an hour.
As a result, dairy farms within a reasonable commute of any of these centers find they are faced with a minimum wage floor, not set by state government but by local competition for labor.
If dairies are not willing to match the wage rate offered by the logistics centers, it becomes increasingly difficult to recruit and retain employees.
Yet many Pennsylvania dairies have a cost structure that is too high to compete successfully with dairies in other parts of the nation, mainly due to feed costs.
Higher labor costs are not helpful to producers trying to keep the cost of production on our state’s dairy farms competitive.