If you are involved in agriculture it is impossible not to recognize the terrible couple of weeks dairy has had here in March. It is not about the price paid for milk, although the price is certainly not strong. It is about having a market for your product at any price.
Recently, there were two groups of dairy farms (one in the Lebanon County, Pennsylvania, area and the other in northwest Pennsylvania) that were told by their dairy that their milk would not be picked up after May 31. This comes at a time when cooperatives are not taking on new producers, cooperatives are imposing production quotas on their members, prices paid are in question, and more.
The reality is that today’s issues are nothing like prior dairy contractions. In the past, if one farmer “lost their market” there was another dairy to switch to or other farms looking for cows. Because as it was said, “someone still has to supply the milk.” Sad to say, that is not correct today.
For the two groups above, if they cannot find a market, their cows will have to be sold. And unlike the past, most likely their cows will be sold for beef or for beef prices. This is regardless of their milk production or pedigree. In fact, as I am reviewing our 2017 analysis reports, I am already seeing the equity devastation from farms that gave up last year. We value cows conservatively on balance sheets, but selling them for beef results in a loss of up to $1,000 per animal. This loss represents real sweat equity that will never be recovered.
Beyond the money, there is also the human cost. Imagine the hurt if you spent 30 or 40 years building up your dairy business, and then through no fault of your own you had to liquidate it all at fire sale prices. Farms that have perhaps been in families for generations will be forced to be sold. And there will also be an effect on the survivors, as lenders are forced to increase their standards. Remember, no regulator likes it when loans are not repaid. And this current environment truly does place every dairy farm at risk.
Dairy, as an industry, has been headed in this direction for the 40 years I have been employed by Farm Bureau. Over that time the economic trend has been the same:
• The price of milk did not keep up with inflation, so farms added more cows.
• More cows made more milk, so prices stagnated. And farms added more cows,
• And so on and so on …
Every decision by every operator was the right one for them, but collectively they have pushed an industry to the brink. And don’t even get me started on fake milk’s contribution to all this.
The current situation was coming to a head about the year 2000, but was put off because of the magic of exports. Why, for a slightly lower blend price we could send our over-production to other countries. Not only did it relieve our problem, it improved the diets of others. Our problem solved, and in a way that made us all feel good. But exports do not happen in a vacuum. Dairy producers from New Zealand to the EU saw our success and copied it.
Today, all a producer can really do is treat their milk buyer like the overriding valuable asset that they are, produce the cleanest product possible, and work to reduce their per hundredweight cost of production by maximizing per cow milk ... all without overspending.