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How profitable is dairy farming?

The economic state of milk production in the United States right now is pretty somber.

It’s extremely difficult to net anything after depreciation and expensing all unpaid labour. Our farm, for instance, has younger family members receiving salary that were also gifted a few hundred thousand dollars worth of livestock and equipment (equity), by the three principal owners. The three principals, including me, in turn, have taken no salary for some years, in my case since 2011. I’ve accumulated farm land which, after paying for twice, now generates sufficient rent income for a very good living.

Income as distribution of profit from milk production is not part of any equation at this point in time for most milk producers, including ourselves.

The United States Department of Agriculture has some milk margin subsidies that can help out small and medium sized dairy farms, but do little or nothing for large scale farms.
Much of the recent low value of cheese and butter is because Mexico and the PRC cancelled orders in response to tariffs.

For some 50 years, about four percent of dairy farms quit producing every year, right now the liquidations are a little faster, perhaps, as the industry is consolidating at a faster rate.

In the 1960s, one truck would stop at 12 or 15 dairy farms each day and get a load of milk to go to a bottling or processing plant. Many farms now have to produce a full tanker of milk each day in order for a buyer to want their milk at all. Also, some dairy farmers have been notified that their milk buyer is going out of business, and sometimes another buyer can’t be found.Milk production is like any other commodity producing business, as the value or price migrates toward the cost of production over time. Right now 100 pounds of milk brings about $15 to the farmer. The farmer has to pay shipping which is about a dollar per hundred, netting $14. Very, very, very few dairy farms, new or old, large or small, hand-milking or robot-operated can survive more than two or three years on that kind of income. Many can’t make it until Thanksgiving.

That said, there were a couple weeks in August, 2017, and three or so weeks in May and June, 2018, where farmers, including me, had the opportunity to forward contract some or all of their milk on the Chicago Mercantile Exchange for $16 to $17. I stopped losses on half our milk at that time, but hindsight indicates I should have sold more milk or bought more put options. Forward contracts and option trading allow dairy farmers to mitigate risk and sometimes live to milk another day.

Right now, dairy farming is very unprofitable. However, over the course of a lifetime, milk production is often a better living than beef, pork, or cash grain production. Milking cows requires more dedication of time, and milk production is more sensitive to management than most of the other common farm products produced in the United States.

 

 

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On Cows and People: What I Got When I Bought Popsicle

I’d not personally bought a Registered Holstein since the 2011 Pinehurst Dispersal in Wisconsin. Owner David Bachmann, Sr., had for decades been a useful and wise resource, not only on breeding registered livestock, but on operating a farm entity with viable scale and income. I had bought a lot of bulls and some frozen semen from him, and he used me as a ringman in the World Premiere Sale series at World Dairy Expo. At his dispersal, I bought a direct maternal descendant of Audrey Posch, not so much because I wanted one, but because she was a good value, and Mr. Bachmann had been most generous and fair with me for many years, so I helped his sale a little.

Move forward five years to a Facebook message I got from Dan Hovden in late April, 2016. “Eric,” it started, “We have decided to offer Popsicle for sale.  She was Grand Champion at last year’s Iowa State Fair and due to Shottle June 24…” There was a photo attached, some more information and a price that was reasonable, but more than I was inclined to pay for pretty much anything.

“I’ll stop and look at her today,” I replied. Popsicle was housed by Jason Volker, and his farm was right on my way to a Wisconsin Jersey Show where I had an interest in a couple of head entered.

Mr. Hovden had introduced himself to me a year earlier at the Iowa State Fair, and Mr.

Volker, I knew only by his part in a successful Iowa Holstein show string from the last couple years with Mr. Hovden. Neither gentleman did I know well or at all, really.

I arrived at the Volker farm and put on a pair of boots I’d kept in my trunk from my sale days with Donny Vine and a couple of other sale managers in the 1980s. They still fit and serve a purpose, giving me an opportunity to babble mindlessly as a has-been about a bygone era and render control of the visit from the outset.

Jason took me into a modest barn with a clean, well-bedded area where Popsicle was stalled with some other exceptional cows. Popsicle was recently dry, kind of heavy, and had a huge middle that looked like she could deliver tomorrow. Maybe deliver twins – certainly a giant bull by Shottle from an Atwood from a Shottle. She looked like she could even have giant twin bulls. “Hells bells something smells,” I thought. “I need to look at the other stuff and take off.”

“We didn’t ultrasound her,” Jason said.

“OK, who wouldn’t ultrasound a champion cow?” I thought.

I looked over the rest of show stock, washed my old ringman boots and left for Wisconsin thinking how to word my facebook rejection message which ended up saying, “I’m going to pass for now but may reconsider in a couple of weeks…also, milk went under $13 today and there will be some good values in the months ahead…”

That night in Wisconsin we had the requisite pre-show supper with me heading the table and show cow-partner Jason Steinlage on my right. A win followed the next day for a Jersey cow named Rosa, owned with David Koss. Lea McCullough took a lovely picture after the show, and I posted it a couple of weeks later. This apparently gave Dan Hovden an excuse to pitch again.

“I like this one!” came a message from Dan. “A Purple Ribbon for Queen Rosa!!

Congratulations. ”

“Thank you,”  I replied.

Dan continued, “Jason Volker and I talked again about Popsicle and are willing to take…” The message went on and outlined an agreement that I could consider, but I just thought something was wrong. There was something wrong with this cow, and Mr. Hovden and Mr. Volker either knew it or thought it.

I made another trip to the Volker farm and Jason had a veterinarian diagnose her long bred. I looked at her and thought she had cleaned up some, and her middle looked less ominous for a cow due in 30 days. She was great with calf but didn’t look dangerously great.

I was under some pressure – disguised as encouragement – from dairy show enthusiast Jason Steinlage to buy Popsicle. Jason Volker was again most cordial and professional, and delivered what seemed to be a full account on the cow regarding her health, the price they wanted and an assertion that they did, in fact, not know what she was carrying for a calf or calves. One heifer, one bull, twins, it could be anything, but it was sired by Grandpa Shottle. A double cross of anything could result in a really big calf or two, or small ones. They told us that at Iowa State a couple of times, or at least that’s how I remembered it.

Popsicle did look pretty good, and I did think a best case scenario was a Holstein that could win her class at State Fair. Our last Holstein Grand Champion was during the Carter Administration. Another Holstein Grand Champion might be a fun goal, and Popsicle looked like a reasonable risk – once I found out what was wrong with her.

I had a signed check with me that day, printed out for the amount I was willing to spend on Popsicle.  I had no blank checks, maybe fifty in cash and Jason Volker had storm damage from a tornado the night before. Jason Volker and Dan Hovden were still wanting more than I wanted to spend, so I left on good terms and made it to the local Casey’s General Store for milk, cookies, a couple donuts, and coffee to go.

While eating my sack lunch, I decided to seek counsel from Jason Steinlage. I called and got some words of encouragement, and an assurance that he and his in-laws, Pam and Dan Zabel, would work in concert with me on Popsicle before during and after calving, then get her in to the ring at State Fair.

I decided to pay the price. I called Jason Volker, and he had left the farm to get stuff in another town, but he would call Dan Hovden and go back to the farm again. I drove back to the farm, as well.

Jason Volker and Dan agreed to sell, signed the transfer over to Jason Steinlage and me, agreed that I could send an additional check the next day, and got a health chart that said she was long bred. They also delivered her, though I said I would have my guy do it. They further assured me that Popsicle had not been ultrasounded to determine sex, and they knew of nothing wrong with her, health or otherwise.

They were right.

Jason Steinlage, Pam, and Dan Zabel cared for Popsicle, delivered her very nice typed, medium sized double Shottle heifer calf which, incidentally, was born unassisted and without incident. Popsicle got some Ca++ Boli for a couple days, milked down, uddered up and was named Grand Champion Holstein at this year’s Iowa State Fair. But that’s not the story here.

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Mr. Volker and Mr. Hovden at all times and in every instance acted in good faith with full disclosure. I got a cow that cost more than I had hoped but turned out to be exactly as represented.  They, in turn, got their full asking price in full and on time.

I’ve bought and sold bulls and cows totaling a couple million dollars over 40 years, primarily as a family owned livestock farm that milked many cows, sold many bulls, and showed a few Holsteins, Ayrshires, and Jerseys. Few times have sellers apparently misrepresented, lied or lied by omission to me. I have refunded some money or replaced some livestock a few times, too. I didn’t get paid for all or part of three low-dollar animals over the years and had to bite a small loss on those.

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From my perspective, Volker-Hovden Holsteins’ integrity ranks with current and former vendors Pinehurst Farms in Sheboygan Falls, Wisconsin, Lyon Jerseys in Toledo, Iowa, and Tim Rauen here in Iowa. Mr. Rauen has sold me a few lots of ova, then promptly made a couple of adjustments when some eggs came up missing.  I think I got the long end of the adjustment both times.  These are four examples all well set for the registered livestock industry.

Photos by Randy Blodgett of Blodgett Communications

 

 

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