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The Milk Flows, But Dairy Business is Drying Up

Dairy farmers have always dealt with big swings in milk prices. But now that that swing is hovering at some of the lowest prices per hundredweight since 2006. The USDA’s mid-January report predicted prices to fall to under $16 per hundredweight in February and beyond, a far cry from 2014 milk prices which exceeded $24 per 100 lbs.

What’s Behind the Decline

The underlying facts behind the price decline include an oversupply of milk in the United States and the closing or shrinking of what were reliable export markets a year ago.

Additionally, the record prices of last year prompted a lot of farmers to add more cows, and U.S. milk production rose 4 percent — while U.S. consumption of milk, cheese, yogurt and ice cream has remained more or less steady.

“It’s pretty clear that we’ve got more producers on the ropes this year than we’ve seen in the last two to three years,” said Mark Stephenson, director of dairy policy analysis at the University of Wisconsin.

One of those producers is Minnesota dairy farmer, Dale Austing. Late last year, he made the wrenching decision to sell off his 120-cow herd and shut down his milking operation.

“It doesn’t pay to invest more. Will you get that investment back in 5 or 10 years?” the 55-year old admitted. “I can’t talk about life after cows, it’s only been two months…we’ll see what the future brings.”

Austing said he and his wife, who both worked off-farm jobs to make ends meet, had to do what was right for their situation.

“We did a lot of thinking, crunched a lot of numbers…is it right or wrong? I don’t know. Everybody’s different,” he added.

Though he admits it’s put a lot of financial stress on his life, fellow Minnesota dairy farmer, Dave Schwartz, has chosen to stick it out and see what comes.

“It’s just a survival thing and hopefully you can hang in there until it turns around,” said Schwartz. “That’s kind of the way dairying is. It’s ups and downs.”

Little Protection from Feds

The fed’s Margin Protection Program (MPP) is supposed to provide something of a safety net for struggling dairy farmers, but the rate of return has been disappointing, according to John Newton who works for the American Farm Bureau Federation.

About 80 percent of the U.S. milk supply was enrolled in the program — 24,000 out of 40,000 dairy farmers signed up to participate in the program,” he said.

But poor returns have caused enrollment to drop.

“Despite the premise that the system should pay out about as much as it takes in, the most recent figures show dairy farmers across the country have paid $100 million in premiums, but only received back about $12 million from the program…that’s a much lower rate of return than other federal farm programs,” Newton said.

U.S. House agriculture committee chair Michael Conaway of Texas has also seen MPP’s shortcomings in his state.

“While we often say that the farm safety net is designed for times like these, the margin protection program in the 2014 farm bill has provided virtually no assistance,” said Conaway.

Relief in the 2018 Farm Bill?

In the summer of 2017, when Congress began hearings regarding the 2018 Farm Bill, the National Milk Producers Federation (NMPF) was invited to testify about MPP’s weaknesses and propose improvements.

NMPF pointed to the slashing by 10 percent of their proposed feed formula as one of the key issues, adding that, while the MPP remains the right program for the dairy industry, “the changes Congress made to the program when writing the last Farm Bill rendered it ineffective when dairy farmers needed it the most.”

In 2015, dairy farmers paid more than $70 million into the MPP and received payments totaling just $730,000. In 2016, those figures were $20 million and $13 million.

Among the improvements touched on, NMPF said it’s important to expand dairy farmers’ access to additional risk management tools like the Livestock Gross Margin for Dairy Cattle (LGM) program and similar programs that could be offered by USDA.

“Making the [MPP] program more attractive for dairy farmers is vital to ensuring participation in the program, and the safety of America’s dairy industry.”

What You Can Do Right Now

With the drafting and approval of the 2018 Farm Bill still weeks away, dairy farmers are speculating on what can be done now to deal with the low prices.

Willard Peck, a sixth-generation farmer in Northumberland, Saratoga County, New York, said he plans to ride it out until prices rise again, and farmers have ridden out low prices before.

“You watch every penny and you don’t make capital purchases,” he said.

Gordon Speirs, a third-generation dairy farmer from Brillion, Wisconsin believes the quick fix would be “access to more markets and have some good export numbers happening.” Speirs thinks that finding new markets would go a long way toward matching the milk industry’s continued 2 percent per year growth of late.

“We’re a victim of our own success. We’re making more milk with less inputs and we need to have a market for that and export is an excellent opportunity to move those products,” Speirs said.

How that export solution might play out remains to be seen, but in the meantime, one dairy publication offered a few more immediate solutions to its readers.

Sell Off Carefully: One Wisconsin farmer advises selling under-producing animals or those that have become more pet than profit center. Another dairyman cautions not to cull too much though, or you risk hurting future herd genetics.

Purchase Prudently: Get to fixing what is broken and usable equipment-wise and limit new purchases.

Think Beef: Raise those bull calves for beef if you can handle the feed, housing, and care needs.

Start Planting: Reduce your herd size and use the land to plant crops. Prices may be low, but they could still be better than what you’re getting for milk.

Consider Job #2: If you’re not already working an off-farm job, now might be the time to consider it. Focus on those with paid benefits to take the burden off healthcare costs and maybe help build that retirement nest egg.

Talk Trade: Make sure your voice is heard by your state and federal legislators. There are export opportunities out there that the U.S. hasn’t begun to tap.

Source: Growing Georgia

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