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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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