A year ago at this time, the environment was different. Milk prices reached more than $22 per 100 lbs. Farmers were enjoying record prices. Although business was good, the forecast for the next year was far from optimistic.
Fast forward 12 months later, and the projection made a year ago has come to fruition. Those same milk prices are hovering at over $16. As most of the bigger farms kept production ramped up to keep their cash flow steady, they’re still feeling the pain.
“It’s not only prices, but input costs on the other end. They are getting hit from both ends,” said Doug DiMento, Director of Communications at Agri-Mark, a New England-based dairy farm cooperative. “As lower farm prices on the one side, your (milk) check is smaller but your cost is higher. The squeeze is what hurts the farmer.”
DiMento said that Agri-Mark’s members have increased production by up to 5 percent; however, he expects the continuing trend of farmers – notable the small ones – going out of business.
“Unfortunately that trend has been continuing for the last 10-15 years,” he said. “In the old days, those cows would go to a neighbor, but now they have auctions and people from all over the country are coming to buy the cows.”
Dave Rama, an auctioneer with the Cattle Exchange in Delhi, New York knows this experience all too well. He said the squeeze put on the small farms is especially painful.
“The little farm is not geared up to handle this,” Rama said. “You’re a small farmer milking 50-70 cows. The barn is 75 years old. You are not in a position to add 70 more cows on. You don’t have the liquidity to (make more milk).”
As the big farms work their way through the tough times, the smaller producers are often left with the choice of selling their livestock or parts of their farm to the highest bidder through auction services like Rama’s. He explained that there is a lack of stability for the small farmer.
“It’s a case where they are losing $8-9 for every 100 pounds of milk – 800 pounds of milk. That makes a big difference in your bottom line,” Rama said. “However, your taxes, labor bill, feed bill or health insurance don’t drop by that percentage. It’s hard for the small farmer to prepare for that.”
In Rama’s county – Delaware County, New York – there have been several changes to the dairy landscape. He said before his time, the county held more than 500 dairy farms, but today, that number is approximately 130 with the majority of the decline in the last 50 years.
“The dairy business generated many jobs in farm communities all over here and Pennsylvania,” Rama said. I look at these areas and think of all of the networks and communities. Now, you drive through these towns. It’s like a ghost town.”
In the meantime
The combination of increased milk production and faint exports creates the problem of excess inventory as well as a tightrope walk for cooperatives and its dairy farm members.
“Everybody is hoping the prices are going up, but it’s tricky to how much you can hold and how much you are willing to risk,” DiMento said.
As DiMento’s company, Agri-Mark thrived and their members enjoyed record amounts of premiums in 2014, they also experienced the lows as the co-op was forced to write down the value of its dairy product inventory last spring.
As for this new year, DiMento stated that excess milk will continue to be an issue. However, he noted his company had a series of hedging programs to curb major losses of the previous year.
“Last year, we had 20-30 members, they had good success. People are starting to see the benefits of that,” he said. “It helps take the ups and downs of the market; knowing where your price production is and what price you can accept is key to that.”
Other co-cops such as Land O’Lakes have implemented production controls to better handle lowering prices, which has proved to be controversial. Some claim that such controls boil down to a quota system that eats into farms’ revenue and curbs export growth, but others who’ve seen the outcome of closing dairy farms warn that some type of action needs to occur.
“We as an industry should take it upon ourselves to make those decisions, even if we have to curtail production. That’s what we have to do,” Rama said. “I’m not advocating the quota system. We have to reel it in if we have too much milk. We have to do something.”
A brighter future
As the last part of 2015 brought gloom and doom to dairy producers, experts have proclaimed there might be a little light at the end of the tunnel. The USDA forecasted its estimates for all milk at a range of $17.45-18.45/cwt, a slight increase from its 2015 estimation. Although it’s not news that calls for a ticker-tape parade, those in the know feel it still serves a silver lining for the industry. In addition, there are other reasons for optimism.
“Year to year, what is good in the market is that Greek yogurt sales keep going up. Yogurt sales are strong,” DiMento said. “In New York State, some producers have moved production to other states and that is still a boost. Yogurt sales is positive. Cheese sales is improving.”
DiMento attributed the activity to the increased awareness of the consumer. “Even through tough economic times, we have seen increased market share especially on the yogurt, with more flavors coming out. That is new for the consumer. Everyone is more health conscious. The marketing efforts and innovation go side by side,” he said.
Even after hearing the worst may be behind us, it doesn’t minimize the fact that some dairy people are hurting from the effects of the global economy. For those folks, an upward swing could not arrive quick enough.
“How long will things turn around? Could it be eight months? If so, that is eight months of heartache and struggle. You still have to pay your bills,” Rama noted. “How do you meet those obligations? It’s a difficult thing for the small and big guys. I have tremendous love for what the dairy farmers do. It’s ingrained in them. It is a very difficult business to be a farmer.”
Cover photo: istock/SilviaJansen