There’s reportedly wide price variability between cooperatives and other markets, placing more pressure on some farms than others.
“High levels of financial stress exist on many of our farms, with some optimism prices may rebound in 2019 as the world market comes back in balance,” Myers said.
The downturn is affecting farms at all levels and does not discriminate against size. Auctioneers are reporting high numbers of auction requests.
In Pennsylvania, cow numbers have fallen 13,000 head over the past 12 months, and anecdotal reports indicate about 5 percent of the state’s dairy farms closed over the past year, Myers said. The Pennsylvania Milk Marketing Board estimated there were 5,683 dairy farms in Pennsylvania at the end of 2018.
Feed availability and quality is also a concern, with last season’s wet weather conditions hurting yields and quality of corn silage. The impact of the poorer feed quality can be seen in lower milk production per cow.
Milk supply tightening
With cows and herds leaving, and milk production per cow down, total milk production is also falling, helping bring long-running surplus supplies back into balance. In some cases, milk is actually short.
“With milk now being shorter in the region, the hope is some of the premiums once available may come back into the marketplace,” Myers said. “However, most say those premiums will come back much slower than they eroded.”
Economic conditions mean surviving dairies may take on a new look. “(Some) farms are looking outside the box, with some new partnerships or mergers between farms occurring. Still other farms are looking at diversity and at value-added processing as ways to increase their revenue streams,” Myers said.
Pennsylvania is putting energy into attracting processing to the region with a $5 million investment in grants and a cross-departmental effort to attract and encourage reinvestment. Although new processing is being discussed, nothing has broken ground yet.
In his new role at CDE, Myers tries to keep dairy farmers up-to-date on risk management options. The Dairy Revenue Protection (Dairy-RP) program, introduced in late 2018, and the new Dairy Margin Coverage (DMC) program, part of the 2018 Farm Bill, provide new options.
“As the rules for the Farm Bill are rolled out, the DMC program will provide the opportunity for farmers to have higher margin coverage levels than they have in the past, with modest premiums,” Myers said. “This is a no-brainer for most farms in Pennsylvania. With these new programs, all farmers need to take time to understand their costs and protect their margins.”
Vermont seeks answers
A 2019 Vermont Agency of Agriculture Food and Markets (VAAFM) report to the Vermont Milk Commission reveals a diminishing dairy footprint in the state, with farm numbers down about 25 percent since 2010. Dairy farm numbers were likely near 700 as 2018 came to a close, down 10 percent from the year before.
“Lower income, lower value of cows, heifers and calves, lower beef prices and increasing interest expenses are all impacting dairy farmers’ ability to cash flow and access credit due to impacts on the balance sheet,” according to Diane Bothfeld, writing in the report. “Milk price predictions for 2019 indicate a slight increase in average price over 2018. The dollar increase prediction for 2019 will be helpful but not sufficient to assist all dairy farmers to cover the cost of production.”
Vendors working with dairy farmers reported excessive accounts receivable at the end of the year, and lenders also provided evidence dairy farmer balance sheets were eroding due to changes in the value of cattle.
Combining on-farm or off-farm processors, 2018 is the first year that the total number of Vermont dairy processors did not increase.
To discuss those issues and develop potential strategies to address them, VAAFM has scheduled the Northern Tier Dairy Summit, April 1-2, at Jay, Vermont.
For Vermont dairy farmer Bill Rowell, one of the obstacles farmers face going forward is their balance sheet, and the fact the appraised value of today’s dairy herd amounts to about half its worth. With the downturn dragging on for so long, Rowell said he believes any improvement in prices will have more farm operators looking for exit strategies.
Capital requirements as spring planting gets underway may be a tipping point.
“Not everyone will choose to continue, and some will not have the choice,” he said.
Excess milk has been an issue in the Northeast Federal Milk Marketing Order (FMMO) for some time, with milk dumping in 2017-18.
“In addition to dealing with too much milk in the market, the Northeast has to recognize its shortage of processing capacity, particularly during holidays, when long lines of trucks wait for hours to get unloaded,” Rowell said. “We exercise no form of control over production, have little or no control over export markets and find ourselves headed for trouble when production exceeds demand by more than 1 percent.”
“Perhaps our best path forward is not to rely solely on Congress for a solution but to encourage more of our dairy cooperatives to aggressively manage their milk supply as authorized under federal regulation,” Rowell said. “Dumping milk is an absolute waste of farm assets that could be prevented through planning; we should act soon.”
Price improvement may be ahead
Due to several years of low prices, there has been a divergence in financial results for Northeast dairy farms, according to analysis by Mark Stephenson, director of dairy policy analysis at the University of Wisconsin – Madison. Speaking during the Farm Credit East 2019 Dairy Outlook webinar, he noted milk prices have been “range-bound” in the $16-$18 range since 2015.
Chris Laughton, director of Knowledge Exchange with Farm Credit East, agreed the last couple of years have been challenging ones for the Northeast dairy industry. He sees some mild optimism for 2019, with anticipated milk price increases bringing more farms back into positive cash-flow territory.
“After hitting a low point in late winter of 2018, milk prices have risen and are projected to continue to do so through 2019,” Laughton said. “Forecasts predict 2019 prices will average about a dollar-fifty to a dollar-eighty per hundredweight higher than 2018, bringing them back to, or perhaps above, the price levels we saw in 2017.”
Trade issues remain a big wildcard for the industry nationwide. Resolutions to disputes with Mexico and China could provide even more upside. Domestic markets remain strong for processed dairy products, although Class I (fluid) utilization continues to decline.
“Production has backed off a bit, and there has been some new plant investment recently, which has helped bring supply closer in line with processing capacity,” Laughton said. “The fact is: The Northeast remains a great place for dairy. We have proximity to one of the world’s largest consumer markets and, for the most part, we have generally favorable growing conditions, including adequate rainfall to grow feed. And most of all, (the Northeast is home to) innovative and resilient producers.”
- Progressive Dairyman
- Email Dave Natzke