Like their dairy brothers and sisters farther south, producers in the region have shared several years of economic and policy struggles.
Virginia is listed among the USDA’s 24 major dairy states, but dairy is important to the entire region, nonetheless. The USDA’s semi-annual Cattle report estimates cow numbers to start 2022 at about 190,000 head, down about 12,000 from a year ago. Replacement heifer numbers are down about 13,000 head.
Kentucky: Hopefulness clouded by costs
H.H. Barlow, executive director of the Kentucky Dairy Development Council, said the mood of Kentucky dairy producers is one of hope after years of depressingly low prices and turmoil. Optimism is on the upswing but clouded considerably by increased input and hauling costs.
“Several years of bleeding balance sheets have created significant financial challenges, and it will take a sustained period of higher prices to correct this negative picture,” Barlow said. “The constant threat of extreme volatility keeps everyone on edge and prevents accurate assessments of the future, particularly in the area of planning and expansion.”
Many producers question how long higher milk prices will last, with some seeing the potential for stronger cow and heifer prices as an opportunity to liquidate their herds and exit the business.
Participation in the Dairy Margin Coverage (DMC) program helped control herd attrition somewhat in 2021. However, the delay in promised Pandemic Market Volatility Assistance Program (PMVAP) payments has left a bad taste in every producer’s mouth.
“Both production and processing capacity have deteriorated this past year,” Barlow said. “I’m concerned this trend will continue.”
FMMOs are top-of-mind for many producers. They’re frustrated over the process; however, contending demands for “consensus” are a smokescreen slowing a move forward.
“It is impossible and impractical to create ‘consensus’ when what is good for the Midwest and Western producer won’t be beneficial to the Southeast producer,” Barlow said. “The end-product uses of milk have changed dramatically, as well as transportation cost and areas of increased production. We should build some regional reforms and conduct a complete modernization of the FMMO.”
There is one regional consensus: “The pandemic created havoc for everyone, and the change of calculating the Class I mover from ‘higher of’ to ‘average of’ Class III and Class IV was detrimental to us in the South,” he said.
Another strong concern Barlow hears from Kentucky dairy producers is dissatisfaction with promotion programs.
“The producers don’t feel like we’re getting our money’s worth for the checkoff,” Barlow said. “We should concern ourselves with moving product and creating new products instead of ‘net zero’ concerns.”
Tennessee: Cost pressures mounting
University of Tennessee assistant professors and Extension dairy specialist Elizabeth Eckelkamp and agricultural economics specialist Charley Martinez characterize producers as hopeful.
“Feed cost and labor availability are always concerns in the Southeast, particularly with raising forages here,” Eckelkamp said. “These two cost pressures will be something our dairies will have to be efficient with this year.”
Using the University of Tennessee’s benchmarking program, Dairy Gauge, the extension team monitors financial and management aspects impacting dairies. Based on those estimates, increased fertilizer costs will bring the cost of raising forages in 2022 to about $2.91 per hundredweight (cwt) of milk sold. At $2.52 per cwt, labor costs will be about 32 cents per cwt higher than the national average.
“Our dairy farmers continue to be asked to do more with less, and they continue to meet that challenge,” Eckelkamp said.
Risk management and government assistance were critical to the financial survival of Tennessee dairy producers in 2021. Participation in the DMC program, Coronavirus Food Assistance Program (CFAP) and Paycheck Protection Program (PPP) were high. On average, combined government payments provided roughly $3.59 per cwt of milk marketed in 2021, leveling off the losses they would have otherwise experienced.
“Coming off the heels of 2020, producers in the Southeast, to their credit, began searching for more risk protection options,” Martinez said.
An ongoing concern in Tennessee centers on declining numbers of dairy farms, cattle and total milk production, all of which add to processor struggles. As a milk- deficit region primarily serving the fluid market, any future growth in processing capacity focuses on value-added opportunities. The University of Tennessee is one of four entities (University of Wisconsin Center for Dairy Research; Vermont Agency of Agriculture, Food & Markets; and Fresno State University) that have been awarded Dairy Business Innovation Grants to assist processors to search out new demand and provide new products and processing capacity.
Like Kentucky, Tennessee is split between two FMMOs, the Southeast and Appalachian, so determining the impact and solutions of potential reforms add complications.
“The complexity of the FMMO doesn’t allow for a simple and precise answer,” Martinez said. “Each region has their own challenges, and a change in FMMO will have varying effects for each region. For change to occur that benefits the industry, dairies from all regions need to have similar objectives so if there is a change, it’s a positive and beneficial one.”
North Carolina feels ‘seen’
“Optimism” might be too strong a term to define the mood among North Carolina dairy producers. North Carolina State University Extension dairy specialists Brittany Whitmire and Stephanie Ward say they do believe, however, that after two years under the weight of the COVID-19 pandemic, dairy producers are being recognized for the value they bring to the region and the nation’s food supply.
“I think for the first time in a long time, dairy farmers in the Southeast feel ‘seen’ by their industry and by their government,” said Ward, assistant professor and dairy specialist. “I think they are still uncertain of what is to come, but they are ready to protect their seat at the table.”
Higher milk prices are helping boost optimism. “However, it is in the net, not the gross price that the critical mass resides,” said Whitmire. “Dairy farmers can manage with 18-dollar milk when feed, fertilizer, labor and transportation costs cut out a lower percentage of the margin. Managing the risks in that margin will be as critical for 2022, even with higher milk prices, given the persistence of more costly inputs.”
Adding processing capacity in a milk-deficit situation has been a struggle. “Over the last two years, changes in ownership and some volatility in the processing assets in the region made it difficult to take any actions, but as things settle coming out of COVID, strategic progress can be made,” Ward said.
Changing consumption patterns, with lower fluid sales and an increase in per-capita consumption of other products, creates an opportunity to shift the way “dairy” is viewed, thinking beyond historical norms to facilitate growth. For Whitmire, that starts with sharing positives.
“Yes, declines are really tough to absorb, no doubt,” she said. “We also have farms that are expanding; improving performance of the cows they add; adopting technology that improves nutrition, reproduction and cow comfort; reducing seasonality swings in milk production; and engaging in leadership roles that they don’t really have time for, but they understand that the more they learn about their industry intricacies, the better managers they can become. Rather than focusing on what can prop up declines in the short run, we have people who are determined to search for solutions that can help them prosper in the long run.”