Running through the heart of the north-central U.S. and bordering three of the nation’s 24 major dairy states, Interstate 29 (I-29) is a strong vein from which to measure the pulse of the industry. That beat has largely reflected stability in Iowa and Minnesota and strong growth in South Dakota.
By the numbers
Based on preliminary USDA data, 2022 milk production increased nearly 4% in the three states, led by South Dakota, up 15.5%. Regionally, average cow numbers during the year were estimated at about 868,000 head, up 25,000 from a year earlier.
The USDA’s survey-based January “Cattle” report indicated the three states are starting 2023 with about 882,000 cows, up 27,000 from a year earlier. The number of replacement heifers (greater than 500 pounds) were estimated at 350,000, down 20,000 from the start of 2022, an indicator cows will have to move into the region to maintain the pace of growth.
South Dakota: Eyeing a new year
For South Dakota’s dairy producers, the calendar change to 2023 has brought a feeling of “relief” that they have weathered the unique challenges of last year, says Tom Peterson, executive director of the South Dakota Dairy Producers. Last spring’s derecho caused partial damage or complete destruction of farms. That was followed by supply chain disruptions and inflation as they sought to repair, rebuild and continue to operate, and concluded with a relatively early winter with heavy snows. Throughout the year, producers endured higher feed and input costs.
While the issues were many, stronger milk prices, sound management and high utilization of risk management and marketing tools put South Dakota dairy farmers in a fairly optimistic position to start the new year, Peterson says.
With current processor capacity running tight, Peterson anticipates the dairy growth curve will slow somewhat in the near term. Nonetheless, the positive momentum of the past leaves South Dakota well-positioned for the future.
“Growth that moves the needle is probably dependent on additional processing capacity becoming available,” Peterson says. “While there may be a ‘leveling off’ in terms of double-digit production growth, projects which may have had delays due to supply chain issues in materials and parts are still finishing construction and coming online.”
Another aspect of growth is related to dairy’s path toward environmental sustainability. “It’s estimated that over half of the cows in South Dakota will be producing manure to feed anerobic digesters, which has the possibility of a very positive sustainable story, but we are early in the journey,” Peterson says.
While each producer faces unique operational challenges, the South Dakota Dairy Producers Association has prioritized farm labor and access to a secure workforce as one of the key issues for its membership.
One means of offsetting labor challenges is an increase in the adoption of technology and automation. That not only fills a void but also produces a tremendous amount of precise production data to aid individual cow and herd management, he adds.
When it comes to the 2023 Farm Bill, Peterson says the phrase he hears from South Dakota dairy producers is “do no harm.” Many have found risk management tools, such as the Dairy Margin Coverage (DMC) program, as beneficial in volatile times.
Minnesota: Anxious, realistic
The general mood of Minnesota dairy producers is characterized as “anxious,” says Jim Salfer, University of Minnesota Extension dairy educator. Their outlook is heavily dependent on two primary issues – feed availability and cost, and processing capacity – and frequently determined by herd size.
“If they had adequate amounts of home-raised feeds, they had a good year,” Salfer says, noting current breakeven prices are running between $21 and $23 per hundredweight. “If they were purchasing a lot of corn or hay, they had a challenging year. With these high crop prices, we continue to see smaller and older dairy farmers exit.”
Recent weakness in Class III milk markets and higher cost of production add to the concerns. Very high land prices are a barrier to those who want to raise more feed or need the land to dispose of manure. With Minnesota’s low unemployment rate, wage competition is a challenge. That culmination of all those factors is leading to more consolidation, but also a stronger look at robotic milking to improve lifestyle.
Other positives identified by Salfer include the number of young people interested in dairy farming as a career, along with more discussion about niche markets and on-farm processing.
A greater understanding and adoption of dairy risk management tools is offsetting some of the anxiety and creating a stronger sense of “realism” among the state’s dairy producers, says Lucas Sjostrom, executive director of the Minnesota Milk Producers Association. It’s also building a stronger relationship with lenders.
“No, we cannot predict the markets, but we can predict revenue and costs better than ever,” he says. “Dairy producers in Minnesota know what they need to do to get to their next level.”
As dairy enters what is likely to be a downward profit year in 2023, those who’ve saved cash to build through higher interest rates and buy cows that might be on sale have the most optimism. However, greater realism is also on the other end of the spectrum, with lenders working with more planned exits and fewer surprise bankruptcies.
Minnesota Milk’s federal policy priorities include maintaining and expanding risk management tools such as DMC, Dairy-Revenue Protection (Dairy-RP) and Livestock Gross Margin for Dairy (LGM-Dairy). They’re also looking for ways to strengthen the FMMO system to provide orderly marketing and producer protection.
Within the state, Minnesota is unique in the Upper Midwest in that Democrats control the House, Senate and governor’s office. With few lawmakers having an understanding of the dairy industry, Minnesota Milk invests heavily in education.
In addition to his role as head of Minnesota Milk, Sjostrom is a partner with his wife, Alise, and her family at Jer-Lindy Farms and Redhead Creamery, in Stearns County. There, they convert the dairy’s milk into a wide range of farmstead cheeses and are now expanding into distilling whey. As a result of their experiences, they’re fielding more calls from producers seeking information on niche markets and vertical integration.
One other “niche” is identifying business strengths. “In the corporate world, there’s a lot of emphasis on utilizing your strengths and outsourcing your weaknesses. Dairy farmers have been doing that for some time, but it appears to be in hyper mode,” Sjostrom concludes.
In Iowa, dairy producers are hopeful but cautious, says Fred Hall, Iowa State Extension and Outreach dairy field specialist. The outlook for profit margins remains narrow due to higher costs for everything from feed, fuel and labor to equipment repairs and milk hauling. Factors impacting future growth include the need for additional milk markets, as well as the cost and availability of land to grow feed and apply manure.
All of that is affecting the long-term picture, adds Jennifer Bentley, Iowa State Extension and Outreach dairy field specialist. “A big question is: ‘Who is coming back to the farm to manage the dairy, and can they afford to make changes needed to stay profitable in the years to come?’”
Hall and Bentley note that both producers and lenders are finding more value in technology and automation, with investment increasing labor efficiency and resulting in a healthy, profitable cow. With the tight labor pool, producers are Investing more time and training for those already working on their farms to boost satisfaction and increase longevity of employment.
“Total number of dairies will continue to decline, but cow numbers will increase in Iowa,” Bentley says. “Some barns will stand empty, but others will house other enterprises.”