Intermingled with large population centers, dairy producers, processors and marketers in the Northeast and New England must stay in tune with local demands and global conditions. That results in a medley of opportunities and concerns.
By the numbers
A snapshot of the 11 states in the region features three of the 24 “major” dairy states – New York, Pennsylvania and Vermont. With slight declines in cow numbers, preliminary USDA estimates put 2022 milk production in those three states almost steady with 2021. Across all 11 states, milk production was down 0.2% from the year before, with cow numbers down by about 15,000 head.
Based on the USDA’s January Cattle report, cow numbers started 2023 at about 1.32 million head, virtually unchanged from a year earlier. Replacement heifer inventories (over 500 pounds) were estimated at 650,000, up about 8,500. Nearly all that increase can be attributed to New York, where cow and heifer estimates are both up about 10,000.
With its diverse processing base and the strictest pooling-depooling standards of all Federal Milk Marketing Orders (FMMOs), milk utilization by class across the region is more diverse than any of the other 10 FMMOs. Producers supplying the Northeast FMMO saw a statistical uniform milk price of $24.98 per hundredweight (cwt) in 2022, up from $17.88 per cwt in 2021 and just below average prices in the Class I-heavy Southeast. The Northeast also saw the highest positive producer price differentials in 2022.
Upbeat but cautious
Northeast dairy producers are generally upbeat, says Walt Moore, Pennsylvania producer and president of the American Dairy Coalition (ADC). Higher milk and cull cow prices helped offset inflated input costs, putting producers in better financial positions. However, while prices for feed and other inputs are moderating, the outlook for milk prices is declining faster, tightening margins in 2023. Producers not locked into fixed-rate loans will feel the financial pain of higher interest rates, he says.
With regional supply and processing capacity remaining “out of whack,” milk base-excess programs are limiting dairy expansion. Compounding challenges to growth are “through-the-roof” land values, Moore says.
That’s moving producers to diversify core dairy businesses to bring in additional revenue streams. “Niche marketing and diversification will allow Northeast dairies to stay competitive longer in relation to the big dairies in the Midwest and West,” he says.
Labor availability varies within the region based on a farm’s proximity to other industries and urban areas. “In the last six months, we have had many more inquiries about jobs than the previous two or three years,” Moore says. “I think that in general, producers are adopting more technologies to help mitigate labor needs. As producers learn more about return on investment, tools such as rumination and activity monitors are beneficial for herd management.”
Located in eastern Pennsylvania in the Chesapeake Bay watershed, Moore and fellow producers face some of the toughest water quality guidelines in the country. He doesn’t believe that will change anytime soon.
For more on the state of dairy in Pennsylvania, read: “2023 brings common concerns in the Commonwealth.”
As a 29-year-old dairy producer in New York, Quade Kirk echoes many of the same concerns, but also remains optimistic.
Supporting his brighter outlook is a thriving export market and hope for a good growing season. His eastern New York proximity to large population centers gives producers market opportunities for value-added products, and his milk goes to a couple of processors who are capitalizing on New York City and Hudson Valley markets.
Despite overbase penalties limiting growth, he’s surprised at the number of farms building barns in parts of New York.
“The base program has really put a damper on our business,” Kirk says. “Historically, we could just milk more cows and send more hundredweights out the door to dilute costs. However, with costs rising and a cap on our production, it has really started to squeeze us. We have purchased more base to add cows, but that is a slow, tiresome process.”
New York’s new overtime wage law and provisions that allow farm workers to form unions pose a threat to future labor needs and may drive workers in search of more hours to neighboring states, he says. That’s also forcing producers to weigh labor costs with capital investment on automation.
Nonetheless, Kirk remains optimistic. “I’m only 29 years old and have engulfed my entire life in the dairy industry,” says Kirk. “I wouldn’t be doing it if I wasn’t at least somewhat optimistic about the future. I hope other young dairy producers share my eternal optimism and passion for the industry.”
Doug Waterman, technical sales manager for Virtus Nutrition, based in the eastern U.S., says dairy expansion is occurring in western New York.
“Herd owners who want to be in the business five to 10 years from now are focused on new opportunities to expand their land base and milk base,” he says. The use of technologies and modifications to farm practices are being utilized to realize more margin per cow.
New England: Frustration brings change
Sarah Allen, associate state specialist for dairy production at the University of New Hampshire, says producers in her state share a sense of frustration, but are also looking to adapt to changing times.
“New England is in a market with high demand for local production, and the population centers are close to the farms,” Allen says. ”This provides a market where the dairy industry has an opportunity to thrive.”
While milk prices helped producer profitability in 2022, concern over energy and feed costs have many nervous about their financial situation going into 2023. Other challenges include shortages of labor and industry resources, such as veterinary services. Under milk production quotas, smaller farms, in particular, are not able to improve production without penalties, which are disproportionate with their income.
Volatile prices and lack of growth potential due to milk quotas have some New England producers turning to diversification and niche marketing to be less reliant on a steady milk price and have better control over their businesses, she says. Some options include growing grain for the brewing industry, producing dairy beef and adding on-farm processing, although that system is not a feasible solution for all. Adoption of technology and automation help efficiency without getting bigger.
“Dairy farmers are a resilient group that continue to come together and learn to adapt to remain profitable and bring new generations to the farm,” Allen says. “This adaptability and innovation that is core to dairy farming is how we will keep a thriving industry in place moving forward.”
With offices in the Northeast and Mid-Atlantic regions, Horizon Farm Credit provides financial services to dairy producers in a five-state area: Maryland, Pennsylvania, Delaware, West Virginia and Virginia. According to Mike Hosterman, accounting and consulting services manager, and Rob Goodling, ag business consultant, producers in that region are cautious. Improved milk income in 2022 reenergized producers’ abilities to reinvest in their operations.
With expectations that 2023 milk values will fall somewhere between 2022 and 2021 values, the ability to cover high purchased feed and other input costs will be capped by growth limits on milk production. Evaluating Horizon’s annual Dairy Success and Profitability Review report, a greater percentage of producers are seeking to diversify their income, and those doing it successfully are rising to the top when ranked by net margin.
Land values and environmental regulations remain a challenge, especially in areas under development pressure due to urbanization. “It is very challenging to acquire new land, transfer land to the next generation or justify current land rental rates,” Gooding says. “Those with enough land base to support their herd size, including heifers, tend to have a greater opportunity to control feed costs and weather feed market fluctuations.”
Finally, a long-term challenge is how to engage the next generation in wanting to dairy while balancing the costs of new technology or a larger land base.
“Business transitions continue to be a growing topic of interest and will dictate the growth or contraction of the industry for the next several years,” Gooding says. “Scrutiny has been key when looking at reinvesting in the operation, especially when there is no identified entity looking to join or take over the business."ID 56989 is a sidebar to this article.