The words “financially stressed,” “weary” and “frustrated” paint a less-than-cheery picture of the current state of the dairy economy heading into 2024 for producers in Arizona, California, Idaho, Oregon and Washington.
“The biggest concern is always the bottom line,” says Oregon dairy producer John Van Dam.
Every Western region dairy producer interviewed commented on the financial stress.
“Dairy farmers are stretched thin going into 2024,” says Washington dairy producer Jason Vander Kooy. “Milk prices have not stayed in line with the rising costs of dairy farming. The cost of producing milk in general is a steady incline, while the price we get paid for milk is a roller coaster.”
California dairy producer Alex De Jager agrees.
“Most producers I talk to are not in good financial positions,” he says. “I have spoken to multiple producers who are tapped out on their operating lines. 2023 was a tough year, and if things do not turn around soon in 2024, the industry will lose a lot of milk.”
Conditions are much the same in Idaho.
“2023 was a rough year given the high feed costs and other input costs that pushed Idaho cost of production to record levels,” says Rick Naerebout, CEO of Idaho Dairymen’s Association. “Idaho dairymen lost a lot of money in 2023. We have seen costs subside some but still are looking at costs of production above 18 dollars and 50 cents per hundredweight and still around 20 dollars per hundredweight for many.”
Regarding negative margins, Naerebout says they “aren’t quite to 2009 territory, but we are getting close.”
Robert Chesler, CEO of United Dairymen of Arizona, adds that inflation has hit producers in the region hard.
“Top of mind for them are interest rates that remain high, high labor costs and challenging access to labor,” Chesler says. “While feed prices have come down, many, at least in the West, are still feeding through expensive feed from last year.”
Dairy producers in Oregon are “staying above water but not going anywhere,” according to Van Dam.
“Operating interest is twice as high as a year or two ago,” he says. “Most of the dairies that have sold out did so for financial reasons. High processor deductions, banking issues and high feed costs are the main issues. Thankfully, the cull cow and bull calf prices are keeping dairy farmers afloat.”
Beef prices have helped to sustain many dairy farms’ cash flows, but that has created concerns over the heifer supply and the sustainability of high beef prices, Chesler adds.
In California, dairy consolidation continues at an “unchecked pace,” according to Anja Raudabaugh, CEO of Western United Dairies.
“Farmers in California are definitely considering when to shut down one of their less productive dairies,” she says. “Input costs continue to drive this consolidation and are definitely keeping farmers up at night.”
Producers who hedged their milk price and feed costs are in a slightly better position.
Tight margins have many dairy producers focused on herd health and forage quality while deferring unnecessary capital expenditures and major maintenance costs to the future.
Beef-on-dairy, raising fewer heifers, cutting costs, diversification and increased automation are some of the ways dairy producers are navigating current challenges. Automation ranges from automated milking systems and feed pushers to smaller automation like teat sprayers on rotaries.
Exports are top of mind in the West, and the return to normal export levels is “very important,” Vander Kooy says.
United Dairymen of Arizona is also looking forward to new global export opportunities that have aligned them with many other manufacturers in a unified venture called OneDairy.
Regulatory challenges
The West Coast states have traditionally endured more regulation than other regions, and it continues to challenge the dairy community in Washington, Oregon and California.
“The Pacific Northwest is not a dairy-friendly area in terms of regulation, and there are many bills and petitions that come up that hurt dairies during every legislative session,” Van Dam says. “Thankfully, many of the bills and petitions go away, but a couple always pass through. One of the anti-dairy groups in Oregon is gathering signatures to make slaughtering and artificial insemination, among other things, a criminal act. Nothing has come to fruition yet.”
Anti-dairy groups are also stirring up trouble in California.
“Western United Dairies just killed its 25th anti-dairy/vegan propaganda bill last year in the California Legislature, but each year we see a steady increase in anti-dairy regulations or legislation,” Raudabaugh says. “For many years, anti-dairy groups attempted to attack dairy on climate change issues and failed. They have now moved on to trying to replace beef and dairy on the school menu. Western United Dairies has retained a nutritionist to lobby daily in the state capitol to ensure future success."
Dan Wood, executive director of the Washington State Dairy Federation, agrees that “there are always new ideas during Washington’s legislative session on taxes, land restriction, animal husbandry and water supply.” Additionally, Washington is the second state to enact a comprehensive carbon reduction and tax law.
“We continue to seek farm revenue from carbon reduction programs,” Wood says. “New revenue for dairy farms is an area of optimism, but the progress needs to pick up the pace.”
Washington currently has the highest minimum wage in the nation and requires time-and-a-half overtime pay for hours worked above 40 per week thanks to the agriculture overtime law and a court ruling that went into effect in 2021.
“State government policy concerning energy, labor, regulations and real estate have made our area a very expensive place to operate a farm,” Vander Kooy says. “High living costs are driving up labor costs, and we cannot keep valuable employees if they cannot afford to live here.”
In addition to labor-related regulations, environmental regulations are plentiful in the Evergreen State.
“Due to chinook salmon being on the endangered species list, regulations dictate that every single aspect of our farming operation has to be tailored to allow chinook salmon to increase in numbers,” Vander Kooy says.
While water is in high supply in Washington, water availability is a “huge concern,” especially with “activist groups and state government clamping down on irrigation water available to farmers,” he says.
Among the environmental regulations in California is methane. According to Raudabaugh, more than 100 dairies have installed digesters and more may be on the way since California recently presented new regulations that incentivize new digester production through 2029.
“The challenges with this incentive and California’s Low Carbon Fuel Standard (LCFS) program are that it also incentivizes projects from outside California to compete with our dairy farmers for LCFS revenue,” Raudabaugh says. “Farmers building this technology are often faced with years of delay for approval and additional years of waiting for the actual money to show up. Meanwhile, they may be carrying a note from the bank or other costs associated with building the digester.”
Adding to the environmental regulations keeping Raudabaugh and California dairy producers up at night are nitrate and water quality issues.
“Fortunately, the USDA recently provided 85 million dollars in funding to assist dairy farmers with technology that can solve some of these problems,” she says.
De Jager adds, “Many dairymen that also farm are adopting water-efficient ways of irrigation.”
Idaho is seeing some of the issues facing the West Coast states migrate east.
“We are beginning to see a very negative sentiment toward agriculture come from the far-right Republicans in our state,” Naerebout says. “Much of it is based on their dislike for our foreign-born workforce. California, Washington and Oregon have blessed us with their ‘political refugees’ and now that they have found the promised land of Idaho, they want to make it more ‘conservative.’ Going into the 2024 legislative session, we fully expected a Florida-like mandatory E-Verify bill to be run and that was introduced this year.”
Bright spots
High beef prices, hopes of a shortage of milk, the prospect of higher milk prices later in the year and the elimination of over-base charges from processors in many areas including the Pacific Northwest and California provide some much-needed optimism in the West.
“Dairy farmers are eternally optimistic, and that’s why we continue dairy farming,” Van Dam says. “In our area, over-base charges have been stopped to start ramping up production for the new Darigold processing plant in eastern Washington. For those who choose to expand, there is optimism with the extra processing capacity on the horizon.”
High beef prices may be an opportunity for dairy operations with extra replacements on hand.
“We have a really small heifer crop coming in, which should lead to continued production decreases, and the prospect of higher milk prices the latter half of the year,” Naerebout says. “We are starting the year with 14-to-15-dollar-per-hundredweight milk and 2,500-dollar springer values. That is quite the inverse relationship.”
In California, more and more dairy operations are looking to beef-on-dairy.
“This ‘side hustle’ has rapidly become an integral part of a dairy’s revenue stream and shows no sign of slowing down,” Raudabaugh says.
Additionally, favorable weather forecasts could indicate a good year for forage production in California.
“Since so many California dairy farms rely on this to keep their cost of production down, this is good news for the short term,” Raudabaugh says.
