In addition to the high input costs and thin margins plaguing dairy producers across the nation, drought, other water issues, low milk prices and labor contribute to the caution expressed by dairy producers and industry leaders in the central and Great Plains region.
“High input costs and thin profit margins continue to challenge South Dakota dairy producers along with continued inflation,” says Tom Peterson, executive director, South Dakota Dairy Producers. “Additionally, dairy farmers have excelled at increasing milk production to where there is now some pressure from base programs or caps to incentivize components and quality over sheer production.”
Meanwhile, in Texas, the loss of milk and dairy farms has led to discussions of terminating the production control programs that have been in place for several years.
“Most Texas dairy producers have been in a production control program that should be coming to an end this year,” says Darren Turley, executive director, Texas Association of Dairymen. “Most dairy farms will start to add cows and/or production this year. Growth will not be fast, but it will start to increase as farms will not need to be concerned with their production limits going forward.”
Caution extends to predictions of higher milk prices in 2024 and more precipitation in the forecast for Texas. Drought conditions and high feed costs top the list of challenges for dairy producers in Texas, followed by low labor availability, overall production costs and tight margins.
“Texas producers are looking to recover from two years of drought,” Turley says. “More moisture and better milk prices are two building blocks for production increases to start later this year. The wet winter is providing optimism for better planting conditions this spring than we have had in a few years, which could greatly reduce forage and feed costs. The feedstocks have been depleted by the drought, so Texas must have a good growing season this year to replenish silage, hay and grains.”
Texas dairy producer Daniel Volleman adds that many producers in the state have begun to farm more land and are adding irrigation and water wells to support their own forages.
Water is also a concern in Colorado.
“Water is expensive and in short supply, and it’s not getting better,” says Colorado dairy producer Josh Docheff. “In 2020, we had around 120 dairies, and currently we have about 84 left. Water availability single-handedly determines if any new dairies come into the state. After that, feed costs and availability are major challenges, due in large part to land value and water supply. In Colorado, when you mix milk price, water issues, feed costs and future interest rates all together, it creates a tough future.”
Docheff attributes the decreasing number of dairies in his state to several factors, including urban sprawl, consolidation due to scale-related efficiencies and limited water availability.
Consolidation and the number of dairy farms selling their herds is also a concern across state lines. Not having a next generation interested in managing the operation is a common reason for dairies with retirement-age owners exiting the business.
In Kansas, dairy producer Lee Holtmeier is seeing some smaller dairy operations selling their herds.
“These dairies aged out with the next generation not coming back home,” he says. “Five dairies with 200 cows each quit, and down the road, a 2,000-cow dairy starts up. Most of the growth is in western Kansas right now, especially with the new Hilmar Cheese plant coming online soon.”
Further east in Missouri, dairy producer Brad Groves comments that one of his biggest concerns is how the dairies are selling out “one right after the other” in his county.
“We are down to a handful of producers. Our milk hauler says that he’s still picking up the same amount of milk with half the stops that he used to have because several have sold out for various reasons, mostly because the next generation took jobs off the farm, and the other dairies have gotten larger. You hear the same thing all over the place, no matter where you go or who you talk to,” Groves says.
University dairies are not immune to the challenges facing the rest of the industry. South Dakota State University (SDSU) in Brookings will be shutting down their dairy research and training facility by the end of June 2024, citing a lack of funding to upgrade the aging facility. SDSU will continue to offer dairy-related degrees and plans to work with nearby commercial dairies to conduct research, host learning opportunities and offer employment for students interested in dairy.
As Holtmeier nears retirement, he was strategic in selecting his replacement.
“I was looking for a long-term replacement when I retire, so we brought in a local young man and have been training and working with him for the last five years as he transitioned into my role,” Holtmeier says. “I have put a lot of thought into the transition. My goal was to have a local person so they would want to stay in the community and not want to leave after a couple of years.”
Aside from ensuring a smooth transition to the next generation, labor is top of mind for Holtmeier, especially in terms of how he and his team can continue to build a top-notch culture that encourages employees to want to stay.
“There’s always the concern of whether you have enough people to fill a shift,” Holtmeier says. “I believe what you pay per hour or health insurance or whatever incentive plan you come up with, you won’t attract the long-term employee. We need to make our dairy special and our work experience the best experience for employees so you can draw the best workforce. If you do that, you are a step closer to having great relationships with your employees and improving retention.”
Labor availability and high input costs are the two greatest challenges for Groves.
“We have looked at robots and new parlors but haven’t decided what to do yet. There have been several robots installed in Missouri over the last couple years,” he says.
Turley notes that while there likely will not be a lot of new facilities built this year, “several new robot barns are replacing dilapidated milking parlors without a large increase in herd size” in Texas.
Bright spots
For Holtmeier, the excitement is found in implementing new technology on the farm.
“We are going to purchase SCR collars for our cows, and then this summer, we are going to install sorting gates,” he says. “The technology that is coming our way in the dairy business is fantastic.”
The new year also provides inspiration and optimism for Groves.
“It’s a new year and a chance to make changes so this year can be better than previous years,” he says. “I love genetics and good cows. In my opinion, the greatest opportunities lie in the ability to breed the next generation better than the one before. Good cows sell well no matter what your goals are.”
Several dairy producers noted the popularity of diversifying revenue streams, especially as many navigate tight margins.
“Diversification of different on-farm income streams is a great growth opportunity for many producers in my area, whether that be beef-on-dairy crosses or income from green energy, like that of digesters or even solar and wind,” Volleman says.
Turley adds that several Texas producers are building methane digesters and many more are in the discussion phase.
“With just a few of these new operations producing gas, producers are eagerly waiting to see the true potential of this technology on their farms. We expect to see this technology being offered to more farmers this year,” he says.
Groves says diversification and the adoption of new technology are also popular in his area.
“We are seeing lots of beef bulls bred to bottom-end cows and more and more technology being used, whether it’s robots or monitoring systems. Farm expansion is pretty slim with the price of land,” Groves says.
Among the bright spots in 2024 are new processing facilities coming online across the region in the next two years.
“Prior to 2023, we had major overproduction in regard to our processing capacity,” Volleman says. “However, we could soon be in a very different situation due to less production due to dairies retiring and three new processing facilities opening.”
Peterson says that over the past six years, capacity expanded significantly in South Dakota, and the cows quickly followed. Currently, one processor does have a “significant expansion project under construction slated to be completed in early 2025.”
“Recent growth has been due to those dairies being fully online fulfilling capacity,” Peterson says. “A priority of the growth of the South Dakota dairy industry has been maintaining the balance of on-farm production growth with available processing capacity. To that point, all signs point to tight capacity in the milk shed, which limits new farms. Along with the sharp increase in building costs and high interest rates, it is giving dairy farmers reason to hit the pause button to see how the future plays out.”
