Dairy farm decisions: Get big or get out?
Madison — With fluctuating milk prices, trying to remain viable in the dairy industry is almost akin to competing on the reality television show “Survivor.”
Nowadays, low milk prices have almost become second nature to the dairy farmer. But in this current downswing, dairy producers across the country are facing severe cash deficits that are challenging their sustainability and business viability.
“You have survived at least five to seven price drops since 2000 otherwise you wouldn’t be here in this room,” University of Vermont agricultural economist Dr. Robert Parsons told listeners during a recent workshop "Surviving Low Milk Prices”. “You’ve got skill sets that got you this far but you have to think about that next downturn ahead.”
Unless farmers tailor the size of their operations or prepare for falling milk prices by adjusting farm practices, they may not be in business within the next five years, he said. Those in particular danger are small farms milking 100 cows or less. Gone are the days when a farmer could raise a family on a small herd of cows.
“Back in the early '70s, my father raised a family and put four kids through college with a 45-cow operation,” Parsons said. “What we’re seeing today is a scale adjustment of farmers in our state.”
Parsons said owners of mid-sized farms are at a crossroads; contemplating whether or not to expand while many large-scale operations with more cash and operating with economies of scale and volume are wondering if they should grab the next opportunity to take over smaller farms that are getting out of the business.
“The big farms have a real future in dairy but they need to expand. And it isn’t finding land that no one else is farming; their future depends on someone else going out of business and that’s those milking 100 cows or less,” Parsons said. “A 100-cow farm that hasn’t grown in the last five years is going to go out of business because it can’t keep up. In this business you need to grow in order to be relevant.”
Is there a way to keep small farms viable?
“You either subsidize them or tell spouses to go out and get a third job with benefits,” Parsons said. “Don’t expect the government to step in and change anything. You’ve essentially been on your own since 1990. That’s the political reality in Washington.”
Parsons said the dairy industry has lost more than 200,000 farms in the last 20 years. Those expecting to be in business five years from now must up their game in order to remain viable. Farms need to prepare for the future by setting aside a cash reserve, working with feed consultants to save money and improve efficiencies, reduce age of first calving, seek employee input in exploring operational cost efficiencies and consider three-times-a-day milking if cost effective.
Children seeking to return to the farm should be responsible for increasing profitability in order to pay their wages.
“At 10 percent profit, you would need $400,000 in additional sales to pay for a $40,000 salary. Maybe mom and dad should tell them to think about that before they come home,” Parsons said. “Challenge them; ask them how I’m going to pay you.”
Parsons fully expects the landscape of the dairy industry to continue evolving.
“Forty years ago, if I had told anyone that cows would be averaging 30,000 pounds of milk per year they would have laughed me out of here,” he said. “But today that’s the reality and a 40,000-pound herd average is just around the corner folks.”
In order to survive, Parsons said farmers must be forward thinking.
“This industry is running at a sprint and won’t allow you to make too many mistakes. It’s been a fun run but it’s going to get more challenging, and that treadmill you’re on is going to run faster,” he said. “Make sure you’ve got your good sneakers on and pat yourself on the back for making it this far in this business.”