Farm economic woes not going away anytime soon; time to deal with "new normal"
KIEL – “Now is not the time to say 'I hope it gets better',” BMO Harris Bank managing director for agriculture banking Sam Miller of Appleton told a crowd of about 125 attendees at a “Supporting Farmers During Challenging Times” meeting on January 9.
Referring to the economic crisis that many dairy, crop, and livestock farmers have endured during the past four years, Miller cited global factors to indicate that there is no guarantee of immediate relief for those facing a non-sustainable economic outlook.
“We're funding losses with debt. That's the trend we're on,” Miller remarked. “Do you continue or stop doing so?”
Sponsored by the Extension Service offices in Calumet, Manitowoc, Fond du Lac, Sheboygan, Ozaukee, and Washington counties, the event was attended by agricultural lenders, agribusiness professionals, public and private agency representatives, and some farmers.
Net farm income has fallen during five of the past six years, Miller pointed out. Two attention-grabbing numbers are the plunge in working capital for the farm sector from $162 billion in 2012 to $53 billion in 2018, he noted.
Miller recalled the financial crisis which existed when he entered the agricultural lending field in 1984 at a bank in Chilton. He said there are “eerie similar circumstances today but with some differences.”
Consolidation has been and continues to be prevalent in all sectors of the economy, including agriculture, Miller observed. He noted that the bank where he is based has had three different names during his time there.
A question that many farmers need to answer today is “How long do you want to subsidize debt?” by obtaining new loans or restructuring existing ones, Miller asked. “Leaving the business is a viable option and may be the right one.”
Miller emphasized the importance of preparing and using the basic financial statements so farmers know their financial standing. For instance, he cited a Minnesota-based farm records summary which calculated a median net return of $1,240 per dairy cow in 2014 compared to a loss of $110 per cow in 2018.
For those who decide to continue with their farm enterprise, Miller warned that at the moment “there are no silver bullets here.” For those who decide to leave, he said there are plentiful off-farm employment opportunities for anyone with a farm background in Wisconsin.
Miller set the stage for his suggestions by stating that “supply and demand decide everything.” The two are well out of balance due to record high production of basic crops around the world, agriculture's very high risk in international trade, “a direct and immediate impact” of recently imposed tariffs, the changes in consumer preferences, and the recent strength of the US dollar which has raised the costs for buyers of the nation's exports, he observed.
Regarding exports, Miller decried “the trade fights” with the top importers of the nation's agricultural commodities. He noted that disputes exist with China, the European Union, Mexico, and Canada, which accounted for more than $62 billion of U.S. agricultural exports in 2018.
Headaches in transportation are also hurting the agriculture sector, Miller said. He mentioned the poor operating conditions at many seaports, strong competition from other commodities for railroad cars, and a severe shortage of truck drivers.
Dairy sector specifics
Looking at the dairy sector, Miller fingered the European Union for its termination of milk production quotas in April of 2015 and the reduction of fluid milk consumption, particularly with breakfast cereals, as major reasons for the four-year malaise in milk prices.
Terming it “the most ho-hum Farm Bill” in a long time, Miller said the recently approved federal legislation will not provide relief to dairy farmers. What's referred to as “the safety net” for milk prices is “pretty close to the ground,” he indicated.
If it were 2000 rather than 2019, Miller believes that a cutback in domestic production would solve the problem of low domestic milk prices. That wouldn't work today because any reduction would merely reduce the volume of dairy exports, which have increased to about 15 percent of the nation's production during the past decade, he explained.
Although the voluntary and involuntary dairy farm exits approached 900 in Wisconsin during 2018, Miller said this will not solve the milk price problem. Many of the cows that were on those farms simply had “a change of address,” he pointed out.
As self-help measures, Miller asks dairy farmers to consider breeding their top and bottom quality cows with sexed semen, to breed some cows with beef sires to boost the value of calf sales, to increase the level of milk solids (butterfat and protein), to dispose of excess heifers, and to sell seldom used equipment.
A new normal
Although “it's not a fun time to be in the dairy industry, I'm excited about where it could be in 3 months, 3 years, 5 years,” John Goeser told the attendees. A western Sheboygan County dairy farm native, Goeser is the director of nutritional research and innovation for Rock River Labs in Watertown and an adjunct professor of dairy science at UW–Madison.
Goeser suggested that extreme price volatility is probably a bygone in the dairy sector. He urged dairy farmers to prepare for “a new normal” of having the base price for milk hover at about $15 per hundred. At that price, dairy farmers must make money on $15 milk or get out of the business, he observed.
“We're not here to help farmers be average any more,” Goeser remarked. But instead of striving to boost daily milk production per cow by two pounds per day or seeking daily herd averages of 90 to 100 pounds of milk per cow, he proposes different criteria.
Setting dairy goals
“We can whoop the tail off the European Union and South America for making milk by giving far more attention to the feed conversion to milk ratio (feed cost per hundred pounds of milk)," Goeser promised. He's convinced there are many low or no cost ways to do so.
That there is a great difference between dairy farms on feed costs per hundred of milk is shown in the $2.10 per hundred range in late December for 14 high producing herds in Michigan and Indiana, Goeser reported. Data provided by dairy consultant Stacy Nichols showed a feed cost range of $5.18 to $7.28 per hundred of milk.
Goeser's goals for dairy cow feeding and nutrition include limiting daily variations on feed mixing, delivery, and refusals to less than 5 percent, to restrict daily volumes of extra ingredients to three pounds per cow, to closely monitor dry matter values in rations, and to achieve dairy cow digestion of 34.4 pounds of dry matter per day (62 percent of 55 pounds of dry matter intake) compared to frequent on-farm ranges of 28 to 42 pounds digested.
He noted that each one pound of total digested nutrients should provide the energy for producing 3.5 pounds of milk.
As to how easily dairy ration numbers can be skewed, Goeser cited the example of a farm feed mixer which was on display at a dairy meeting. When the owner followed advice to power wash the unit, it was discovered that the mixer contained 700 pounds of clogged/spoiled feed, thereby throwing off the weight calculations of the mixed and delivered feed by 700 pounds for a herd of 500 cows, he pointed out.
Although there have been gradual upgrades over the years, many dairy farms need to improve the kernel processing of the grain in their corn silage, Goeser continued. He also emphasized that proper particle size and consistency can be achieved at no extra cost in mixed rations.
Goeser proposed “new goals” of a minimum of 75 percent on the kernel processing score compared to the current average of 60 to 70 percent and of a maximum of 1 percent starch in dairy manure compared to previous goals of 2 to 3 percent and much higher actual numbers in many dairy fecal starch tests.
Total digestible nutrient yields per crop acre ought to be the standard for haylage and corn silage, Goeser stated. He called for many more on-farm plots comparing 5 to 10 corn hybrids to identify which best serve that goal.
Goeser cited studies by Extension Service specialist Brian Holmes which found total dry matter losses of 17 to 64 percent for haylage and 12 to 23 percent for corn silage in the steps from harvest to feeding. Such losses wouldn't come close to achieving a goal of 14.25 tons of feed-out from a 15 ton per acre harvest for corn silage, he observed.
Regarding the widespread problems with the 2018 corn silage harvest, which resulted in too much of the crop being too dry when going into storage, Goeser isn't as concerned about mycotoxins as some others are. He pointed instead to yeast counts, which are likely to rise during periods of warmer weather.
Goeser can be reached by e-mail to email@example.com or by office phone at (920) 261-0446.