Dairy expert predicts some improvement in price picture
RICHLAND CENTER – After four years of low milk prices it is “no longer a cycle, it’s a trough,” says Pete Hardin, publisher and editor of The Milkweed, a monthly dairy publication. He spoke at the annual meeting of Scenic Central Milk Producers co-op in Richland Center on March 5.
“Fifty years ago Americans landed on the moon and yet we can’t find a way to fairly price milk,” he said.
In addition to the loss of milk income, the prices for dairy livestock—cull cows, bull calves and dairy steers—have been severely eroded. Cases where calves have to be destroyed on a regular basis because they have no value to the marketplace are sad and go against the animal husbandry principles that farmers have been raised with, he added.
That said, he sees improvement in the coming year for dairy farmers, based on the fact that several conditions will combine to lower overall milk production. “By mid-spring I think we’re going to wonder where all the excess milk went.”
Unfortunately, one thing that is likely to contribute to that deficit is the exit of more dairy farmers. The loss of more and more dairy farms continues to cause harm to rural America, he said.
For those farmers who remain in the dairy business, he sees them culling more cows to generate extra income and to cope with tighter feed resources. The quality and quantity of last year’s feed is going to impact milk production as well. “That poor quality feed needs to be fed out, farmers aren’t going to have any choice in that matter,” he added.
When the federal government gets the Dairy Margin Coverage (DMC) program up and running, he urged the co-op’s members to check it out and look at it positively, signing up as early as possible.
That program was enacted in late December as part of the new Farm Bill, but then the 35-day government shutdown delayed the USDA’s efforts to create the protocols that would allow farmers to sign up and take advantage of the program.
Another speaker at the Scenic Central meeting, Mike Rusch from Stewart-Peterson, a company that helps farmers with puts, options and other risk management options said the federal DMC program will likely be in place by June and should be able to help farmers with the effects of the unprecedented 54-month bear market.
Rusch noted that the DMC protects margins between feed costs and milk prices and that under this new program margin levels are available up to $9.50 per hundredweight. The amount of milk a farmer enrolls can range from a low of 5 percent to 95 percent of their production history.
Rusch noted that payments will be retroactive to January and, based on current market conditions, it’s already clear that there will be payments under the program for both January and February. A discount is available to farmers who commit to the program for the full five years of the Farm Bill, he added.
Hardin emphasized that the Margin Protection Program (MPP) was poorly designed and didn’t help farmers much at all, but the DMC is a big improvement. He knows the old program left a sour taste in the mouths of many farmers but he urged them to give the new program a try. “Don’t throw the baby out with the bathwater just because the predecessor program was bad,” he said.
He wasn’t as keen on the dairy revenue protection program that is modeled after crop insurance. Part of his skepticism comes from the fact that it uses information from the futures markets to arrive at its protection levels. Hardin said the futures market is something he always eyes with suspicion and noted that this program is very complicated.
Hardin also sees the trend of lower valued heifers improving later in this year. That fact that many dairy heifers have gone into feedlots to be finished as beef animals and that many cows have been bred to beef bulls and are producing offspring that will never enter the dairy herd tells him that “these rock bottom prices are not going to last,” Hardin said.
In coming months he sees dairy heifer numbers at lower levels which will raise their value.
One thing that has the ability to help milk prices is exports—and they would be improved if the U.S. government would lift the steel tariffs that have been imposed on nations like China and Mexico. Hardin and other experts estimated that from the second half of 2018 to the present, retaliatory tariffs from our former dairy export destination nations have cut the farm-gate price of milk from $1.50 to $1.75 per hundredweight.
He said he credits the board of Scenic Central with a quota-type program to signal its members to slow down their production and curtail the milk taken in by the co-op. “The control of supply and demand is best done by our co-ops,” he said.
Another improvement he noted is that there is “one heck of a lot less milk coming into Wisconsin from out of state.” At one point in 2017, he figured there were the equivalent of 105 semi loads of milk coming into Wisconsin cheese plants in Federal Milk Order 33—Michigan, Ohio and Indiana—which had the effect in Wisconsin of “busting our prices.”
He notes that in December 2018, Wisconsin cheesemakers made 3.9 percent less total cheese than they did in the same month a year earlier. He attributed that decline to far fewer of those semi trucks of milk coming here than they did in 2017.
In December 2018, Wisconsin cheese plants produced 6 percent less of the American style cheese than they did a year earlier.
Terry Hanson, Scenic Central’s general manager, told patrons that all of the co-op’s buyers have included FARM program requirements in their contracts, meaning that farmers shipping to the co-op must fill out forms and adhere to certain ways of operating their farm.
He told farmers that field staff can’t fill out the forms for them. The new version of the FARM program, developed with the National Milk Producers Federation, includes forms to outline milking procedures on the farm and other standard operating procedures.
Hanson showed the growth of the co-op, which has procurement regions in south central and southwest Wisconsin as well as their Packerland region in northeast Wisconsin. In 2008, the co-op handled just under 300 million pounds of milk and reached a level over 500 million pounds in 2016. Last year the co-op dipped below the 500 million pound mark for milk.
Hanson said Scenic Central had lost some members but also gained some and remains at about 300 farms. The co-op currently has a group of farmers producing non-GMO milk but Hanson said buyers don’t appear to be jumping on that bandwagon.
Scenic Central, which Hanson said is a $100 million company, had net income last year of $185,809. Most of the company’s operations, he said, are based on paying farmers the best they can for their milk.
In addition, the co-op operates a program allowing farmers to allocate money from their milk checks to an annuity that will be matched up to 5 cents per hundredweight by their co-op. Over the 20 years of that program, that match has given $2 million back to patrons, said Jeff Boll who operates the program for the co-op.
Each of the farmers on the co-op’s board milk cows themselves, per the co-op’s original bylaws. If any board member decides to sell the cows, they must retire from the board.