Dairy industry observer Pete Hardin weighs in on issues in 2023
PAOLI ‒ Each year about this time, a group of 10 to 15 dairy farmers gets together at the Montrose Town Hall in Paoli (southern Dane County) to hash over issues facing their farms and their futures. The farmer who organizes the gathering – and brings the pizzas – calls it Paoli University. Members fondly call it PU.
Last week the farmers gathered to hear Pete Hardin, publisher and editor of the dairy newspaper The Milkweed. Agriculture is the most complex industry in the country, he said, and after decades of writing about it he believes that, “dairy is the most complex industry in American agriculture."
“The number of issues facing us in the dairy industry is flat-out jaw-dropping,” he added.
Hardin said that a day earlier he had attended the UW-Madison’s Agricultural Outlook Forum and heard the presentation of retired dairy policy analyst Dr. Mark Stephenson, who after analyzing the various economic aspects of the dairy industry predicted that the All-Milk Price for 2023 will likely be $4.50 to $5 per hundredweight lower than last year.
“That prediction fell like a passing of gas in church,” Hardin said. “With all the rising costs to dairy farmers that kind of price picture would be destabilizing.” Hardin didn’t want to challenge Stephenson’s predictions, but said the dairy economist was more pessimistic than Hardin is on dairy’s price picture.
“If he’s anywhere near the mark, it’s going to be a stinker of a year,” Hardin said.
Economists note that U.S. consumers are buying their way through an inflationary cycle by drawing down savings and using credit cards. Hardin said relatives he has in the auto retail business tell him that repossession companies are being kept busy and the “repo” workers are often threatened.
In the dairy business, Hardin believes that the deluge that recently struck California is going to affect the dairy industry more than most people think. Farms in the nation’s top milk-producing state generally store their feed uncovered in lots where that expensive feed had to sit in floodwaters on many farms.
This imported feed – dairy-quality alfalfa hauled in from other states – was already costly and hard to get and he’s afraid that the flooding may have made it unusable. “Before the deluge, dairy quality hay was costing $410 per ton, delivered to Tulare from Utah and Idaho,” he said.
Last year in the dairy industry, farmers experienced spectacular prices and good sales, he said and many milk buyers put caps on milk production. But for farmers facing a prediction like Stephenson’s, how do you tighten up he asked. In certain parts of the country the basis for corn is $2 per bushel.
Hardin outlined the prices for dairy commodities like butter – $2.38; and block cheddar – just under $2; and whey at 32 cents per pound. “Every penny of change in the whey price equals 6 cents on the price of milk.”
Looking at these commodity prices, Hardin said he doesn’t see as big a decline in the milk price as was predicted at the UW forum.
The flip side of the dairy business is the beef market. Hardin said he talked to an expert who claimed slaughter numbers would be down 6 percent compared to 2022. One of the reasons is that drought conditions in much of the U.S. rangeland required ranchers to sell off their cattle, which drove higher slaughter numbers. Hardin said these lower slaughter numbers of cattle from the range will help drive up the price of cull dairy cows at a time when domestic and export demand is strong.
Just before he came to PU, Hardin said he spoke with a Wisconsin beef producer who raises hundreds of head of beef, buying from online sources. “Last week, for the first time 400-pound dairy beef crosses brought higher prices than pure beef crosses. That tells us that something is going on.
“The pendulum is swinging toward beef producers wanting to fill up their feedlots,” he said, adding that this kind of market signal will probably dictate even more use of beef semen on dairy cows.
Macro factors
One of the factors that will affect the beef market is the overall U.S. economy and the health of consumers’ bank accounts and the impact on spending for food. Hardin believes that 40 to 50 percent of U.S. families are strapped for cash. But he argues that the dairy industry is missing an opportunity to tout the nutritional value of its products.
“I see more ads for cat food and dog food than I see for dairy. I believe that dairy products will shine if we properly tell our story,” he added. “I think dairy promotion people could step up their game. Dairy needs to tell its story better.”
Hardin said the dairy checkoff raises $330 million a year and is the single biggest promotion in the agricultural sector. He doesn’t have a problem with state and regional promotion efforts, like Dairy Farmers of Wisconsin, but at the national level “it’s a total waste and scandal” he told his dairy farmer audience.
Huge sums of money are allocated to pay salary and compensation packages for top executives at Dairy Management Inc., Hardin said, including bonuses and retirement packages. He questioned this while things like butter promotion are given short shrift.
“They spend a tiny $500,000 on butter promotion out of a $330 million fund and 60 to 65 percent of your milk price is based on butter,” he told the farmers.
Hardin also decried the fact that money from the dairy checkoff goes to fund the FARM program, which dictates on-farm practices like de-horning and tail-docking and is now delving into housing for dairy farm employees. “How does any of that help you get a better price for your milk?”
Global issues
Farmers faced high fertilizer prices last year and sometimes they also faced shortages. Hardin noted that fertilizer prices are down this year as a function of natural gas prices. Demand for natural gas has been reduced globally because mercifully Europe and the United States have experienced fairly mild winter weather.
He cautioned, however, that fertilizer availability may still be a problem due to the fact that the Mississippi River – a key channel for bringing fertilizer up and grain down the river – was impaired by low water levels in the fall. Those low water levels were brought on by drought conditions that prevented water from flowing into the Mississippi River basin. Some grain elevators had to shut down in the lower reaches of the river because there wasn’t enough flow to bring barges in.
Moisture falling in the Great Plains in the last few months has contributed to knocking down grain prices, especially wheat, he said. This added moisture has kindled hopes of a more normal growing season, unlike the last few, which would bring corn and soybean prices lower. “The old-crop/new-crop dichotomy is worth watching,” he added.
Hardin decried the ongoing conditions faced by citizens of Ukraine in the face of a nearly year-long attack from Russia. “There is a wellspring of concern among Americans for hungry Ukrainians. Why can’t the U.S. dairy industry buy dairy products and send them to Ukraine? We have dairy surpluses and they have hungry people.”
Political issues
One of the big political issues facing the dairy industry this year will be the possible revamping of federal milk marketing orders and an increase in federal make allowances. The make allowances granted to dairy product manufacturers have not been raised since 2008, he said, and are inadequate today.
Hardin said these make allowances are granted to manufacturers before Class III prices are calculated. “They want higher allowances before you ever get paid for your milk.”
He explained that the market orders and the make allowances are a market stabilizing force but that a federal order hearing and then administrative hearings are required to change them.
For the last several years, Hardin said he and an emeritus professor of food science have taken issue with various dairy products that don’t meet the proper legal standards of identity and are still being sold to the public. One example he cited is plant-based “mozzarella” which shouldn’t be sold to the public under that name. Mozzarella is a cheese that has a standard of identity that must be met.
He has complained about many of these products to the state Department of Agriculture, Trade and Consumer Protection regarding products the he considers “mislabeled” and “fraudulently” marketed. Since that agency – which is supposed to act as the Food and Drug Administration’s proxy in the state – has taken no action on these products, Hardin said he is planning to petition federal authorities to take action against the sellers of these products.