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Despite the lowest milk prices in two decades, state farmers probably won’t see a repeat of the financial crisis of the mid-1980s – at least not this year.

That was a prediction by University of Wisconsin College of Agricultural and Life Sciences economist Bruce Jones and other specialists reviewing problems facing Wisconsin’s dairy industry in “Status of Wisconsin Agriculture, 2001.”

Back in 2001, Wisconsin producers hoped for an average price of $12.40 per hundredweight of milk. Seventeen years later farmers received an average price of $16.15.

"That doesn't seem like a whole lot of financial progress for farmers who are still faced with higher input costs and now a surplus of milk and falling demand," said Kathy Miller who helps run a 150-dairy cow operation in central Wisconsin. "At least we're grateful to still have a milk processing plant that picks up our milk."

Grassland Dairy crisis

For the 58 Wisconsin processors that received an unsigned form letter from Grassland Dairy last April, that thought is always on their minds. The Greenwood, WI-based processor notified 75 dairy operations that they had until May 1 to find another processing plant to take their milk.

The company informed producers that it had lost $1 million in sales of ultra-filtered milk in a trade dispute with Canada.

"Back when my father farmed, milk and cheese processing plants were competing to get your business. However, an oversupply of milk has drastically changed the market and you're lucky to have the processor you have," Miller said.

At the time, Grassland Dairy producers Tony and Fawn Senn who milked about 145 cows at their Swiss Miss Dairy near Beaver Dam had no idea if their days of dairy farming were over or not.

"We were shocked," he said. "We didn't know what we were going to do if we didn't have a home for our milk. You just can't sell a herd of cows at the last minute."

During that crisis, the Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP) and it's Farm Center staff along with ag leaders and lawmakers rallied around the displaced farms, contacting processing plants near and far to find a home for the milk.

"The thing about last year was we knew we had a firm deadline. We knew those farmers had to be on a new truck on May 1," said Daniel Smith, administrator of DATCP's Division of Agricultural Development. "We worked through the entire month of April talking to the processing community and farmers, talking to people throughout the dairy industry on ways to alleviate the situation."

With only a few days before the deadline, Smith said the processing community came through - splitting the displaced producers up between different processing plants.

"They were able to take what was almost a million pounds of milk a day coming into the market at a time when really most of our processors do not need more milk," said Smith, adding that all but two of the 58 Wisconsin farms found a new home for their milk. "Those two farms were faced with other circumstances at the time."

The Senns were able to sign a new six-month contract with Dairy Farmers of America, or DFA, with the option to permanently sign on with the marketing cooperative.

"We'll be ok," Senn said.

Other farms may not be so lucky, said Smith, noting that numerous Wisconsin farms have also received notices from processors informing them that they need to find another buyer for their milk.

"This winter, processors have been dropping a lot of the Grade B farms or farms that are geographically located in a poor area for their trucking routes," Smith said. "We are getting calls from those farms but are having some difficulties getting new processors to pick those up."

Too much milk

Much of the United States now has too much milk, partly from dairy farms expanding their herds during high prices in 2014. Those prices have since plummeted to the point where some farms have lost hundreds of thousands of dollars in income a year.

The introduction of out-of-state milk into Wisconsin processing plants doesn't help the situation, farmers say. Smith says that many processors in the state have accepted milk from Michigan and as far away as Florida.

"Michigan increased its milk production by over 3.5 percent in the last year and they do not have the processing capacity to handle that, whereas Wisconsin has the processors and the infrastructure to handle the additional milk," Smith said.

According to the FDA's Interstate Milk Shippers, out of the nation's 727 dairy processors in 2017, Wisconsin was home to 125 dairy processing plants, followed by California with 80.

"A lot of this out-of-state milk is available for the processing plant to purchase at below  market order prices, and that makes for cheap milk for some of the processors," Smith said.

Smith said it would take an act of legislation in order to prevent other states from dumping cheap milk in Wisconsin.

 

"It's a difficult situation to really summarize because we're talking interstate commerce, open markets and remember that cooperative members have the right to market their milk through their cooperatives which might mean bringing milk in from out of state," Smith said. "But to a farmer who is losing their milk marketing opportunity, the subject of out-of-state milk filling our processing capacity is very hurtful."

Lessons learned

Karen Gefvert, Wisconsin Farm Bureau Federation's Director of Governmental Relations said the situation in 2017 highlighted the importance of communication between processors and farmers about the demand for milk.

"The lesson learned last spring was that we need to watch for global market signals. Those involved in the dairy industry need to pay attention to the market," Gefvert said.

Then DATCP Secretary Ben Brancel said dairy farmers would do well to explore buying agreements that provide more security.

"Is a handshake good enough or do you need a contract?" Brancel said.

Brancel's successor Sheila Harsdorf said both farmers and processors need to work together to ensure the industry's long-term success. Strengthening exports figure into that equation.

Exports, trade key

During the first three quarters of 2017, Wisconsin's agricultural exports increased more than 6 percent compared to the same period in 2016.

"To be successful, we need fair and transparent trade policies. We need to strengthen the partners we have and build on new possibilities," Harsdorf said. "Wisconsin agriculture has much to be proud of, and our producers and processors can be competitive with anyone as long as they are on a level playing field."

Secretary Harsdorf says growth of Wisconsin's domestic and international markets is critical to farmer profitability. She pointed to Gov. Scott Walker's recently signed Executive Order #275, emphasizing the importance of developing markets for Wisconsin's agricultural products.

"He's directed my department to support dairy businesses as they work to introduce new products and enter new markets," Harsdorf said. "Through trade missions and hosting foreign buyers, we will work to showcase all Wisconsin has to offer."

Gefvert says there's a lot riding on the outcome of NAFTA talks.

"It's our hope that the NAFTA renegotiations be modernized and trade rules be clarified," Gafvert said. "This will help provide consistency and reliability for our processors which will secure our export markets to Canada and Mexico."

The U.S.'s neighboring countries are its largest trading partners. The U.S. exports $1.4 billion of Wisconsin agricultural product to Canada and $360 million to Mexico, Gafvert pointed out.

"NAFTA has been very beneficial for Wisconsin farmers and we hope to continue our trading relationship with these countries and work to enhance some specific areas of concern, including dairy," Gafvert said.

Tough decisions

Years of already tightening margins with another predicted year of low milk and other commodity prices may force some farmers to make even tougher decisions.

"Farmers have already cut operating costs back as much as they possibly can. They've put off new purchases and you can only do that for so long as things do wear out and need to be replaced," Smith said.

Had it not been for off-farm income, many households would lose money each year running a farm operation, says John Newton, director of market intelligence at American Farm Bureau Federation.

"The USDA's Economic Research Service data on household income indicates that, since 1996, more than half of farm households lose money from farming," Newton said.

Smith, who works closely with DATCP's Farm Center says that many farmers he has talked to say they wouldn't be able to farm without off-farm income.

"At a recent roundtable discussion, every farmer said they're only farming because their spouse can provide income for family living and health insurance - the farm is just treading water," he said.

Gefvert says it's only a matter of time before the market pendulum swings the other way.

"Farming is a cyclical industry. We know that there will be brighter times, what we don't know is when," Gefvert said. "Tough decisions are nothing new to farmers. They will continue to evaluate all options to try and make it through this scrape."

Rick Barrett and John Oncken contributed to this article

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