WI dairy chaos demands discussion,action
I was glad to pick up my April 28, 2017,newspaper and read that Wisconsin dairy farms that lost their milk buyers had found new buyers. This chaos in the Wisconsin milk markets had kept my phone lines busy, and I have heard lots of thoughts on the topic from many dairy producers.
There is lots of anger in rural Wisconsin concerning dairy farming and markets, and there are many ideas on what needs to be done. I think most callers realize this is a long-term issue and the future of how rural Wisconsin is going to look in the future will be determined over the next few years.
One rural Wisconsin dairy producer texted me with his thoughts on the dairy situation. His text read “No need to be mad at the Canadians. Looks like they got health care and milk quotas right.”
I would like to take this opportunity to address his text. I think he is correct about not being mad at the Canadians. This milk production surplus is a worldwide problem. It has been brought on with the use of technology, great genetics, and the continued push for many producers to adapt new practices to grow their businesses.
Individual cow production has jumped over 20% in the past 17 years or so. Herd sizes also continue to grow. In Wisconsin herds of more than 500 cows have grown rapidly, and market share is now dominated by large herds. Also add in that politicians are using food as a political and economic weapon against Russia, and we basically are narrowing the market for dairy products at the same time production has grown. The USDA predicted in 2015 that milk prices were going to decline for 4 years due to increasing production and limited growth in demand for milk and milk products.
Are milk quotas the answer long term? Have the Canadians got it right? Often I have heard the suggestion of adapting a milk quota system when prices drop off for farm mailbox milk prices. This talk usually is short run as milk prices increase. Many producers want a quota system for other producers and yet want to grow their dairy operation.
I remember my Dad and the neighboring dairy farmers talking of quotas and the solution to low milk prices in the early 1970s. One neighbor was always of the belief that if Grade B milk producers would just leave the business, things would get better. That thought was popular with the Grade A producers but not received real well by the Grade B producers. Within a few years most Grade B producers left the dairy business, and yet milk prices still never generated the prosperity that many dairy producers hoped for.
I had several callers question the idea of why some producers are still interested in expanding their herds at the time of low milk prices and that two milk processors have dropped purchasing milk from almost 100 producers of milk. The answer can be found in knowing your cost of production.
In December, Gary Sipiorski, Dairy Development Manager at Vita Plus, challenged dairy producers in Manitowoc County with “You need to be just a little bit better than the rest of your competition around the world.” In the presentation in Manitowoc County, Mr. Sipiorski shared an example from Michigan from the second quarter of 2016; that showed a difference in costs of production of $1.32 per hundred in the bottom line for herds. This cost of production difference adds up; based upon a herd producing 24,000 pounds of milk per cow per year—500 cows for $158,400 and 1000 cows $316,800 for the year.
The Wisconsin State Farmer article quoting Mr. Sipiorski can be found online and is titled “Dairy Analyst Outlines Steps to On-farm Success.” Producers looking to expand at this time may believe they have lower costs of production than the market price for milk and now is a time to expand as other producers are feeling the financial pinch.
The open market system is very painful when production exceeds demand. Demand must grow to prevent declines in price, or production must decline to meet demand. The dairy industry is in need of some major discussion at this point. Will the industry make decisions for the long run? Have the Canadians got it right? The farm bill debate is front and center. Will dairy producers do more than debate their future?
Bob Panzer farms in Chippewa County, WI and is a retired lender that offers farm management consulting in the Midwest and Great Plains regions. He may be contacted at 920-539-8728.