Report: Dairy farmers face tough year ahead
SARATOGA SPRINGS, N.Y. » Some dairy analysts predict a bumpy road ahead, while others foresee a financial train wreck.
The outlook, no matter how severe, isn’t promising for Northeast milk producers in 2018 as the price farms get for milk has declined steadily since last August, while feed, labor and fuel expenses have all risen, squeezing profits away from even the most cost-efficient operations.
Farm Credit East staff members discussed current trends, and things farms can do to counteract declining profits, during an annual Northeast Dairy Farm Summary webinar, on Tuesday. The Summary is based on a sur- vey of 320 farms in upstate New York and New England.
“It looks like we’ve hit bottom and started to improve a little bit,” said Chris Laughton, Dairy Farm Business Summary editor. “But 2018 milk prices are still going to be significantly below 2017 levels.”
Farmers find themselves in somewhat of a Catch-22 situation.
Dairies constantly strive to increase milk production by improving cow comfort and diet. This helps individual farms, but contributes to an industry-wide oversupply of milk, which has kept market prices at near-record low levels the past three years.
The problem is compounded by declining consumer demand for fluid milk, which fetches a higher price than manufactured dairy products such as cheese, butter and yogurt.
At one time, more than half the milk produced in upstate New York and New England was sold for fluid consumption. Now it’s about 30 percent, said Neal Rea, Agri-Mark dairy cooperative chairman. He also owns the 275-cow Reafield Farm in Salem, Washington County.
Some farms surveyed for the Dairy Summary reported more positive situations, depending on their size and business model.
“There’s definitely a range of performers out there,” said Corey Kayhart, a company senior loan officer.
Overall, however, many farms operated on a breakeven basis last year, with cash going out to pay bills as quickly as it came in.
There’s a concern now that some farms might fall into a negative cash-flow situation as the net cost of production continues to rise.
“We’re kind of headed toward a much worse situation than the last three years,” said Bill Zweigbaum, Farm Credit East vice president and business consultant. “Everybody is really working hard on tightening spending. It’s a lot of pennies, nickels and dimes all across the board.”
Recent changes to the federal government’s Dairy Margin Protection Program might give participating farms some cash-flow relief. This insurance program provide payments when the cost of production exceeds the price dairies get for their milk.
Also, Rea said some Northeast states have adopted initia-
tives specifically designed to help farmers. In Maine, for example, stores -- with state approval -- have increased retail milk prices 30 percent. The extra revenue goes into a pot of money the state distributes to farms based on their size and profitability.
Rea said Agri- Mark, which numbers 975 dairies, loses about 75 farms per year to attrition as older owners retire, and have no younger generation to replace them.
Some long- time dairy producers are faced with the most difficult choice of all -- keep operating at a loss, hoping for things to turn around or sell off their herd and go out of business.
Laughton said the Northeast, with a strong farm infrastructure and adequate supplies of fresh water and land, continues to be a good place to make milk.
“We have to be cautiously optimistic,” he said. “But it’s going to be a little bit of a bumpy road in the near term.”