USA TODAY International Edition
More dairy farms are closing their barn doors
Industry taking downturn amid global milk glut
TOLEDO, Iowa – Eric Lyon stands in a massive dairy barn in eastern Iowa that until recently held about 320 cows.
The third-generation Iowa dairy farmer began selling off his family’s purebred Jersey herd a year ago, ending 95 years of milking.
He no longer could wait for relief from a punishing downturn that has hit America’s dairy industry.
“It was a hard decision,” Lyon said, especially for his 90-year-old father, Joe, whose late wife, Norma “Duffy” Lyon, made the family famous by sculpting the popular butter cow at the Iowa State Fair for close to 50 years.
Luckily, the Lyon family is financially able to shift to raising beef cattle after four years of fighting to keep “our heads above water.”
Tumbling commodity prices and high production costs have hit several ag sectors over the past five years. But they have landed especially hard on dairy producers.
The industry has faced losses since hitting highs in 2014, forcing some dairy producers out through foreclosure. Others have thrown in the towel voluntarily, unwilling to wipe out what’s left of their assets, experts say.
While a tough decision, Lyon’s family wanted to leave dairy production on their own terms, he said. “It would not be OK if we were auctioning off the farm in the yard,” said Lyon, 64.
Dairy producers are leaving the industry at about twice the average annual rate, experts say. Wisconsin, the nation’s No. 2 milk producer with 8,304 farms, had 634 fewer dairy farms in October than a year ago, data show. Over the past two years, the state has lost 1,100 dairies. Iowa, the nation’s 10th-largest milk producer with 1,150 dairy farms, has lost about 80 this year.
Prices, about half what they were in 2014, have not yet hit all-time lows, experts say. But it’s the longest amount of time low prices – and negative profit margins – have persisted. With the downturn expected to stretch into a fifth year, many farmers already have eaten through their financial cushion, said Mark Stephenson, director of dairy policy analysis at the University of Wisconsin-Madison.
And banks are re-evaluating whether they can continue to loan money to some dairies.
The Midwest dairy industry typically loses about 3 to 5 percent of its farms naturally. The rate is now about 6 or 7 percent. Dairy farmers lose money every time they milk, said Stan Deardeuff, regional coordinator at Iowa Mediation Service, a group that works to resolve financial differences between farmers and creditors.
Sadly, Stephenson said, loss of farms should help pull milk supply in line with demand. But “I’m not seeing it yet.”
Stephenson believes many of the farmers leaving the dairy industry are near retirement, without a son or daughter to take over the operation.
“If you’re in your late 50s, early 60s, it may not make much sense to borrow against their equity to keep milking cows at a loss,” he said. “They may not have enough years to pay it back . ... They’re chewing into their retirement.”
The industry is experiencing a global flood of milk that has depressed prices.
So far, U.S. production has continued to increase, even though a large number of dairy cows are being culled from herds, Stephenson said.
“The catastrophe is that we’re still producing more milk month after month after month,” Stephenson said, adding that the U.S. would need to see a significant increase in exports for dramatic improvement in prices. “I don’t see that on the horizon.”
The proposed United States-MexicoCanada Agreement, which is expected to gain some dairy access in Canada, is unlikely to change that.
Regional leaders view the gains from the agreement “as too small and too far in the future to help dairy farmers,” the Chicago Federal Reserve said recently.
Larry Tranel, an Iowa State University Extension dairy specialist, said farmers getting out of the business find their cows worth about half what they bought them for. “It’s a Catch-22,” he said. “They can’t afford to sell – and they can’t afford not to.”
Nationally, U.S. farm income is expected to be about half what growers earned in 2013, when farmers set record highs. In recent years, slightly more than half of households have had negative farm income each year.
Lyon, who farms with his cousin and father, is unsure whether the Red Angus cattle herd he’s building will be more profitable for his family. But the prices are more stable, he said.
Still, leaving the industry’s mounting losses and long hours of work is a relief, Lyon said.
“No offense to cowboys,” he said, but raising cattle will be easy compared to producing milk. “It’s like getting out of jail.”