Center Focus Column

Working through the Winter

Unfortunately, most dairy farm families have now awakened to the fact that milk prices have fallen about $2 to $3 per hundredweight over the past two months. A global market overflowing with product and a milk supply that hasn’t declined yet are both putting downward pressure on milk prices.  An imbalance in the regional milk supply is creating additional stress, with increasing market assessment fees and hauling costs adding to the downward pressure.

Recently, I was at a cooperative membership meeting where the chairperson – a dairy farmer — compared the scenario we now face with the very low temperatures we felt in early January. Despite temperatures below zero degrees, farm families and their employees still focused on what they do day in and day out – they got their cows fed, got them milked, kept them clean and bedded, and made sure they had fresh water to drink. They focused on the essentials, and although it took a significant amount of patience and perseverance, they got through until the weather warmed up and things thawed out.

The next four months will be extremely difficult on the farm, with Class III milk prices averaging below $14 through April. Prices may not rebound above $15 until after June. Earlier last fall, future markets were predicting prices to be as much as $3 higher than where they are now. But as the fall went on, stocks continued to grow and the nation’s milk supply continued to increase. Many people in the industry are working on long term solutions to enhance margins and increase opportunities here in the Northeast. Unfortunately, that does not help you get through the next four to six months.

So, what can dairy farm families do to focus on getting through the downturn? The gentleman I heard speak had these suggestions to offer. While they may not ease the pain, they will help you focus on moving forward.

  1. Know Your Situation. Most analysts are expecting mailbox milk prices in the Northeast to average just under $16 for the first half of the year. That can vary significantly depending on where you market your milk and what your components and milk quality are. Two numbers you should know is your “basis” and your cost of production.Your basis is the difference between the Class III milk price and your mailbox price. Your basis can change dramatically depending on whether your milk is high or low in components, whether you get a quality premium or not, and what marketing fees are being deducted from your milk check. To figure out that number, you simply deduct the Class III milk price for that month from the mailbox price you received on your milk check.Your cost of production is how much it costs your dairy to produce a hundredweight of milk. It seems like a simple number, but the truth is many farms do not know their cost of production. Penn State Extension and the Center have worksheets available to help you determine your cost of production. In Pennsylvania, costs of productions can vary as much as $10 per hundredweight between farms. Knowing yours is the first step in determining how capable you are of working through the next six months and what you’ll need to get through.
  2. Consider Your Options. Once you know what the numbers look like, you should consider what options are available to you. Diversifying your income is always a solution to work through a downturn. However, diversifying usually takes time and additional capital. It may not be an effective solution to get through the next six months. Managing costs, reducing labor expenses or having a spouse take an off-farm job might be short-term solutions to ease the stress.At some point, some farms may have to consider an exit strategy. If an exit strategy is your only solution, do not delay it. Do so quickly as possible to avoid additional equity losses. The Center is making our Dairy Decisions Consultant grant available to farm families struggling with this decision to help them develop a plan to find the best possible strategy for moving forward.
  3. Communicate. Whatever strategy you take, the most important thing is to communicate it to those closest to you. Make sure you are talking openly with your partners, family members and employees about the situation. Seek their advice and the advice of your closest advisors – your banker, accountant, veterinarian or nutritionist. Try hard to make those conversations focus on solutions, not just problems. They may be able to suggest solutions that you have not yet considered. The gentleman who spoke at the meeting also suggested you stay in close communication with our Lord and Savior. Having faith in the larger plan is critical in troubling times like the ones we are all facing right now.
  4. Keep Your Friends Close. Maintaining your social life – going to church, visiting with friends, attending social events – is critical to maintaining your spirits and staying motivated through the downturn. Sometimes getting away can be the much-needed reprieve that brings you back recharged and refocused on finding solutions.
  5. Take Care of You. Remember what matters most is your health and own personal well-being. Stress can take a serious toll on your body and mind. Just dealing with the cold temperatures of winter can be stressful enough. Having financial stress on top of it can be overwhelming. Find ways to relieve stress and stay positive. If you do feel overwhelmed, find people you can lean on for guidance and support, whether it’s a loved one, friend, or your pastor. Don’t ever try to carry the burden on your own. They can help you keep moving forward, and that is half the battle.

As I mentioned earlier, many people are working on long-term solutions to strengthen dairy opportunities in the Northeast. With a day’s access to more than 60 percent of our nation’s population, an ideal environment for producing milk, and a strong infrastructure supporting dairy farms, Pennsylvania will remain a key dairy supplier for the US and our global partners. However, there is no doubt that the next six months will be challenging for all dairy farmers. Hopefully, the steps above can help you work through the downturn.

Remember, the Center for Dairy Excellence is here to be a resource for you and your dairy business. If you want help in finding additional resources, please give us a call at (717) 346-0849 or visit our website at www.centerfordairyexcellence.org.