Center Focus Column

Catching a Falling Sky

March 2017 – We all remember the children’s fable about Chicken Little and her falling sky. In the dairy business and especially on the dairy farm, there is little room for angst or worry over what may happen. Each year in the spring, we plant corn not knowing what the weather pattern will bring, and with every newborn calf, we commit to investing two years before we actually see any return. But having a plan for the “What ifs?” is critical to ensure the viability of your business for the long term.

For example, nobody could have predicted the scenario our industry is currently facing. JayneThree years ago, most in the industry thought milk supplies weren’t going to keep up with the needs of the marketplace. But now, processors have more milk than they can handle, and we are in uncharted waters in terms of balancing and moving milk through the system.

Milk production continues to grow, despite the market only now starting to rebound after a 22-month period of very low milk prices. In Pennsylvania, January’s milk production was up 18 million pounds from a year ago, despite the fact that cow numbers fell 5,000 head. This increase in milk production means there are now about 327 more milk truck tanker loads in our state searching for a home.

Coupled with that is a change in the utilization of that milk. Pennsylvania has historically been a Class I milk market, which means we had the largest portion of our milk moving into fluid milk sales. This served as an advantage to producers because milk bottled for fluid demands the greatest price from the market, which results in higher premiums at the farm level.

Over the past 10 years, that dynamic has changed. Class I or fluid milk sales have traditionally accounted for about 45 percent of the utilization in Pennsylvania. But milk going directly into the bottle continues to fall, with Class I utilization dropping to 32 percent in 2016. That has caused premiums to erode, with one economist estimating the difference to be worth about $2 per hundredweight.

Across the countryside, there is a lot of frustration. Reports of lower premiums in the milk checks, distressed milk across the mid-state, lengthy lines at balancing plants, and farms exiting the business continue to be in the undertone of every conversation. And, if you’re watching what’s going on right now, it might feel a little like the sky is falling.

Defining Our Role in the Marketplace

The reality is that this past year has forced all of us to look hard at our role in this increasingly competitive business, both as individual dairy farms and as a statewide dairy industry in an increasingly global market. By now, many dairy farm families have had those difficult conversations on what they need to do to be profitable long-term, despite a volatile milk price and sustained periods of low margins.

Is it higher milk production? Greater efficiency? Diversity? More Cows? An off farm job? Or maybe, in some cases, it’s exiting the business? Not easy decisions by any measure, but they’re decisions that have to be made to ensure a path to future opportunities and profitability.

At the center, we have been working with the Pennsylvania Department of Agriculture to have those types of conversations with stakeholders at every level of the dairy industry. These discussions have focused on finding the solutions and identifying what we can do differently to provide long-term growth opportunities for dairy here in the commonwealth.

Is it other product lines, like extended shelf life milk or high-value dairy proteins, which could lead to new markets or maybe even export sales out of our region? Is it encouraging national dairy players to build new plants here in Pennsylvania? Is it re-energizing our fluid milk business and promoting the benefits of drinking fluid milk? Or is it partnerships between producers and their cooperatives to invest in their own processing ventures? Maybe it’s all of the above.

The point is watching and waiting for a falling sky isn’t a solution. At the Dairy Summit last month, the opening speaker, Dr. Lowell Catlett, explained why he believed now is the best time to be in agriculture. We know from history that the marketplace will figure out the answers. It is our job, both as individual farm families and as an industry, to make sure our discussions lead to positive solutions that will enable us to take advantage of those future opportunities in the industry and on our farms.

If you want help in evaluating your business and identifying options to work toward long-term profitability, the center’s Dairy Decisions Consultant Program may be a great resource. We are currently offering grants of up to $3,500 to offset the cost of working with a dairy consultant to help make decisions to shape the future of your farm. To learn more, contact Melissa Anderson on our team at 717-346-0849 or by email at manderson@centerfordairyexcellence.org.