Center Focus Column

Finding a Path Forward

Over the past few months, I’ve been involved in conversations about Pennsylvania’s role in the dairy industry and what our future holds here in the commonwealth. Traditionally, Pennsylvania has been a fluid milk state, with milk put directly in the bottle absorbing the largest share of our milk volume. But, over the past decade, that trend has been changing, as consumers are drinking less and less milk than they were in the past.

In 2016, Pennsylvania’s Class I utilization, or the amount of milk put in the bottle, had fallen to 32 percent, down from 45 percent in early 2000. That essentially means that 13 percent of our milk supply — roughly 1.5 billion pounds – has moved out of fluid milk saleJaynes and has had to find a new market or another avenue to get to the consumer. Butter and powder plants balancing the region have had to absorb much of this milk. Since Class I or bottled milk generates the highest returns, that has also put pressure on premiums in this region.

In the past two years, that pressure has been compounded by lower than average milk prices. Recently the USDA’s Economic Research Services announced their statistics on the 2016 average total revenue and operating costs on the dairy farm in 2016. According to their math, the difference between the total revenue (including milk, cull cows, calves and dairy patronage) received by a dairy farm in 2016 and the total operating costs was just 64 cents per hundredweight, falling to the lowest level this decade and 83 cents below 2015’s level., with our basis, or the difference between the price we receive in Pennsylvania and the national average milk price, much narrower now than it was even a few years ago.

Diversity In Our Farms

With milk prices still low and the basis in Pennsylvania continuing to decrease, some are starting to question what the future holds for dairy in Pennsylvania. Can we continue to compete with our competitors in other parts of the country and the world with lower input costs and higher economies of scale? There are many who believe we can, but we must be willing to look at different models and styles of management.

At the farm level, many dairy operations are considering diversity as a key aspect in planning for their future in a volatile dairy industry. In parts of the state, poultry houses and dairy beef facilities have now appeared on what were once solely dairy operations. Partnerships in sharing equipment, services or other costs are also becoming more and more accepted within the region. Others are looking at value-added options, such as establishing their own creameries or artisanal cheese business, to create revenue and diversity. In conversations with some of these farms, the diversity has allowed them to weather lower milk prices more than they were ever able to before.

For the farms that are evaluating these options and other scenarios to increase profitability, the center has resources that can help. Our Dairy Decisions Consultant Program provides a grant to put a consultant on your farm to evaluate your scenario and present options for future farm viability. Often these consultants can provide a path forward that you hadn’t uncovered before. The center’s On-Farm Team Programs also offer grants to put a team of your key advisors together to help you make better business decisions and uncover the opportunities that exist.

A Path for Our Industry

At the industry level, looking at new models and diversity in product lines is also critical. With fluid milk sales declining and much of our infrastructure in this region focused on fluid milk, finding those alternative and innovative markets for milk could provide a path forward to new opportunities. One of those paths could be through the export arena.

Exports continue to steadily increased, with US dairy exports were up 14 percent by volume and 17 percent by value in the first quarter of 2017 to $1.32 billion for January – March. In the month of March, dairy exports were at their highest volume level in 22 months, representing 14 percent of the total milk production on a milk-solids basis. Most of the exports, though, are shipped from the West Coast. Could the recent investments in the Philadelphia Port System and other factors create an export opportunity here?

This question and others are going to be part of a comprehensive Pennsylvania Dairy Industry Study commissioned by the Pennsylvania Department of Agriculture and the center evaluating opportunities and inhibitors to grow and strengthen Pennsylvania’s dairy industry. Part of this study will include a survey that will be going out this month to all Pennsylvania dairy farms to identify trends, plans, needs and concerns on the farm.

For more information about the study or the dairy producer survey, contact the center at 717-346-0849 or email info@centerfordairyexcellence.org.

Editor’s Note: This is a monthly column written by Jayne Sebright, the executive director of the Center for Dairy Excellence, and published for Lancaster Farming’s Dairy Reporter.