In spite of difficult times, dairy farmers can find support

By : 
CHAD SMITH
Bluff Country Newspaper Group

Times are tough for southeast Minnesota dairy farmers. Prices are low, exports are down, and the rising cost of feed is making it impossible to turn a profit and it’s forcing producers off their farms. It’s not just limited to southeast Minnesota. Lucas Sjostrom, executive director of the Minnesota Milk Producers and a dairy farmer, said times are tough all over the state.

“Tough times aren’t even limited to this country,” he said. “At first glance, if you looked at the margins, they may not look too bad this minute. The problem is, this slump in dairy prices has been prolonged, so we’re now in year three of mediocre-or-worse prices.”

Depending on each farms’ cost of production, current milk prices make it impossible to break even, much less turn a profit. Sjostrom said some of a dairy farm’s challenges come down to management decisions, but more often it’s about luck. The biggest costs of production for dairy farmers are feed and labor, and they can’t control whether or not there’s an adequate supply of each from year to year.

Milk Producers Vice President Shelly DePestel, a dairy farmer from Lewiston, has heard, through friends, about southeast Minnesota dairy farms going out of business. Last year, the Diamond K Dairy north of Altura went out of business. Dave Buck, an acquaintance from Goodhue, told DePestel about a couple of neighbors that went out of business, as well as another dairy farmer that regularly milked 500 cows. A lot of factors are causing the protracted struggle in the dairy industry.

“I think some of our export markets are smaller than they’ve been,” she said. “The European Union used to have a quota system for dairy production, but that’s no longer in effect, so their dairy farmers are producing as much milk as they can. They’re producing more milk and competing for some of the export markets where we’ve sold milk in recent years.”

China is also buying a lot less milk from the U.S. than in past years, plus, Russia has closed off all imports from the Western Hemisphere. There aren’t as many places for American milk to go.

DePestel said 15 percent of all milk produced in the U.S. heads overseas to export markets. If that 15 percent goes down, it leaves more milk in the domestic market. Economics 101 says if there’s more supply, that means prices always go down.

Sjostrom said it’s important to remember that not every dairy farmer goes out of business because they’re a bad farmer. They’ve just made the decision that they can’t continue in the business because of low, or no, profits. The farmers may also be getting pressure from their lenders, who are telling them they can’t continue.

“There are a lot of costs that aren’t accounted for in government support programs,” he said, “including the high cost of healthcare. That cost has skyrocketed, especially in southeast Minnesota. Labor costs are also growing, not in line with other costs of production. Plus, it’s getting harder and harder to find labor in southeast Minnesota.”

Large businesses like Mayo Clinic are drawing away a lot of skilled blue-collar labor as the clinic ramps up its Destination Medical Center project. Dairy farmers are willing to pay good wages, but they can’t find enough people willing to do the work. Minnesota’s low unemployment rate isn’t helping farmers find the people they need to work efficiently.

“It’s tough to expand your herd in an attempt to make more money if you can’t find the help you need to get that done,” Sjostrom said. “If you’re adding 10 percent to your workload on the farm and do some things that might make good business sense, it’s still unattainable because of the labor situation.”

As dairy farmers leave the business, the small towns around them are going to feel a ripple effect. If farmers are struggling to hang on and are down to bare bones, they won’t be purchasing as many of the items they need from local vendors to run their businesses. DePestel says that’s a noticeable concern in Lewiston.

“The new pickup trucks that used to line the auto dealer’s lot just aren’t there anymore,” she said, “and it makes me wonder if that means the dealer is noticing that trend too. Everyone is feeling it, and this isn’t good for small-town economics. It’s a new reality.”

Sjostrom is encouraging producers to head down to their county FSA office and get signed up for the new Margin Protection Program. Several changes have been made to the program, and both Sjostrom and DePestel are hopeful that it will provide more help than the program did during its first two years of existence.

“Because changes were made to MPP after the year started,” he said, “producers with under five million pounds of milk per year (about 250 cows), will get a guaranteed return of about $3,500 per 50 cows. While it doesn’t cover a lot, I’m sure hoping it helps.”

While out on lobbying trips, Sjostrom said legislators (and economists) are both stressing to producers that there will likely be less help from the government in the long-term. That means lowering the cost of production might be the only way to get through the slump. Producers may have to either grow their operation to bring in more money, or they may need to get more innovative in ways to cut their production costs.

“It’s OK to seek out business counseling on how to get your operation through the down cycle,” DePestel added. “Reach out to the local county offices for input on how to keep going and find out more about MPP. We don’t need to lose any more dairy farmers.”