It’s a daily struggle just to stay afloat and many dairies- especially smaller ones- are closing. Updates to the Margin Protection Program in the new farm bill are helpful, but in many cases, it’s still not enough. Bob Cropp, professor emeritus and dairy marketing specialist at the University of Wisconsin-Madison predicts that no matter what we see for milk prices, dairies are going to keep closing no matter what. What does 2019 look like for milk prices? If Trump can’t get dairy farmers some additional relief by resolving our trade disputes, will they abandon him?
More Dairies Liquidating
The Federal Reserve Bank of Chicago’s February AgLetter, contained some grim news for dairy. Anna Lisa-Laca contributed an article for Farm Journal’s Milk that describes the newsletter and the challenges that dairies in Wisconsin and Michigan are facing. The Fed has reported that milk and livestock prices were down in November- 7% from the previous year. Index prices for livestock were down 10% from November 2017.
“Deteriorating agricultural credit conditions continued to affect the District in the fourth quarter of 2018,” they wrote in the report. “Repayment rates on non-real-estate farm loans decreased in the October through December period of 2018 relative to the same period of 2017, and rates of loan renewals and extensions increased.”
Some Wisconsin bankers have said that dairy is one of the most stressed sectors, and there have been many voluntary liquidations.
Nicole Heslip of Brownfield Ag News also reported on this news out of the Chicago Fed. Financial stress and poor winter weather has made many dairy farmers ready to sell. Michigan resident Ben Spitzley of the GreenStone Farm Credit Service’s dairy team says the problem is how much the industry’s milk supply has increased. It’s gone up 80% in the last ten years in Michigan and now we’re struggling with low prices.
Ag credit conditions worsened in the fourth quarter in Wisconsin, Michigan, Indiana, Illinois and Iowa.
Bankers are anticipating operational loan volumes to be higher through the first quarter of 2019, and predict loans for equipment, feeder cattle and dairy to be lower.
Margin Protection Program Will Help Some
Lisa Rathke of the Associated Press looks into the prospects for dairy farmers in her article published in Wisconsin State Farmer. Rathke says that 2019 looks to be yet another challenging year for dairy. That’s even despite the changes that were made in the farm bill to give more relief to the dairy industry. The new insurance program improvements will help dairy farmers fill the gap between milk prices and feed prices.
“The good news is that farmers have insurance. The bad news is that farmers even have to use insurance to make their milk check whole,” said Doug DiMento, a spokesman for Agri-Mark, Inc., a dairy cooperative in the Northeast.
“Farmers want to receive a milk check that’s going to cover their costs without insurance,” DiMento said after speaking at the dairy meeting at the Vermont Farm Show
The Margin Protection Program should expect payment in the first half of 2019, and the payments should be retroactive. The government shutdown has delayed the Farm Service Agency’s creation of the rules for the program.
University of Wisconsin dairy economist Mark Stephenson said,
“A lot of farms have not been covering the cost of production for the last four years and this is probably going to be another year when they’re going to have a difficult time,” he said. “Most of the farms are out of working capital. And they’re having to borrow against that equity to continue milking.”
Kathleen Phalen-Tomaselli of the Post-Star spoke with Neal Rae, diary farmer and head of the dairy cooperative Agri-Mark Inc. Agri-Mark farmers own both the Cabot (Vermont) and McCadam (New York) brands of cheddar, butter and other dairy products. Rea says that the compensation that dairy farmers receive is less than what it costs to produce the milk. But thankfully, changes made to the farm bill insurance programs, dairies can recoup some of their costs.
“We were pretty instrumental in helping the program,” said Rea in a Friday evening interview, referring to the legislative efforts of Agri-Mark.
“We will continue to seek ways that the federal government or individual states can generate income to help pay farmers a fair price for their milk,” said Rea.
The changes to the farm bill will reduce premiums almost 80% and will cover up to 5 million pounds of milk.
“We are now actively working to find a way to improve farmer participation in the margin insurance program.”
Big Improvement Over MPP
Tom Steever of Brownfield Ag News says one economist feels that the dairy margin coverage is a big improvement over the old MPP. Joe Horner from the University of Missouri says it’s the lower premiums.
“Depending on how much milk production you’re covering, you’re either going to cover 100 percent of it or some percentage of it,” said Horner, from a Dairy Profit Seminar in Mountain Grove, Missouri, “but you’re still going to want to sign up for 5 million pounds of milk at a high level of coverage.”
Horner also recommends producers look into Dairy Revenue Protection Insurance.
“It allows producers to lock in a revenue guarantee, a minimum revenue guarantee up to five quarters into the future,” he said.
Mike Opperman of Milk Business shares a new tool made available by the American Farm Bureau Insurance Services that can help producers with decisions about the Dairy Revenue Protection (Dairy-RP) program. After creating a free online account, farmers can access pricing updates, look over protection levels, get quotes, and lay out different scenarios.
As of February 8, 2019 sales of Dairy-RP have totaled more than $40 million and now cover nearly 15 billion pounds of milk.
Fewer Dairies No Matter What
Bob Cropp of Hoard’s Dairyman says there could be some improvement in the dairy industry this year. Cropp predicts that the trend of fewer and larger diary herds will continue no matter what. As older dairy farmers retire and family members don’t take over operations, those dairies tend to close. Many of them are small and would require too much capital investment and modernization than would be economically justified. The average annual decline in dairies now stands at 3.4% each year.
Will Milk Prices Improve in 2019?
It depends upon the level of milk production, domestic dairy product sales, and dairy exports.
USDA’s December outlook forecasted milk production to grow by 1.3 percent in 2019 from an average of 20,000 fewer milk cows than 2018, being more than offset by 1.5 percent more milk per cow.
Growth in milk production less than 2% is typically good news.
Domestic dairy sales are predicted to grow slightly in 2019. Fluid milk sales are still expected to drop, but butter and cheese sales anticipated to improve. 58% of milk production is now utilized to make cheese.
Dairy exports are being affected by our trade disputes- especially with Mexico and China. Canada has also made changes to their diary policy that are making US dairy less competitive there. Unless there is some sort of resolution, our 2019 exports will be lower.
A final key to predicting milk prices in 2019 is world production. It’s anticipated to go down, which could mean good things for US milk exports and prices. Drought and higher feed costs in the EU has slowed their production. The same scenario is playing out in Australia.
2019 Milk Price Predictions
It’s possible that milk production no more than 1.3% and modest growth in domestic sales could support higher milk prices. Milk prices are very sensitive to small changes in production, domestic sales and exports, so it’s possible prices will increase more than the USDA predicted $1 per hundredweight. Below is Cropp’s price prediction for Class III and IV.
Class III forecast: As of now, I could see the possibility of the Class III price starting the year below $15 and then hitting that mark by the end of the first quarter. It could be in the high $15s by the end of the second quarter, the $16s in the third quarter, and high $16s in the fourth quarter, averaging about $16 for the year compared to the estimated $14.61 for 2018.
Class IV forecast: The Class IV price may be in the high $14s for the first half of the year, and then in the $15s for the remainder of the year, averaging about $15.30 for the year compared to an estimated $14.23 for 2018.
Cropp recommends that dairy producers follow changes in forecasted milk prices and use the price risk management tools that are available, including: Dairy Margin Coverage (DMC) recently passed in the 2018 Farm Bill, Dairy Revenue Protection, LGM-Dairy, forward contracting with their milk buyer, or using dairy futures and options.
Will Trump Lose Dairy’s Support in 2020?
The Bullvine recently published an article from Fortune that argues it’s likely that Trump may lose the support of Wisconsin dairy farmers in the 2020 election. Trump’s tariffs have hit the dairy industry hard- nearly 700 dairy operations closed last year in Wisconsin. Milk prices are about to hit their lowest levels in 50 years. The farm bill was passed during his presidency, but apparently the $10 million bailout still won’t be enough.
“We are looking at a short-term washout of 20% of Wisconsin dairy farm milk income on a monthly basis. That’s how dangerous this mess is,” Pete Hardin, who publishes a dairy industry magazine in Brooklyn, Wisconsin, told the Milwaukee Journal Sentinel.
Small dairies are struggling the most. Calls to the Wisconsin Farm Center were up last year and up 33% this past November. The service aims to help distressed farmers that experience depression and suicidal thoughts.
“There’s a major increase in their stress level,” Angie Sullivan, supervisor of the farm center.
With dairy prices so low, many farms are liquidating. It’s just something we’re probably going to see more of for awhile. Changes to the insurance milk producers can receive through updates to the farm bill are helpful, but not always enough. It’s possible that milk prices in 2019 could increase, but it won’t be by much. Will all this bad news for dairy cause them to abandon Trump?