Dairies continue to struggle financially and it isn’t over yet. Increased milk hauling costs add to the financial burden dairy farmers are already facing. Producers in the Midwest recently saw a big jump in hauling costs. Read more to find out how you can reduce costs on your farm during this financially difficult time.
A Wisconsin banker said dairy is the most stressed sector. Financial stress and gruesome January weather left many farmers ready to call it quits.
According to the most recent AgLetter from the Federal Reserve Bank of Chicago, dairy farmers in the Seventh District are experiencing serious financial issues. Repayment rates on non real estate farm loans decreased along with an increase in loan renewals and extensions.
In addition to financial distress, farmers also saw a seven percent decrease in milk and livestock prices.
Milk Hauling Rates
Dr. Corey Freije with the USDA’s Federal Milk Market Administrator’s office in Minneapolis examines hauling costs using May data every year. Freije said there has been a 40 percent increase from 2017 to 2018. In 2018, rates for milk haulers in the Upper Midwest reached 28 cents per hundredweight. Comparatively, 2017 saw 20 cents per hundredweight.
However, the rate charged in the region is still lower than other areas of the country and some states have larger price differences within the Upper Midwest.
North Dakota topped the charts with the highest weighted average hauling charge of 64 cents per hundredweight. Freije said this is due to a low number of farms, the longest distance from high demand areas and less handler competition.
Wisconsin rounds out the list with the lowest charge of just under 24 cents per hundredweight. Freije credits this to a high number of farms and close proximity to high-demand areas.
Fuel Prices Not to Blame
Many may expect this increase to be caused by rising fuel prices. However, Freije said there is almost no correlation between fuel prices and milk hauling cost. The problem lies in the volume of milk.
“We’ve got the plants at capacity. We’ve got a lot of milk out there, and that has eroded the negotiating power of the dairy farmer,” Freije said.
Unfortunately, Freije doesn’t see this trend changing in the near future. He feels this pattern will continue until capacity rises to where handlers are actively competing for milk. Freije’s study found 553 farms have no hauling charges. Additionally, a majority of milk handlers charge producers a flat hauling value regardless of the farm’s size or milk volume.
Oppositely, he also found larger producers and producers who are located farther from processors consistently pay more per hundredweight to haul milk. Costs could not be calculated for those who haul their own milk.
Cutting Costs Without Cutting Quality
More cows and more milk in domestic and foreign markets, combined with a relatively strong dollar and uncertain policy, continue to wreak havoc on milk markets. Controlling expenses is a huge key to both long and short term profitability.
However, the challenge is controlling costs without negatively impacting production, growth, reproduction animal welfare and personnel welfare. To keep expenses in check and maintain quality, producers must regularly evaluate all costs.
Feed, labor, depreciation and supplies were the top four expenses for all farms and the top 20% of farms in 2017.
This statistic has held true for the past four years. If these areas are the most costly, how can we mitigate expenses while maintaining quality?
Depreciation of items such as machinery, equipment, and buildings is difficult to alter. However, the time to save is when these things are purchased. The questions you should ask are:
Is a purchase a want or a need? Is it realistic to expect cows to pay for this item or improvement? How much will it cost per cwt or per cow? What benefits and economic returns will it provide?
You can also utilize state benchmark reports to compare the range of income and expense items for other operations relative to yours. This allows you to set realistic goals when attempting to reduce costs.
Don’t miss Ag Nook’s related article titled, “The State of Dairy“.
Dairy farmers continue to be burdened with financial struggles, now in the form of increased hauling costs. This is a very low time for the sector’s economy and it doesn’t look to change in the near future. It is crucial to reduce cost in all ways possible without adversely impacting quality. Evaluate costs regularly and compare income and expense ratios of producers around you.