Note: The following is an opinion commentary. I am excited about being in a growing and prosperous dairy industry. Yes, I know, there are many that think our industry is in terrible shape, but they are dead wrong! Let’s think about it. 1. Sure, we have fewer dairy farms and cows today, but we have become much better farm managers and more efficient ones. In 1950, we had 22 million cows producing 5,134 pounds of milk per cow per year – totaling 116.6 billion pounds per year.
Today we have 9.2 million cows producing 21,149 pounds per cow per year – totaling 193.2 billion pounds per year. We expect to pass 200 billion pounds soon.
2. Milk prices have not been as poor as many folks say. It’s true, the years 2003, 2006 and (especially) 2009 were tough on dairy farmers. But we seem to forget the profitable years of 2004–2005, 2007–2008 and 2010–2011.
3. Our dairy exports are on fire and growing each year. More than 13 percent of our milk will be exported this year.
4. World milk prices are excellent, due to a huge and growing middle class in China, India and other countries, which now can afford milk products rich in protein and energy.
I am excited about our future as dairy farmers, but some careful changes need to be made.
All agree our milk price support system must go
We are now in a world market in dairy products – 13 percent exports this year and growing. Our domestic market can no longer be insulated from world milk markets, nor should it be.
We must learn to serve the world market with consistency, quality and service. If we do, we dairy farmers, and our whole industry, will prosper.
We must eliminate the possibility of diverting our milk products into government warehouses during periods of low milk prices. As long as we have a government price support system, willing to purchase milk products off our domestic market when milk prices are low, our industry takes the easy way out and sells to the government.
We thus leave our valued worldwide customers high and dry, and they don’t return when milk prices turn better again.
For the above reason, there is remarkable agreement in our industry that our milk price support system is disruptive to milk exporting efforts and should be abolished. What to replace it with, if anything, is the question.
The age-old dream of profiting by controlling production
Time and again I have heard in milk pricing debates: “If we could just cut back on production 3 percent, we would raise our prices 20 percent.” (Milk is somewhat inelastic.) This is the age-old dream of using monopoly control of a supply to raise a price.
Labor unions do it all the time and get a better price for their labor. (Until their industry moves out.) Some dairy leaders have long dreamed of some supply control system to extract a better price from milk markets. Call it “market stabilization” or “quotas.”
Either way a farmer is given a “base” predetermined from previous production and penalized if he exceeds his base in low-margin or milk surplus years. Such plans have some very serious flaws.
Our cutting production will not balance world supplies
As I have said, I am excited about being in a world market for some of our milk. Exports are the key to good prices down on the farm. If we are going to export dairy products, we must be willing to import dairy products. A nation that trades is a prosperous nation.
Look at Hong Kong, Singapore and Taiwan, for example. Our nation desperately needs all the exports it can get. We have a very efficient dairy industry and can compete with the best of them.
Sure, New Zealand and Ireland can make milk cheaper … if you don’t count the cost of their land … but with their land now selling at as much as $30,000 per acre, we have a level playing field to compete on.
Just now, when there is worldwide demand for our milk products, along come dairy reform plans that would to cut back on production every time the world milk price falters. What little we cut back is not going to amount to a “mole hill” compared to the “mountain” of milk in our huge, worldwide dairy industry.
It will have almost no effect on world prices. It is another foolish attempt by the U.S. dairy industry to try to provide a floor price for our domestic supply of milk when we are in a world market. We are no longer an isolated market from the world milk supply and should not try to be.
Cutting back on our milk production in times of low milk prices or margins is no way to serve our worldwide customers. We will lose the market share in world markets that is so essential to our future prosperity.
How should we handle world milk price volatility?
A volatile milk price makes milk marketing more difficult, but does serve a useful purpose. Price swings control production when other methods fail.
For several years, CWT tried to limit U.S. milk production by killing perfectly good cows (whole herd buyout program). This increased the demand for heifers, and we farmers raised every heifer, took better care of them and even used sexed semen to increase the supply of heifers.
Only when the terrible prices of 2009 came along did the national herd of dairy cows start to shrink. A volatile milk price is the most effective regulator of the milk supply and serves a real purpose. Today, milk is short, and the volatile higher prices are again driving an increase in the size and production of our nation’s cow herd.
Since volatile milk prices are essential to our industry, we must learn how to live with them instead of eliminating them. Some are looking for some kind of “safety net” for dairy farmers.
The best safety net I know is to keep a strong balance sheet by not expanding too fast and only spending money where it will return the most to your bottom line. (Go slow on new pickup trucks and new tractors.)
One dairy reform plan has a margin insurance program where the farmer is paid a subsidy when the margin between the price of milk and the cost of dairy feed falls below a certain price level. If our dairy leaders insist we need such a safety net plan in return for eliminating our present price support system, so be it.
We must eliminate milk price supports if we are to move our industry forward and be a serious supplier of milk powder, protein and butter in world markets.
Summary
The time has come to stop trying to balance the domestic and world supply of milk with quotas or cow-killing schemes. We are in a world market now and our cutting back production has little effect on world milk prices.
The time has come to get our national price support program out of our way and go full speed ahead in serving both domestic and world markets as best we know how with quality and innovative milk products and with the best service possible. If we do, the future of our industry could not be brighter. PD
Mueller is a dairy farmer from Clifton Springs, New York.
