The better prices in 2019 and 2020, however, may say more about how low they were in 2018.
“The last few years haven’t been easy ones for most dairy producers in our region, so I think they are noticing the rising milk prices with some relief and hoping they will be sustained,” he said. Even as cash flow improves, many are still dealing with deferred maintenance and debt obligations incurred over the last few years.
Milk production increased 1.9% in New York in 2019 but declined in Vermont and probably in other New England states as well, Laughton said. The number of farms has declined across the region somewhat, although the number of cows has remained relatively flat. Expansion has been limited because producers are generally wary after the last few years of economic struggles, and several co-ops have instituted supply management plans.
Despite stronger prices, Northeast dairy productivity will be challenged by a number of factors in the year ahead. Last year’s difficult growing season made forage quality difficult to maintain.
Labor costs and availability are significant issues, and concerns will only increase after the passage of a number of new labor regulations in several Northeast states. In New York, the implementation of the Farmworker Fair Labor Practices Act builds on minimum wage increases and an already limited supply of workers, making labor more expensive. Many farmers are looking at ways to increase efficiency, including technology.
The silver lining is: Constraints on milk production growth will help bring supply and demand in balance, relieving pressure on processing facilities that have had difficulty handling the volumes in recent years.
However, there’s uncertainty regarding processing capacity, as well. “The bankruptcy of Dean Foods involves several processing facilities in the Northeast, so people are watching to see what will happen with that capacity,” Laughton said.
Is dairy’s demise in the Northeast imminent?
“Certainly, the high-profile bankruptcies of Dean and Borden got a lot of attention, and we’ve seen a number of dairy farms exit the industry. Fluid milk consumption continues to decline. Those are not positive developments,” Laughton said. “It’s worth noting, however, that overall per-capita dairy consumption has grown. Yogurt is off its peak, but consumption remains strong. Butter and cheese continue to grow. So the industry isn’t going anywhere, but things are changing.”
From a marketer’s perspective, the tradition, diversity and value connected with Northeast dairy farming and processing mean the industry is ready to evolve.
“In a decade shaped by a constantly changing marketplace, U.S. dairy is well positioned to expand its growth through innovation designed to meet the changing tastes and needs of today’s consumers,” said Laura Hardie, farmer relations and communications manager with New England Dairy, a checkoff-funded organization conducting promotion programs in Connecticut, Massachusetts, New Hampshire, Rhode Island and Vermont.
Innovation is occurring at all levels. “It’s encouraging to see farmers using their ingenuity to find new ways to continue the tradition of dairy farming with the addition of value-added dairy products like cheesemaking,” she said.
Innovation in dairy product development is helping diversify consumer choices. And there’s innovation in getting products to young consumers. In 2019, New England Dairy funded 65 schools with equipment grants to start hot chocolate milk programs. The program takes advantage of the USDA flexibility that allows schools to serve 1% flavored milk and the trendiness of café-style beverages sought by youth. Preliminary data from 21 of the granted schools shows the program leads to a 15% increase in milk sales.
There’s also innovation in finding ways to provide financial benefits as farmers seek to balance farm profitability with investments in the environment. Last year in Vermont, a Payment for Ecosystem Services working group was created to recommend financial incentives that would encourage farmers to implement agricultural practices that reduce agricultural runoff, improve soil health, enhance crop resilience, increase carbon storage and storm water storage capacity.
“A farmer’s milk check doesn’t currently provide a way to pay farmers for the tons of carbon they are sequestering through cover crops they plant, for example,” Hardie said. “These programs are a way to provide farmers with compensation for the benefits they provide us as a society – beyond making food.”
Zach Myers, risk education program manager with Pennsylvania’s Center for Dairy Excellence, said Pennsylvania dairy farmers are approaching 2020 similar to 2019, with cautious optimism. Stronger milk prices in 2019 helped relieve some of the economic pressures of a multiyear downturn, although it wasn’t enough to provide full recovery. There’s hope 2020 will build on 2019, with prices moving into more profitable ranges.
The new year also looks better from a feed cost standpoint. A poor cropping year in 2018 had forced dairy farmers to buy additional commodity feeds to offset poor-quality forages, increasing feed costs and tightening income margins. The subpar forage quality also reduced milk production, further constricting cash flow.
The 2019 cropping season was much better, resulting in higher-quality forages that should feed a stabilizing dairy herd and improve production per cow. “A lot of Pennsylvania dairy farmers saw increased production once they started feeding 2019 forages,” Myers said.
Consolidation of farms continued in 2019. After losing 370 dairy farms in 2018, another 470 exited in 2019. With a better milk price outlook for 2020, the number of dairy farm losses should slow as cash flow improves.
With the loss of farms and lower milk output per cow last year, the milk supply in Pennsylvania is actually tight, Myers said.
“National production increased at a much slower rate in 2019 than in previous years,” Myers said. “There is not as much milk around now than previous years. Right now, the Pennsylvania processing market is undersupplied and there is capacity for increased processing if the milk becomes available.”
Pennsylvania dairy farmers share another challenge with counterparts around the country: affordable labor. The location of population centers and a good interstate highway system add labor competition from warehouses and factories, and dairy farmers who have had to increase pay rates recently to attract and keep employees.
While Pennsylvania has no Borden plants, four Dean Foods’ plants process more than 50% of the commonwealth’s fluid milk. Farmers, industry and government officials are watching the company’s bankruptcy proceedings closely to be prepared if there is any fluid milk processing consolidation.
Pennsylvania’s government and dairy industry are working diligently to make sure there is a consistently profitable future for dairy farming and processing, Myers said.
The departments of Agriculture and Community and Economic Development are into a second year of providing grant money through the Pennsylvania Dairy Investment Program (PDIP). The grant program is intended to support the dairy industry through research and development, value-added processing, organic transition and marketing. In 2020, 49 different projects totaling $5 million have been approved.
In 2019, the Department of Agriculture also put together a 34-member commission, charged with helping develop a path forward for the dairy industry. A report from the commission is due out later this year.
While many focus on declining fluid milk consumption, Myers points to overall per-capita dairy consumption hitting a 60-year high, at 646 pounds. And the fluid market news isn’t all bad. Sales of whole milk, flavored whole milk and lactose-free milk are on the rise.
“There is tremendous innovation occurring in the dairy industry around fluid milk,” he said. “There are numerous new fluid milk products available across the country today that were not available three years ago. The industry has been innovating around recent research that shows how beneficial the nutrient density of milk is to maintaining a healthy lifestyle, and this includes milkfat.”
There’s also been innovation among producers. More farmers are looking to generate alternative sources of income through agritourism, on-farm processing and retail sales, Myers said.
“Consumers are looking to buy ‘local’ now more than ever,” Myers said. “There is plenty of opportunity for local dairy product branding. Several farms are looking into capitalizing on this sector of consumer demand and are looking into local branding and private label dairy products to increase the value of their operation and be able to succeed into the future.”
One area where Pennsylvania dairy producers have been slower to innovate is in the area of risk management, although Myers is seeing a change necessitated by tight dairy margins and volatile milk prices.
As a former North Carolina dairy farmer who has started his second year at the CDE’s risk education program manager, Myers is seeing increased participation in the USDA’s Dairy Margin Coverage (DMC) and Dairy Revenue Protection (Dairy-RP) programs. Under DMC, Pennsylvania producers covered nearly 1 billion pounds more milk than under its predecessor, the Margin Protection Program.
“There are excellent herd managers here with excellent cows but, unfortunately, the days of ‘If I put in an honest day of hard work, I’ll be OK’ are in the past,” Myers said. “Operating a dairy as a business will not threaten the family farm identity. It will help it to survive for the next generation.” 
Also read:
Central: Staying focused on the positives
Southwest: positioning for the future
Northwest: Apprehension, but a commitment to innovate
ILLUSTRATION: Illustration by Kristen Phillips.
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Dave Natzke
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- Progressive Dairy
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