Beyond sharing Great Lakes’ shorelines, dairy producers in Indiana, Michigan and Ohio have a lot in common. Most were aided by the wave of higher milk prices in 2022, putting them in their best financial positions in years. Higher costs, lower milk prices, tight labor supplies and increased environmental regulations create an undercurrent tugging at the flow of optimism entering 2023.
By the numbers
Primary suppliers of milk to the Mideast Federal Milk Marketing Order (FMMO), Indiana, Michigan and Ohio are all among the USDA’s list of 24 “major” dairy states. While all three saw 2022 annual milk production decline slightly from the year before, most of that decline came in the first half of the year.
Preliminary USDA data shows cow numbers in the three states averaged about 864,000 head in 2022, down 25,000 from 2021. With some growth in Indiana and Ohio to end the year, the USDA’s January 2023 Cattle report indicated the three states are starting 2023 with about 874,000 cows, up 1,000 from a year earlier.
With dairy heifer (greater than 500 pounds) numbers down 12,000 in Michigan, there were an estimated 324,000 dairy replacements ready to step into the milking herd during 2023, down 10,000 from January 2022.
Milk utilization in the Mideast FMMO is diverse. In 2022, utilization by class was: Class I (41%), Class II (24%), Class III (13%) and Class IV (22%). The 3,420 producers serving the Mideast FMMO saw a statistical uniform milk price of $23.45 per hundredweight (cwt) in 2022.
The Mideast FMMO draws milk from counties in western Pennsylvania, northern Kentucky and most of West Virginia, with milk from Maryland and New York to Illinois and Wisconsin flowing into the pool throughout the year.
Indiana: Encouraged
In Indiana, producers are encouraged. While 2022 milk prices generally outpaced the financial drag of higher input costs, a snapshot of August 2022 illustrates the economic dichotomy: Producers received the highest milk prices ever, and yet the USDA’s Dairy Margin Coverage (DMC) program paid an indemnity, notes Steve Obert, executive director of the Indiana Dairy Producers Association.
“I think many producers have aggressively managed milk price risk in the first six months of 2023,” Obert says. “In addition, most producers are optimistic that feed cost may trend lower as we get past mid-year.”
In addition to investments in technology and data collection, Indiana producers continue to commit resources into management practices that improve cow health, comfort and efficiency, Obert says. Producers are closely watching to add value through “sustainability” opportunities, including a renewable natural gas (RNG) project grouping moderate-sized farms together and creating market scale to compete with the large farm projects.
While there has not been significant growth in processing capacity, milk supply has remained fairly well balanced. Margin compression, labor and regulations are having a tempering effect on herd growth, however. “Don’t forget that replacement heifer availability may also keep rapid herd growth in check,” Obert says.
Indiana producers are eyeing changes to federal policies through both the FMMO hearing process and the 2023 Farm Bill.
“FMMO modernization must mitigate the potential negative impacts seen during 2020 and 2021,” Obert says. “Producers in Indiana want the Class I mover returned to the ‘higher of’ formula, improvements in the make allowance process, tighter rules for depooling and serious changes to bloc voting procedure rules.”
Michigan: Hopeful
In Michigan, last year’s widespread financial recovery has made dairy producers “hopeful” at the beginning of 2023, says Doug Chapin, dairy producer and board chair of the Michigan Milk Producers Association.
“The hopefulness is supported by dairy’s strong market position, both domestically and internationally, giving producers and the industry reasons to look forward. We know that dairy is sought out by consumers across the world. It is demonstrated in record volumes of exports and record consumption of dairy here in the United States,” Chapin says.
Clouding that hopefulness is nervousness over recent downward trends in dairy markets, combined with stubbornly high input costs. On the demand side, inflation in a faltering economy could result in a decline in demand from consumers.
Short-term, while feed costs are up, inventories are good. Longer-term, high land values and rising interest rates are weighing into growth decisions.
“After a year with the highest prices on record, you would expect rapid or strong growth,” Chapin says. “However, high cost of feed and inputs along with barriers to growth such as higher interest rates, elevated construction costs and tight replacement numbers make me believe that growth will be historically average to moderate.
“An issue that everyone is facing is labor and we’ve seen many of our members take that into consideration when deciding to stay in or exit the dairy industry,” Chapin says.
In response to the labor challenges, there’s an increase in adoption of robotics for milking and feeding operations, building feed centers that maximize labor efficiencies, and incorporating more custom harvesting or manure work.
“I’ve seen a lot of efforts in better managing employees by adopting human resources management plans aimed at retention and training of employees,” Chapin says.
With ample water, rich soils and a cattle-friendly climate, the region has many advantages creating opportunities for growth, Chapin says. Building on those strengths will require industry partnerships that can produce value and increase markets.
“Producers in our region are very diverse and progressive, with Michigan leading the nation in milk per cow, and I see farmers continuing to invest in technology, sustainability and expansion efforts. The greatest opportunity is different for each farm, but the important thing is that they continue to invest for the future,” he says.
Ohio: Cautionary
Jason Hartschuh, Ohio State University Extension field specialist for dairy and precision livestock management, characterized Ohio dairy producers as “cautionary.”
“Financially they are in a stronger position than they have been for years with higher milk prices and strong margins coming out of 2022,” Hartschuh says. “They are cautionary for 2023 with prices tending down and input costs down slightly – but not as much as the milk price.”
Processing capacity is expanding slightly in Ohio, Hartschuh says, and the state currently processes more milk than it produces. Factors impacting dairy herd and cow number growth are labor availability, construction costs and availability of contractors, and higher interest rates. With producers needing to secure land for feed production and manure application, increasing land prices and pressure from non-agricultural buyers are making expansion more challenging, he adds.
In addition to FMMO modernization and reform, Ohio producers are looking for an immigration policy that assists with labor availability. They’re also focused on funding assistance – beyond carbon credits – to help address environmental risks. Livestock farms are being blamed for concerns over nutrient loading going into Lake Erie, escalating opposition to expansion.
One area he is seeing greater interest is in niche marketing and local food production, opening opportunities for smaller farms.
