A numerical snapshot of Wisconsin shows the state averaged about 1.27 million dairy cows in 2022, producing almost 31.9 billion pounds of milk. Both changed little from the year before.
The number of herds commercially licensed to market milk did decline, reflecting consolidation. As of January 2023, there were 6,116 herds in the Badger State, down 417 from the year before. And while the USDA’s January Cattle report indicated Wisconsin producers were again starting a new year with about 1.27 million cows, the numbers of dairy replacement heifers (greater than 500 pounds) were estimated at 630,000 head, down 30,000 head from a year earlier.
Financial pulse
Monitoring the financial pulse of dairy producers, Matt Lange, business consultant with Compeer Financial, says his clients enter 2023 following one of the most profitable years in at least three decades. “As a consultant, I witnessed many who took advantage of improving their short- and mid-term financial positions by being wise with cash and decreasing their leveraged positions,” he says.
While margins tightened in the second half of 2022, strong milk prices helped fortify strained equity and liquidity positions and weather expectations of a downturn in milk prices and margins tightened by high input and feed costs, inflation and higher interest rates in 2023.
“These rising rates did make producers second-guess capital investments or at least evaluate financing options to mitigate increases in rates going forward,” Lange says.
Many producers are concerned about the state of dairy processing, both in terms of capacity and viability, and would like to see reinvestment and product diversification.
Opportunities differ for producers in Wisconsin and surrounding states. With base-excess plans in place to limit production growth, Lange has seen larger operations seek to acquire another site – with a milk market already in place – rather than expand or build a new dairy. Others are looking into other agricultural enterprises to help diversify revenue streams; still others are diversifying outside of agriculture altogether.
Forecasting the state of dairy in Wisconsin, Lange shares a comment from a producer: “The sky is blue, the sun is shining, things seem to be going well, but then you hear a roll of thunder in the distance. It puts a little urgency in your step,” he says.
Cautiously optimistic and steadfast
For Professional Dairy Producers (PDPW) leaders Katy Schultz and Janet Clark, dairy farmers are steadfast and cautiously optimistic. Both are partners in family dairies in east-central Wisconsin, where timely rains in 2022 provided adequate home-grown feed supplies and stronger milk prices helped offset high input costs.
Looking ahead, uncertainty over milk and feed prices has producers working with marketing advisers and using risk management tools to try to lock in margins, says Schultz, PDPW president.
Clark, PDPW vice president, agrees. “Wisconsin producers are always looking ahead and preparing for what’s next,” she says. ”While we are coming off a year better than some, we never automatically assume ‘rinse and repeat’ for the year ahead.”
In a capital-intense industry, there’s an eye on interest rates and processing and marketing capacity. Any plans for growth must first secure a market for that milk.
“When you see better-than-average milk prices, it’s tempting to think about expansion,” Clark says. “But that also must be balanced with the realities of restrictive environmental regulations, labor shortages, soaring energy and fertilizer costs and uncertain export markets.”
One limit on capacity shared throughout the dairy supply chain is a shortage of labor. For those who were able to find it, higher wages are necessary to retain current employees and attract new ones. With dairy so central to the state’s economy, implications of short labor supplies and an aging producer base ripple throughout the fabric of rural communities.
“Farmers for years have been the backbone of our emergency response and other volunteer teams,” Schultz says. “As more and more farmers retire, we are losing these solid volunteers who brought years of experience in supporting our local towns and counties.”
To address current and future dairy labor needs and opportunities, many of PDPW’s programs are geared toward creating a positive culture focused on growing people as much as calves, cows and crops.
“We can’t let up on the gas of recruiting the best and brightest to dairy farms and dairy careers in this state,” Schultz said. “They are not only the future of our farms, but also the future leaders of our rural communities and state.”
Dairy’s long-term financial strength faces many variables, Clark says. Utilizing information collected through comprehensive dairy industry surveys, PDPW has embraced a “future-ready” approach, connecting producers and consumers on a broad range of issues. Clark is excited and energized for the future, while taking a holistic view.
“At the farm, we need a clearer understanding of our customers’ and consumers’ wants and needs, whether it is about our milk product or how we produce the milk,” she says. “And, vice versa, those downstream in the dairy value chain need to understand what’s possible and practical at the farm level in meeting those needs.”
Clark sees a greater importance in forming “non-traditional relationships,” including participation and leadership in local watershed groups, collaborating with neighbors and consumers to build dairy’s “good neighbor” reputation.
“Wisconsin dairy truly has a lot going for it. We have critical mass dairy production with solid infrastructure, available water and diversity,” Schultz says. “With a mix of large and small farms, with a variety of styles of production, people here find a way to pursue their dairy passion. We are identifying additional revenue streams to support our farms no matter what the size or style."
The elephant in the room
Tim Trotter, CEO of Edge Dairy Farmer Cooperative, echoed similar comments when summarizing the conditions and moods of dairy producer members. Edge is a verification co-op based in Green Bay, Wisconsin. Adding up the milk volume produced by its member farms across nine states, it is the third-largest dairy cooperative in the U.S.
This year, the elephant in the room is in Washington, D.C. “A new farm bill this year paired with real milk pricing reform momentum means the first chance for meaningful change to our farmers’ primary income stream in nearly two decades,” Trotter says.
Through the channel of Federal Milk Marketing Order (FMMO) reform, Edge is seeking to enhance the relationship between dairy farmers and their milk buyers.
“It’s no secret that the negative PPDs (producer price differentials) of 2020 shook producer trust in that relationship and the entire system," Trotter says. "It will be a long road to rebuilding that trust, but forging strategic partnerships between farmers and processors is essential to a thriving dairy community. Moving toward that goal will cement a vibrant and competitive U.S. dairy marketplace for the foreseeable future.”
When it comes to FMMO reforms, Trotter describes two high-level issues his members want addressed.
“First, how can we help to ensure as much milk as possible participates in federal orders?” he says. “In 2021, a record-low percentage of U.S. milk participated in the FMMO system. If that continues, the orders themselves may no longer be viable. There must be more incentive to participate to ensure we maintain all the benefits of orderly marketing and data collection. Secondly, if milk does not participate in federal orders – such as if milk is depooled – we need to ensure that all players involved operate in good faith under standard contracting principles. These range from written contracts and timely payments to transparent pricing formulas and competitive risk management.”
Turning to other federal policy, Trotter sees tremendous opportunities for dairy in the “sustainable agriculture” space. Edge and several other dairy groups will receive federal funding under the USDA’s Partnerships for Climate-Smart Commodities program to continue implementing high-impact farming practices to improve soil health and water.
And results of an informal survey conducted by Edge during the 2022 World Dairy Expo confirmed that labor tops the worries for dairy moving forward. While working on reforming ag labor policies, more producers are turning toward implementing automated systems, but that route is clouded by higher interest rates and capital investment concerns.
In one unique Wisconsin project, a housing development was built specifically for agricultural workers. After nearly eight years of paperwork and construction, the project is finally complete and opened last fall.
