Nervous, guarded and cautiously optimistic is how several dairy producers across Washington, Oregon, Idaho and western Montana described their attitudes entering 2023. While the challenges far outweigh the level of optimism dairy producers in the region are feeling, several producers point to strong exports, along with the advantages of homegrown feed and risk management programs, as opportunities for the dairy industry in the new year.
“I’m not very optimistic for 2023, but if I had to [pick something that provides optimism] it would be the milk supply – it still appears to be incredibly modest,” says Lael Schoessler, No View Dairy in Kimberly, Idaho. “If Europe continues to lose cows, and New Zealand and Australia continue having issues, capturing more of the market share could also be an opportunity.”
Several dairy producers share Schoessler’s sentiment toward exports, including Oregon dairyman Kyler Van Berkum, who notes that the “global appetite for dairy products seems to continue to grow,” and Dick Bengen from Ruby Ridge Dairy in Washington who agrees that “if managed properly, we are positioned to capture a good share of the higher value of the export market.”
By the numbers
Collectively, milk production in the four states was down slightly in 2022 over the prior year, with Montana experiencing the greatest decline (8.6%), followed by Washington (4%). Idaho production was up a modest 1.3% while Oregon settled at 0.4% year-over-year growth.
Preliminary USDA data shows cow numbers in the region averaged about 1,051,375 head in 2022, down 7,375 from 2021 with a decrease of 11,000 head in Washington, growth of 4,250 head in Idaho and minor fluctuations in Oregon and Montana.
Growth focused on getting better, not larger
While the global outlook for dairy is bright, limited processing capacity in the Northwest has dairy producers investing in improvements instead of expansion on the farm.
“A fair amount of homegrown feed and a base cap on production has, in many cases, pushed excess profits into getting better instead of bigger,” Bengen says.
Troy Lenssen from Lenssen Dairy in Washington notes that technology is the “most likely” form of growth in the area with “a lot of new robot set-ups in the works [in Washington].”
Oregon dairy producer Chad Allen is seeing a similar trend with technology in his state.
“[The greatest growth in our area right now] is the investment in technology, including the combination of new facilities to improve efficiencies, genomics and automation,” Allen says.
Additional processing capacity is on the horizon in eastern Washington.
“Because we’ve been running so close to capacity, growth on farms in our region has been pretty much limited over the last few years to attrition, and our farmers – and, indeed, our co-op – are looking forward to having additional production capacity coming online,” says Monty Schilter, vice president, Northwest Dairy Association. “One of our primary areas of focus this year is getting [the] Pasco [facility] built and operational. While we won’t be done with construction and operationalizing that facility until sometime in 2024, there will be a lot of work happening this year to build and plan for additional capacity coming online. I think we’re all excited about that.”
Inflation tightens budgets
Inflation and rising interest rates are causing producers to “cringe every time they [are announced] because rates keep going up,” Allen says.
“In the last year, we’ve had interest rates double, and anyone with variable operating loans is suffering through that,” Allen says. “We’re keeping an eye on what rates are doing and how many more times they are adjusted. We’re hoping that inflation slows down. We’ve seen gas come down, but diesel hasn’t had much movement, and that’s one we are concerned about.”
Lenders have also taken a more cautious approach as inflation rises.
“Banks have been extremely conservative offering lines of credit even for those with a great credit score,” says Leann Krainick of Krainick Dairy, Enumclaw, Washington. “Inflationary costs for most inputs coupled with higher interest since late 2021 have really tightened budgets.”
2022 was a good financial year for most Idaho dairy producers, according to Rick Naerebout, CEO of the Idaho Dairymen’s Association.
“We are coming into 2023 in really good shape, but the first quarter of 2023 will stress test that situation pretty quick, looking at projected milk prices,” Naerebout says. “We have the highest feed costs we have ever seen in Idaho, and cost of production for Idaho dairymen is around 22 dollars per hundredweight. That is a ridiculous number.”
Limited growth opportunities due to processing capacity are also creating some challenges for dairies hoping to attract the next generation back to the farm.
“We don’t have enough processing capacity to support the growth desired by most within the dairy industry, so the scenario where those who want to expand and buy base from those looking to exit creates an incentive for dairymen to exit the business and also increases consolidation,” Naerebout says. “There is a generational issue with our medium to smaller operations where the next generation has moved off the farm and is not coming back. Most of the dairies exiting the business today are in this situation. It is just being accelerated by the lack of processing capacity and the market for base we are currently observing.”
Regulations continue to provide challenges
Buffer regulations, water rights and labor issues across the Pacific Northwest, in addition to agriculture overtime laws in Oregon and Washington, continue to challenge dairy producers.
“The Pacific Northwest – especially Oregon and Washington – are tough states to operate any small business in,” says Adam Dolsen of Cow Palace, Granger, Washington. “New laws and regulations continue to present challenges every year for all employers. Labor and environmental laws have especially been challenging for farmers. The passing of stricter labor and environmental laws have become a burden for employers and usually don’t benefit the employees or provide any additional protection to the environment. Most of the policies might be well intentioned but are passed by bureaucrats who are very unfamiliar with agriculture and how we operate.”
Oregon joined the ranks of Washington and California as it passed a state overtime law in 2022, which will stairstep overtime pay down to 40 hours over the next five years.
“We’ve been struggling for years to get highly qualified labor, and it’s even more difficult to do that now,” Allen says. “We aren’t sure how we are going to handle [the agriculture overtime law] yet. Some people are looking at technology, but financial circumstances won’t allow for a lot of that going into 2023. Producers are trying to figure out how to modify schedules and looking at opportunities for cross-training. Even reducing hours is challenging because they are used to more hours, which reduces their income – and in a tight labor market, they will be out looking for a job somewhere else.”
Tillamook Cooperative Creamery Association notes the need for realistic solutions for dairy producers.
“Our producers need labor solutions, from guest worker programs to incentives for automation, and any other logical solutions. They also need realistic solutions for climate change, with more research, engineering of technology, incentives, grants and realistic timelines to continue the progress they have already worked toward,” says Kate Lott, director of farm engagement, Tillamook County Creamery Association.
Sustainability, proximity to services present additional challenges
While labor challenges are always top-of-mind, they aren’t the main concern for Idaho dairyman John Brubaker.
“The biggest challenge I feel is from the pressures of sustainability, and it will have an even greater impact on what we can do and how we operate our dairies in the future,” he says.
Just north in western Montana, dairy producers are challenged by high land prices and the proximity of support services.
“Labor has stabilized for now, but freight cost is a major problem, as is the lack of local support services as the number of dairies in Montana drops,” says Montana dairy producer David Lewis.
Despite the challenges, Washington dairy producer Stephanie Littrel says there’s nothing she would rather do besides dairy farming.
“I love what we do, and there’s nothing like seeing a baby calf taking its first breath,” she says.
