The staff of Pennsylvania’s Center for Dairy Excellence (CDE) are regular partners with Progressive Dairy in providing risk management, business management and other information vital for dairy producers. Expanding on Progressive Dairy’s annual “State of Dairy” outlook for the northeast U.S., Zach Myers, risk education manager, and Jayne Sebright, executive director, provide insights on current conditions and future challenges and opportunities as 2023 gets underway.
Moods are mixed
Entering the new year, the moods of Pennsylvania dairy producers are a mix of uncertainty and frustration. The uncertainty, Myers says, hinges on the fact that while 2022 marked a good year in the milk price cycle, the price outlook is weaker for the first half of 2023, and input costs remain high. The frustration, Sebright explains, relates to restrictions on growth, even though 2022 put many producers in better positions to grow their milk production and potentially invest in modest expansion projects.
Thanks to high milk prices, Pennsylvania dairy producers are in “decent” financial shape going into 2023 despite historically high input costs, Myers says. Stronger margins helped rebuild some of the equity losses they experienced from 2015-19.
“Pennsylvania’s cost of production continues to exceed other major dairy states in the region, which reduces commonwealth dairy farmers’ ability to reinvest in improvements for their operations,” Myers says. “With that being said, there were several dairies that started up during 2022, and many dairy farms executed the transition to the next generation.”
One positive, Sebright says, was that although some regions of the state did experience droughty conditions in 2022, many dairy producers have good-quality forages, enabling them to better weather spikes in feed prices that could affect their margins. However, along with falling milk prices and increasing feed costs, Pennsylvania dairy farmers continue to be concerned about higher fuel and energy costs and higher interest rates.
Cow numbers steady
With more than 80% of Pennsylvania milk marketed through cooperatives – with supply management programs in place – there is a disincentive for dairy farms to add cows.
Dairy cow numbers across Pennsylvania remained relatively steady at about 468,000 head through 2022. Curbing potential growth, heifer inventories are historically low because many dairies have made the decision to breed for beef crosses as an extra revenue stream versus raising extra heifers. “Although heifer prices have improved over the last couple of years, generally, it is still not economically feasible to raise extra heifers to sell,” Myers explains.
Along with the excess-base restrictions, major expansion on many Pennsylvania dairy farms is limited by land availability and increasing land costs, Sebright says. Located in the Chesapeake Bay region, large-scale expansion requires land for nutrient management. There are reports of land being sold in Lancaster County, Pennsylvania, for as high as $30,000 an acre or more.
An opportunity for dairy growth remains with increasing milk production and milk components per cow, Sebright says. In the past two years, the Center for Dairy Excellence has funded grants on more than 100 dairy farms to help with low-cost improvements that support enhancements in cow comfort, milk production or overall efficiency. Through these investments, some of these farms have seen per-cow production growth of more than 5-10 pounds per day.
With the average herd size in Pennsylvania at roughly 90 cows, the labor on many farms is supplied by family. However, larger dairies that rely on non-family hired employees are feeling the pinch in labor availability and cost.
Pennsylvania’s average herd size is conducive to employing robotic systems, and interest and inquiries into robotic milking, feeding and manure collection systems have increased, both Myers and Sebright note.
Processing capacity
Base-excess program restrictions are a good news-bad news story for producers, Myers says. Currently, consumer demand and processing capacity are fairly well balanced. This reduces the burden of finding a home for surplus milk that ends up lowering producer pay price.
Both Myers and Sebright point to a large fluid milk processing plant, Mountaintop Beverage, coming online in northern West Virginia this year. The plant’s first phase is to process 100 million pounds of fluid milk each month, offering Pennsylvania producers a market for milk. The second phase of construction, due to be completed in the next four to five years, allows for a fourfold expansion in processing capacity. Cooperatives in New York have also announced multimillion-dollar expansions committed to increasing fluid milk processing capacity, including to build a $150 million extended shelf-life/aseptic processing plant.
“Milk production in the entire region must increase to be able to fulfill the current processing capacity and to supply the additional fluid milk required by these plants or any others that may be built,” Myers says.
Federal policy
Producers and processors are looking for changes through the 2023 Farm Bill and Federal Milk Marketing Order (FMMO) reform.
The USDA’s Dairy Margin Coverage (DMC) program has been a valuable risk management tool, providing a net benefit to those dairy operations enrolled in the program each year since it began in 2019, Myers says. Program renewal under the 2023 Farm Bill is essential, along with other risk management programs such as Dairy Revenue Protection (Dairy-RP) and Livestock Gross Margin for Dairy (LGM-Dairy).
With renewed interest in meaningful FMMO reforms, there’s optimism that updates to the current system will help take some of the volatility out of the marketplace and improve milk price in the long term.
For processors, updating make allowances will strengthen their ability to cover manufacturing costs, support markets and leave more funds available for over-order premiums.
While revising make allowances will inevitably lower farm-level pay prices, redefining fat and protein standards could offset that, helping producers capture the added value of higher component milk.
Adjusting location differentials would also help to offset increased make allowances, adjusted to cover dairy farmers’ expenses in getting their milk to the plant.
Well positioned for the future
With its geographic advantages, Myers and Sebright are optimistic about the continued success of the dairy industry in Pennsylvania and the Northeast.
“There is a lot of potential here with a good climate for dairy production and the proximity to the majority of the U.S. population within a 10- or 12-hour drive of Pennsylvania,” Myers says. “Dairies in Pennsylvania and the Northeast continue to become more efficient, getting more milk out of cows while using less resources. As water issues worsen in the West and Southwest, the Northeast dairy industry needs to make sure it is poised to take advantage of any perspective shift in milk production back to the East where water is more abundant.”
“I believe as dairy farmers and as an industry here in Pennsylvania, we have a lot of opportunity to get better at what we do to meet a growing demand for our product,” Sebright says. “We are located within a day’s drive of more than 50 percent of the U.S. and Canada population. We have a newly expanded seaport located right to our east in Philadelphia, and we have a state that is supportive of our agricultural industry. Most of our farms have enough land and plenty of water for their herd base, and we have a huge opportunity to grow our milk production per cow to meet the national average. We just have to keep moving forward through modest investments in facility improvements, new technology, enhanced management and generational transition.”
