Entering an election year with high inflation and input costs, tight dairy farm margins and a farm bill that has been punted into 2024 has left many in the Midwest feeling a mix of uncertainty and cautious optimism about what is to come this year.
“I probably lost the most sleep over depressed milk prices and the worker shortage, but we’ve seen how quickly prices can change based on consumer demand, and tighter replacement numbers signal relief could be coming,” says Wisconsin dairy producer Brady Weiland.
Travis Senn, director of public affairs with Edge Dairy Farmer Cooperative, would add “mild disappointment” to the list of emotions felt by dairy producers in the region.
“Early fall projections placed milk prices at a strong level, but they have since come back to Earth,” Senn says. “Pair that with some disappointing policy updates over the fall and last spring’s flush period, and I think there are concerns in the countryside.”
Dairy Margin Coverage (DMC) payments helped many dairy operations withstand challenging 2023 milk prices, and most of the Midwest producers interviewed feel they are starting 2024 in an “OK” financial position but without much of a cushion.
“2022 went a long way in healing some financial wounds, but 2023 created some challenges,” says Steve Obert, a dairy producer from Indiana and the executive director of Indiana Dairy Producers. “Inflationary pressures pushed interest rates and labor costs higher. Feed costs remained painfully high throughout most of the year, and August set a new record for milk margin protection payout.”
To the north in Federal Order 33, Michigan dairy producer Paul Windemuller describes the industry’s current position as “somewhat weak financially, but not at crisis levels,” citing improving feed prices and a blend price that is “still OK.”
“I think those farms that are left have really figured out how to survive for a long time with tight margins and have taken advantage of economies of scale and technology to stay competitive,” Windemuller says.
Lucas Sjostrom, a dairy producer from Minnesota and the executive director of Minnesota Milk, agrees.
“I think dairy farmers are looking to either survive the next five years or survive the next 50, and there may be different attitudes about different enterprises within the operation,” Sjostrom says. “In other words, producers are either shoring up their farm to survive or investing to endure. I think lenders are on board as such, so if you have a good business case about how to keep your production costs low and maximize revenue, there are good investments to be made in line with interests – including beef-on-dairy, technology and cropping strategies.”
Urban development continues to be a challenge throughout the nation, and the Midwest is no exception.
“In our area of northwest Indiana, housing developments, warehouses and solar farms are taking up a lot of farmground,” says Indiana dairy producer Dave Kleine.
Farther north, in Wisconsin, dairy producers are also feeling the consequences of urban sprawl.
“Our region of Wisconsin is mainly pressured by the sprawl of neighboring cities,” says Wisconsin dairy producer Max Shenkenberg. “We operate in a pocket of very competitive dairy producers, and as land comes up for sale, it turns into a race to see who can win the bid. Urban development only makes land tighter for farmers.”
Exports also pose some questions and concerns.
“As we continue to export more and more dairy products, are our markets going to remain safe?” Illinois dairy producer Lorilee Schultz asks. “While Asia and the Pacific region offer strong opportunities to grow our exports further, our shaky relationship with China and failure to create stronger trade alliances in the region present a risk.”
All of this leaves producers with many tough questions to ponder, ranging from transition planning concerns to if the weather will cooperate this year to how long they are going to have to “tread water on margins.”
Despite the lingering challenges from 2023 and ongoing concerns in 2024, some producers contrasted the “tense” and uncertain undertone with optimism and hope.
“I believe dairy producers, in general, are poised with a plan one way or another,” Shenkenberg says. “Over the past several years, we have experienced record highs and record lows in what seems like a short period of time. I believe this has forced producers who want to continue farming to sharpen their skills and manage risk accordingly.”
Weiland adds that “years of higher input costs also created an opportunity for producers to improve on-farm efficiencies.”
Producers with “manageable debt levels and those who aggressively mitigated market risk escaped 2023 OK,” Obert says. Locking in milk prices early helped those producers more effectively navigate time periods with difficult financial margins.
“Cow numbers and milk production have been lagging year-ago levels. If the economy strengthens and exports recover, second half of the year price strength should hold. Couple that with lower feed cost, and perhaps 2024 will be a good year,” Obert says.
Processing capacity continues to be “very tight” across the Upper Midwest, especially west of the Great Lakes, according to Senn. While numerous processing facilities are expected to come online across the nation in 2024 and 2025, little processing capacity has been added in recent years as several older processing facilities close. Senn says he doesn’t expect it to take long before the extra capacity created by the new processing facilities is filled.
Iowa dairy producer Jessica Tekippe agrees that lack of processing capacity is a “huge issue” in her area.
“Milk is getting hauled crazy distances, and you can’t switch processors even if you wanted to,” Tekippe says.
The new Walmart processing facility in Valdosta, Georgia, has many dairy producers in Indiana waiting to see how it will impact their markets since a “significant” portion of Indiana’s milk goes south for processing, Obert says.
“It will be a ‘wait and see’ of how the Walmart plant in Georgia will impact the farms supplying Federal Orders 5 and 7,” Obert says. “Here in our state, we were excited to welcome the Ninth Avenue Foods plant in Columbus this year. On-farm processing also continues to grow.”
Bright spots
Decreasing grain and commodity prices top the list of bright spots in the Midwest, followed by a strong beef market and moderating inflation. Diversification, incorporating monitoring technology, optimizing efficiencies and building up silage and other forage inventories are examples of opportunities for dairies in 2024.
Finding the bright spots may be a matter of where producers are looking.
“While we have been taking the hits in Minnesota recently, I think the optimism is the light at the end of the tunnel. We’re just looking for the right tunnel with the most light,” Sjostrom says.
One of those illuminated tunnels may be technology. Dairy producers across the Midwest agree that technology and automation provide the greatest growth opportunities for dairies striving to maximize efficiencies.
“The greatest return on investment opportunities hands down will be in technology and new practice adoption,” Windemuller says. “The heifer numbers are not there to make large-scale expansion easy. Likewise, building and interest costs are weighing down the ability or desire for milking more cows, especially with the long-term outlook of slim milk margins.”
Schultz adds that she believes the dairy industry will see more small to medium-size farms switch to automated milking systems, and more technology will be incorporated on farms of all sizes to increase labor efficiency and productivity.
In addition to automation, Shenkenberg adds that artificial intelligence provides ample opportunities for dairy operations.
“We have already adopted a program to help us manage our milking parlor performance and have seen promising results without having to hire a human parlor manager,” he says.
Shenkenberg is also encouraged by the “new crop” of agricultural and dairy leaders that is starting to emerge.
“We have the good fortune of running into young and talented individuals about to start their careers in the dairy industry,” he says. “I have no doubt that dairy will have a bright future with the contributions made by these young men and women.”
When thinking about the next generation of dairy producers and industry professionals, Weiland says, “We all need to do what we can to drum up interest in dairy careers.”
Sjostrom highlights the importance of collaboration, doing less yourself and finding good partners.
“Many times, the most successful farms are the ones that can utilize expertise from a variety of professional partners,” he says. “Surround yourself with good, smart people and the rest should follow.”
Senn and his colleagues are seeing more farmers engage in collaborative groups, like farmer-led watershed groups, across their membership.
“We’re also seeing farmers engage more with environmental groups that they have typically been at odds with, such as Wisconsin’s Clean Water Initiative with the Dairy Business Association, Clean Wisconsin, the Nature Conservancy of Wisconsin, and the Wisconsin Land and Water Conservation Association,” Senn adds.
In the spirit of collaboration and working with others, Schultz finds inspiration in the nature of the people involved in the dairy community.
“I am always inspired by the great people within the dairy community, working hard and doing the best we can with what we have,” she says.
