Last man standing

“Last man standing.” This was a statement I heard from a good dairyman last week. One might also say “survival of the fittest.” Both statements, of course, are referring to what will certainly be at least two years of unprofitable dairy farming.

Granted there are some producers who have held their own or have made some money during the last 19 months, but not many. These operations tend to be dairies with low debt loads, where less than 5 percent of the gross income (interest on debt) goes to service debt. These dairies also tend to be mid-sized dairies where the majority of the work is performed by the family thus saving a great deal on hired labor. Family members have even had to take wage concessions to prevent the accumulation of open accounts and therefore the need to borrow operating money. Larger dairies are making adjustments by expecting more from fewer employees and stretching out debt repayment.

The whole industry seems to be in sort of a paralyzed state about what’s going to happen or what to do. Should one sell the dairy cows in this undervalued market or continue to operate the dairy in this lowmargin environment? For many producers, every day they operate erodes the remaining equity.

The bankers and suppliers are more than just a little concerned, to say the least. They are in hopes the milk price will recover enough to bail us out of this dilemma. As a result of the lessons learned during the Great Depression, we have the impression we know how to manage the economy to the point we won’t repeat that painful page in our nation’s history. We have agriculture programs in place to assure the American food supply along with FSA financing to help financially stressed producers. Time will tell how well these government safety nets and the recent stimulus spending programs will work in propping up the entire economy.

So what's going to happen to our dairy farms as this all unfolds? I believe we're going to see a number of our smaller operations call it quits. Many of these owner\operators are over 50 years of age, have little to no debt but are feeling it’s not worth it to continue turning feed into milk in this low-margin environment. These producers are not ready to quit farming entirely but may sell their cows and turn crops into cash.

We're also going to lose some high cost-highly leveraged producers. And yes, we may even lose some large operations that have accumulated too much debt to continue. These financially stressed operations will most likely reorganize, expand and get back on their feet. As the milk supply gets back in balance with the demand, our milk price will recover until supply once again exceeds the demand.

So what is the answer to this low-return roller coaster? Is the answer production controls? Should the government increase direct payments to farmers and provide more low-interest loans to producers? Or maybe the answer, in the long run, is for the government to get out of the mix and let supply and demand manage the system? What about processors and retailers taking excessive profits at the expense of producers?

I may not have the answer, but it is clear we’ve got to press policy makers to come up with a long-term game plan. With a plan in place, producers will be able to adjust to the environment and figure out how to make money.

So “Last Man Standing.” Do the best you can until things turn around. If timing and circumstances have worked against you, learn from the experience and move on. Don’t let financial pressures destroy the most important thing in your life – your family!

Enrolling your operation in the 2010-11 Farm Business and Production Management program is a great tool available to producers in the Fond du Lac, Sheboygan, Ozaukee, Washington County areas to help producers sort out their options and find new opportunities for increased profit. The program focus area for 2010-11 will be dairy nutrition and related topics.

Discussion group locations include Plymouth, Boltonville, Fond du Lac (Moraine Park Campus), and Waupun at the Pizza Ranch. Contact Greg Booher at 920-960-0551 for specific information.