Wisconsin Agriculture – Part II of Dairy – Industry Difficulties

WISCONSN AGRICULTURE – PART II OF DAIRY

Wisconsin Dairy – Some Issues Currently Facing the Industry

Farm Bankruptcies

Chapter 12 bankruptcies are for “family famers” with “regular annual income” according to the United States Courts. Chapter 12 allows family farmers in distress to “propose and carry out a plan to repay all or part of their debts.”

Wisconsin Chapter 12 bankruptcies have been up and down over the past 17 years but have hit all-time records in the past 3 years (2018 is through July 31, 2018).

When compared to the other states in the Midwest (Illinois, Indiana, Minnesota, Michigan, Kansas, Iowa, Missouri, South and North Dakota, Nebraska and Ohio), Wisconsin has consistently been higher since 2009.

When compared to the other top dairy producing states (California, New York, Idaho and Pennsylvania) Wisconsin was on average with the other states for approximately 12 years but has surpassed all the other states since 2016. California had an increase between 2009 and 2013, after the last recession.

 According to the USDA, US net farm incomes are forecasted to decline in 2018, and most farmers receive off-farm income, but small-scale farmers depend on it.

Additional reading on farming incomes and challenges:

  • WPR: Wisconsin Farm Incomes Expected to Decline Again in 2018.

 Herd Size, Milk Production and Consolidation

As was reported in last week’s Part I, Wisconsin has seen a decrease in the number of cows in Wisconsin, but cows are producing more milk allowing the state to consistently increase its milk production annually. According to the USDA, the United States has seen an increase in farm size and a decrease in the number of farms.

As with the national trend, Wisconsin has seen a decrease in the number of farms, approximately 8,500 farms have been lost over the past 17 years.

Last week’s report also highlighted that 90% of Wisconsin’s milk production goes towards making cheese.  Nationally, milk consumption has been going down and cheese consumption has been going up.

Grassland, Class 7 Milk, and Canada

Canada uses supply management for dairy, eggs, and poultry, meaning the prices and imports are regulated.  Farmers in Canada purchase quota allotments which tell them how much they are allowed to produce and sell. Each province has a marketing board, and there is a federal organization – the Canadian Dairy Commission – which determines the price producers are paid for their products dependent on the end use (similar to what was discussed in last week’s dairy pricing story).

When raw milk is processed for butterfat it is separated into two components: butterfat and non-fat solids. America started producing ultra-filtered milk. Ultra-filtered milk processes the non-fat solids one more time.  Ultra-filtered milk is used to make cheese because of the high fat content (usually greater than 40 percent, and therefore produces less waste (skim milk). Cheese made from regular milk produces skim milk as a byproduct, and because skim milk is in oversupply, it is often dumped or used as animal feed. American producers (mainly Wisconsin and New York) had been producing and supplying ultra-filtered milk to Canada for their cheese production. The ultra-filtered milk was transported as a liquid to Canada, where the Canadian Border Services Agency considered it to be a protein ingredient and therefore didn’t subject it to Canada’s dairy tariffs. In addition, the ultra-filtered milk was invented after NAFTA, which meant Canada could not subject the American ultra-filtered milk imports to a tariff rate quota.

The demand for butter has been increasing since butter sales are on a comeback, meaning the demand for butterfat has gone up, also meaning there is a surplus of non-fat solids. Canada created a new milk class called Class 7 to address the surplus of non-fat solids to price milk ingredients. The changes in Class 7 milk pricing in Canada has led to Canadian cheese producers to begin purchasing ultra-filtered milk (Class 7 milk) from Canadian dairy farmers and processors instead of American processors.  In 2017, when Canadian producers told American processors (like Grasslands Dairy Products located in Greenwood, WI) they would no longer be purchasing their ultra-filtered milk, Grassland had to tell 75 Wisconsin dairy farmers they could no longer take their milk. That meant 75 farmers had to find a new processor for their milk. According to the Department of Agriculture, Trade and Consumer Protection many of the farmers were able to find new buyers, but many were forced to sell their farms, downsize their herd, go out of business, or declare bankruptcy. Several countries, including the United States, Australia, New Zealand and the EU, have said the new pricing class gives Canadian farmers an advantage over other farmers and have challenged the pricing regulations with the World Trade Organization. President Trump has placed additional tariffs on Canadian lumber in retaliation of the pricing changes.

Additional reading on Canadian Class 7 Milk:

 Transportation

Transportation is a big issue for dairy farmers, and they fall under two categories – weight limits and road integrity.

Milk producers have to get their product to producers in a relatively short turn-around time. Most farmers have bulk tanks that only have the ability to hold a day’s worth of milk, if that, while others directly fill semi tankers that need to be shipped on a daily basis. Weight limits on roads can make this a challenge.  Dairy farms are not located on interstates and freeways where the structural integrity of the road isn’t as impacted by heavy farm equipment and milk hauling trucks.  Weight limits on roads, and especially on bridges and overpasses, impacts the ability of milk haulers to pick up milk.  Some milk haulers are only doing half a load to stay within the weight limits, but then have to return twice as often. Farmers also have limited windows during the year when they are able to spread manure on their fields.  Weight limits can cause some farmers to have to change their routes to their fields and spend significant more time to get to their fields. In addition to manure spreading, farmers are having difficulty with road infrastructure and weight limits when attempting to work on their fields for crops.

Road integrity is a significant issue for farmers in Wisconsin.  Roads used for hauling milk and farm equipment are deteriorating at a rapid pace.  In the latest #LocalGovMatters podcast, Craig Thompson told The Wheeler Report that locals are having to move their replacement schedules for roads beyond the 20 to 30 years the road was designed to last.  Road replacement and maintenance depends on funding, which is, and has been, a political issue for the past few budget cycles.

Additional reading on Transportation:

Workforce and Robotics

As the workforce gets tighter and the unemployment levels stay low, finding and keeping a strong workforce for dairy farmers has increased.  Dairy farms are 24 hour – 7 days a week – 365 days a year operation, and most milk three times a day. Robotics are a difficult proposition for dairy farmers.  While some farmers have implemented robotics in an effort to be more efficient and address the labor shortage issues, other farmers are either having issues with their robotic systems, or the cost to implement is preventing some farmers from adding them.

Introducing a robotic milking system means training the cows to be milked in a new way and/or a new milking station.  For some farmers, they have decided the stress on the cows, which leads to decreased milk production, isn’t worth the investment. The farmers are also given a significant amount of data about their cows when using a robotics system that some farmers may find overwhelming, while other farmers collect and use.

In addition to shortages of workers for milking and feeding the cows, a shortage of truck drivers – especially milk haulers – is making it difficult for farmers to get their product to market.

Additional reading on robotics and dairy farm worker shortages:

 State Policy on Milk Production

According to a report from the USDA, “From 2004 to 2014, the value of U.S. dairy product exports more than quadrupled, and the United States became the world’s third-largest dairy product exporter, behind New Zealand and the European Union (EU). This export status was a significant change for an industry previously focused primarily on domestic rather than international demand. Demand for dairy products increased with soaring income growth in developing countries. Moreover, policies of the United States and its trading partners became more market-oriented, allowing trade that responds more to market forces. As the United States became more of a global dairy-market player, the U.S. dairy market faced greater variability in demand and prices. In 2015, as global conditions changed, the value of U.S. dairy exports fell by almost 30 percent.”

Governor Walker’s tenure has seen the largest increase in milk production. In March 2012, Governor Walker announced his Grow Wisconsin Dairy 30×20 plan to help the Wisconsin dairy industry achieve an annual production of 30 billion pounds of milk by the year 2020. At that time, Wisconsin dairy farmers could not keep up with the state processor’s needs for milk to make cheese. The program was put in place to replace the Dairy 2020 program. The Dairy 30×20 program hit its target four years early (WI milk production was 29 billion pounds in 2015 and 30 billion in 2016).  In January 2018, Governor Walker announced the re-purposing of the Dairy 30×20 program to the Governor’s Family Farm Fund to, “increase support for protecting and conserving soil and water quality and includes investments to help dairy farmers increase profitability in local, regional, and international markets.”  The program, run by WEDC, provides grants in counties with a population density less than 155 persons per square mile (which includes 56 out of 72 counties)

Nationally there is an oversupply of milk, and cheese. Some in the dairy industry are calling for production limits or adjustments, but as to date no state or federal action has been taken. Some dairy processors and cooperatives have implemented internal programs to keep milk supply in check.

Additional reading on Overproduction and State Policy

 

Thank you to DATCP and The Dairy Business Association of Wisconsin for assisting with data and information for this report.