Milk and cheese sound like average items on the grocery list, however the state of the dairy industry is experiencing several challenges. Processing capacity, once hailed as balanced in the Midwest, has faced several plant closures over the past years, and recently, plants have closed due to equipment breakdowns. This means processing plants within a hundred miles of the Driftless are simply full and can’t accept the steady flow of fresh milk from farmers at this time, affecting not just farmers but also milk haulers.
From local farmers
Representatives of a rural Fort Atkinson dairy have reported they had to dump 6,000 pounds of milk into their manure pit for the first time ever as haulers have not been able to pick up milk because no local plant can accept the load. Other local farmers, who usually haul to a plant in Prairie Du Chien, have had to dump their milk as well, close to the tune of 14,000 gallons. One farmer added, “We’ve had to dump milk five out of the past 10 days. It’s just a shame.”
The co-ops are offering a subsidy to farmers that have to dump their milk, but it is nowhere near the revenue for milk if hauled and purchased. Dairy farms operate 24/7, so each day’s milk lost hurts.
Dairy operation statistics
With many modern livestock operations, cows produce much more milk than they did in the past – an average of 10 pounds of milk more per cow each month. From 2021-22, Iowa produced 4 million pounds more than 2020, a one percent change. In January 2023, Iowa milk production was up seven percent from the previous January.
Across the U.S., dairy margins have encouraged much larger operations – “megadairies” with herds from 1,000-20,000 cows – providing most of the milk in the U.S. and are the most able to weather low prices. There are only 2,000 dairy farms with more than 1,000 cows – but half of all milk sales in 2017 were from these large operations, with one-third of sales from dairies with over 2,500 cows.
In 1997, there were 125,000 U.S. dairy farms milking 9 million cows, and in 2017, there were only 54,000 farms milking 9.4 million cows. In 2020, more than 2,500 U.S. dairies (seven percent of all U.S. dairy farms) shut their doors.
According to Hoard’s Dairyman article from Feb. 27 this year, 6.4 percent of all U.S. dairy farms holding permits to sell milk left the dairy business in 2022. They list the exit as the sixth highest of all-time since data tracking began on this statistic in 1992.
From milk haulers
There is a large backlog of milk to be hauled, causing farmers with limited space for storage to take extreme measures, like dumping milk. Caledonia Haulers CEO Dennis Gavin stated the problem goes even farther up the chain. The co-ops and processing facilities are having a tough time processing all the milk they’re getting, leading to anywhere from a 5-10 hour wait for milk hauler drivers to offload. Gavin expressed that this is a common and recurring problem. Almost daily he must pay drivers overtime for sitting at the facility waiting to unload.
Co-ops understand that if the hauling companies continue to shoulder the entire financial burden of this that they will eventually close. Gavin said that co-ops had started to provide financial subsidies to them, so the loss isn’t too much.
Labor shortages have also impacted the industry. Gavin relayed how difficult finding candidates to drive milk trucks was, as they must be CDL-certified drivers combined with the increased schedule demands of a job like milk-hauling. As a 24/7, 365 business, they haul milk every day of the year. Milk haulers make trips anywhere from 70-250 miles, hauling around 6,200 gallons of milk per load.
With closures of several processing facilities in the area since 2018, any that are still open are looking at a large influx of milk to be processed, leading to longer wait times and now the eventual dumping of the milk. Another interesting aspect is that some milk bottling plants are seasonal operations. They will open during the school year when the demand for products like milk cartons is high. This eases part of the load that the haulers and processing facilities are handling.
When these facilities close for the season, it can flood the remaining facilities with more loads of milk. Efficient operation of processing facilities becomes difficult without large investments.
It is also important to note that the processors set the price of milk, not the farmers. The price the processor pays is based on the regional base prices for milk set by the U.S. Department of Agriculture (USDA). This price has nothing to do with the average farmer’s expenses, but instead is based on prices for butter, cheese, dry whey and powdered milk traded at the Chicago Mercantile Exchange. Manufacturers of dairy products (which are usually also the processors) tell the USDA each week how much they were paid for their butter and cheese. The USDA plugs these numbers into a complex formula that determines the price that processors must pay dairy farmers.
As the dairy industry faces challenges, it’s important to remember that these businesses are mostly local, run by local companies and local people.
According to the USDA forecast, with more milk production projected in 2024, milk prices and wholesale price forecasts for all major dairy products are forecast to be lower than 2023. What this means for the dairy industry isn’t set in stone, but the economic impact of this industry on local economies means we’re all in this together.