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Dairy farmer Paul Pyle said low prices for milk have many in the industry considering selling off their herds and quitting. Dairy farmer Paul Pyle said low prices for milk have many in the industry considering selling off their herds and quitting. PHOTO: MITCH GALLOWAY

Prolonged pricing pressures dim outlook for many in Michigan’s dairy industry

BY Saturday, June 09, 2018 12:50am

Paul Pyle is no stranger to the turmoil facing Michigan dairy farmers.

So far in 2018, his Zeeland-based Pyle Dairy Farm Inc. is experiencing its worst year on record. With little funds available to replace dilapidated equipment, Pyle’s often left “duct-taping stuff together” to keep his farm operations afloat.

“It will take a lot of consumers in our state, our country to make up for exports that have been lost,” he told MiBiz. “We have neighbors and friends that have gone out of business or have just quit because the financing part of it puts strain on all the other pieces. It takes the fun out of (farming) if there’s no money it.”

Pyle is among the many dairy farmers who are experiencing pricing pressure because of a glut of milk on the market amid weaker demand.

Their struggle is a matter of grocery aisle economics: A gallon of 2 percent milk costs less than $2 at many West Michigan grocery stores these days, down from an average of $3.52 five years ago, according to data from the Bureau of Labor Statistics.

“People talk about their breakeven costs, which is extremely variable depending on your farm, depending on your debt load, depending on your labor,” said Pyle, whose operation includes 300 cows. “Obviously, the bigger you are, the more labor you have. We’re small. We’re family labor. But there are plenty of guys who are losing money every day, and you need to keep doing it unless you are going to quit.”

According to the U.S. Department of Agriculture’s National Agricultural Statistics Service, dairy herds in Michigan produced 935 million pounds of milk during April, down 1.4 percent from a year ago but still above 2016 levels.

Even though milk prices are expected to rise this year, experts say it’s not enough to alter the trajectory for struggling dairy farmers.

“Farmers are going out of business because they can’t afford to lose any more money,” said Ernie Birchmeier, livestock and dairy specialist for the Lansing based Michigan Farm Bureau. “To me, that’s the real story: Consumers have to be aware that our farmers are going of out business.”

Farmers all across Michigan have resorted to selling their cows in a last-ditch effort to stanch their losses, Birchmeier said.

For example, the Zeeland-based Elzinga Farm sold off more than 200 cows in April at prices as high as $2,600 because they weren’t netting enough of a return in the dairy industry, according to local reports.

Other farmers nationally are following suit: The USDA reported in April that the U.S. dairy herd headcount was 423,000, down 3,000 head from a year earlier.

“If you quit, you’re going to lose money, too, because you are selling at a ‘cows are on sale’ (price),” said Pyle, adding that a cow typically sells anywhere from $1,000 to $1,500. “They aren’t worth very much right now.”

At the current milk prices, dairy farmers face unprofitable market conditions that show little sign of abating, Birchmeier said.

“From a consumer standpoint, you have to understand that when prices go up slightly on the farm, there should be very little impact from a retail standpoint,” Birchmeier said. “Dairy farmers not only in Michigan but across the country have been experiencing record-low prices compared to production costs over the last several years.”

Dairy farmers are heavily invested in their herds and can maintain for awhile, but as the market enters its “fourth or fifth year of really challenging prices,” many simply can’t hold on any longer, Birchmeier said.

“The only way that they will be changing their outlook will be from (being) very concerned to ‘I hope I can get through another year,’” he said. “Things are very, very challenging in the dairy industry.”

As a true supply and demand business, agriculture “takes what the market bears” and if consumers aren’t on board, then farmers’ professions are in jeopardy, Birchmeier said, noting that farmers need to have the ability to access global trading partners.

“When we were experiencing recordhigh milk prices a few years ago, we were exporting about 20 percent of our total dairy production,” he said. “Now, we are down to 10 (percent) to 12 percent.”

The problem facing dairy farmers is not a recent one, as evidence suggests the demand for fluid milk is down among consumers.

Most notably, data from the American Farm Bureau Federation indicate that consumer consumption of ready-to-eat cereal was down 3.3 percent last year, with annual conventional milk sales declining by more than 4 billion pounds from 2012 to 2016.

According to the Farm Bureau, this annual decline in fluid milk sales represents $884 million a year in dairy cash receipts, which “has resulted in lower U.S. average milk prices” for consumers.

To counter this, Birchmeier said consumers need to purchase more dairy products.

“Buy another gallon of milk. Eat more ice cream. Get extra cheese on your pizza,” he said. “You can only store product for so long. It’s kind of hard to shut down the factory, so to speak, and turn the cows off. The cows either have to be milked every day or we have to make a decision to cut back on cow numbers.”

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