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Good harvest enough of a savior for Midwest dairies?
Indiana Correspondent

HANNA, Ind. — With corn silage remaining from last year, LuAnn Troxel, a dairy farmer from Hanna, said she and her 140 cows are hanging in there.

“I can’t complain too much. We’re doing okay. We are not making a lot of money, but we’re still paying our bills,” she said.

Like many other dairy farmers, she said she has another source of income – her husband’s veterinary business – and she grows some of her own feed. But Troxel, president of Indiana Dairy Producers (IDP), noted it is impossible to generalize about the status of all Indiana dairy farms because they are run differently, with various feed systems and input costs.

“You can’t paint all dairy farmers with a broad brush,” she said. “It varies according to whether they grow some of their own feed, have a pile of silage left over or have to buy all of their feed.”

With last year’s drought hurting all livestock farmers, however, Troxel said it is safe to say dairy farmers are “not thriving.” Hay prices are at a record high, distillers dried grains, or DDGs, have more than doubled and are hard to find consistently and corn and soy meal is expensive.

“We are looking at a lot of challenges for inputs, and feed is our No. 1 cost, up to 50 percent (of our inputs),” Troxel said. “It will be really important to have a good crop year (this year). If we have another year with huge challenges, it will jeopardize our positive attitude, and we need mental strength.”

Added to mental strength, dairy farmers need capital to run their farms and stay in business. In 2012, 75 Hoosier Grade A dairy farms closed down production. Currently, there are an estimated 1,224 Grade A dairy farms in Indiana, according to the Indiana Board of Animal Health.

According to February’s USDA milk production report, Indiana is down 1,000 head, but that is not surprising, because of the 2012 drought and a record high of cull cows going to slaughter, stated Mike Schutz, professor of animal sciences and extension dairy specialist with Purdue University.

“Milk production is down 7/10 of a percent. Adjusting for leap year last year, milk production is actually up per day,” he added.
Next: Profits or disaster?

With a good harvest this year, slightly higher milk prices and lower soybean meal prices, Troxel said dairy farms should become profitable again. Schutz agreed profits could be around the corner – with a good harvest.

“The best indication is futures prices for milk. For now the futures look strong for the rest of the year, but they could change quickly. Right now feed prices are high and margins are tight. If we see reduced prices on corn and soy meal by late summer, when the new crop reports come in, there is an opportunity for profitable margins this fall,” Schutz said.

The current situation naturally prompts comparisons to 2009, when milk prices plummeted and some dairy farmers lost everything.
“Milk prices are moderately high, and feed is incredibly high.
 Margins are tight and almost as tight as 2009,” Schutz said.
Troxel believes the Indiana dairy industry is stronger now than in that terrible year. “Dairy farmers have options. I personally do not think the drought compares with 2009. That was much worse, and most farmers in Indiana would agree, I think,” she said.
What kind of year 2013 will be remains to be seen. A late spring and another dry summer could spell disaster for many dairy producers, Schutz said.

“If there is a drought this summer, the dairy industry will be hit hard. They will be looking at alternatives (for feed). There will be pressure to manage feed inventories until the fall harvest,” he explained.

“If there is a late spring, the first-cut hay will be delayed, compared to last year. We also will be losing the gap for spring planting of forage crops typically removed before double-crop corn and soybeans. But it’s too soon to say whether it will be a late spring.”
Tight credit and tight margins

With stricter regulation, some dairies are forced to invest in unforeseen capital improvements, or a few struggling dairies may need loans for operating expenses. Depending on their equity, they may find creditors reluctant.

“I personally have not heard reports (of denied credit), but I am not surprised. With the really tight margins, it stands to reason that lenders don’t see repayment capacity,” Schutz said.
“Lenders are looking at equity. The Midwestern dairy farms with more of their own ground to grow forage for feed have more equity, compared to Western-style farms with large expansion on small (amounts of) land.”

Troxel said IDP recently hosted regional meetings that addressed ways to work with lenders. These sessions focused on learning to package financial data in a way banks understand.

She said the most important aspect is to keep records of expenses and production. Second, developing a relationship with a banker is important, if not essential.

Troxel said producers facing tough choices have a support system in place to help them maneuver. She recommended Purdue extension, IDP and a professional team of nutritionists and veterinarians.

“They can work together to help producers adjust their (perspective) and find ways to be more profitable,” she said.

Schutz’s advice: Work with financial advisors and watch feed inventories. If supplies are low, consider culling now while cull cow prices are high.

“We don’t know what the summer will be like. I don’t want to paint a rosy picture and see farmers go farther into debt, (potentially) losing what it has taken generations over time to build. Be aware of and maintain financial control over the business,” he said.
Last summer Purdue extension put together a fact sheet that will help producers make tough decisions about shutting down the dairy business. The link to that fact sheet is online at AS/AS-618-W.pdf
“While this situation is not as dire, I hate to see a repeat of 2009, when a whole generation’s worth of equity was lost. It will help producers make decisions about when financial conditions are right to shut down the dairy business. I really don’t want them to lose all of their equity before that decision is made,” Schutz said.
For more information and help, consult or call Doug Leman, IDP executive director, at 317-695-8228. IDP will host a bus tour to Wisconsin dairy farms June 5-6. For more information, check the website.