Dairy’s ‘Identity Crisis’ Focus of Dairy Talk

Chris Torres
Staff Writer

HARRISBURG, Pa. — The dairy industry is in the midst of an identity crisis. But what direction does the industry want to go in?

It was a question Phil Plourd tried to answer at last week’s Dairy Profitability Forum at the Farm Show Complex.

Plourd, president of Blimling & Associates, a Wisconsin firm that provides insight on dairy markets, said the industry is at a “critical juncture” when it comes to figuring out what it wants to look like in the future.

The struggles of dairy farmers over the last year have forced a discussion on how the dairy industry is regulated and the impacts the market system is having on the way milk is priced and how dairy farmers get paid for their product.

Some want the government to step in and play a bigger role in how the milk price is formulated while others want to let the current situation play itself out and allow the market to flesh out a price.

“Really, where do we want this industry to be?” Plourd asked.

Does it want to mirror the system in Canada, which relies on strict quotas but does not have the price volatility? Does it want to be like Europe, where quotas are being phased out and direct payments are higher, but the land base is limited and subject to strict environmental regulations? Or does the industry want to be like New Zealand, where it is largely unregulated and pasture-based, but because of the country’s size, provides limited growth opportunity?

While Plourd didn’t provide an exact answer to the question, he said the current system has put U.S. producers in the best position to feed the growing worldwide demand for dairy products, which he feels will only grow in the future.

“I think we have to be careful making long term decisions based on short term pain,” he said.

But that doesn’t mean that changes should not be made.

He criticized the federal Milk Income Loss Contract (MILC) program and said the current milk pricing system is broken and too complicated.

“The federal order system is too antiquated and too complicated,” he said, adding that it doesn’t provide easy allocation of profits and leads to slow price transmission. “Let’s try to make it a little bit simpler. Federal dairy policy has been a mess for years.”

Exports, or the loss of them, have had the most dramatic impact on prices, according to Plourd, unlike imports of milk protein concentrates and casein, which he believes have had less of an impact.

“I don’t see these imports as being the killer,” he said, adding that there is no real trend indicating that imports have distorted the market.

The global demand for dairy proteins will continue to grow as the economy starts to pick up. That will open up an opportunity for producers to cash in.

“The world is going to need more dairy protein and the U.S. is well positioned because of good infrastructure, knowledge, and we don’t have to do it cheaper,” he said.

Retail sales of dairy products have been going well, but the food service sector is soft largely because of slow restaurant sales.

Plourd said he expects prices to pick back up as the economy starts to recover.

“Where we are today is worse financially than where we have been before. At the same time, it always takes time to fix it,” he said.

Managing Cash Flow
Rob Goodling, a Penn State extension educator in Lebanon County, said managing the cash is as important to a dairy operation’s future as the price farmers get for their milk.

It requires a lot of attention to numbers and knowing cost of production compared to projected cash flow.

Profits, according to Goodling, don’t equal cash flow. Cash flow is about positioning farms to manage their money when things are going well to soften the blow when prices take a dive.

“You can’t manage what you can’t measure. There are tools available,” he said.

Managing the cash flow is key because it gives a farmer options when things go bad. “But you have to manage accordingly. You need to plan ahead,” he said.

One tool Goodling focused on is the Penn State COPS program, which is a spreadsheet designed to help farmers keep track of income and expenses and the impact it will have on the farm’s bottom line.

Farmers with Internet access can download the program for free at www.dairyalliance.org.