By Christy Couch Lee

Illinois began 2018 with just over 600 Grade A dairy farms. Today, that number is 585.

“From some experts, we may lose more before the end of the year,” says Tasha Bunting, Illinois Milk Producers’ Association, who works for livestock and dairy producers through the Illinois Farm Bureau. “But for those who are able to ride out the storm, eventually it will get better.”

The state of the dairy industry has been in decline for more than three years, with an oversurplus of supply and, in recent months, the loss of export markets due to recent tariff negotiations.

Some would call it a perfect storm.

According to the American Farm Bureau Federation, the annual average U.S. all-milk price has fallen by more than 30%. And this year, it is expected to be at $16.10 per cwt — the lowest level since 2009.

USDA projects 2019 milk prices to improve slightly to $16.75 per cwt, but trade tensions in July led those projections to decrease by 45 cents per cwt.

Just how bad is it?
Ron and Julie Lawfer, Kent, Ill., come from multigenerational dairy farms in northwestern Illinois. For 37 years, they’ve been married and have run the family dairy farm together. Today, two of their four children — Ben and John — also have returned to the operation. With a crew of four, they farm 700 acres and milk 180 cows.

Illinois dairies — and those nationwide — are suffering from a variety of factors, Ron Lawfer says.

“We are doing too good of a job,” he says. “We are overproducing. And when prices have gone down due to overproduction, we are milking more cows in order to cash flow — and we should be going the other way around.”

Add to that lowered exports, lower domestic consumption and new tariffs implemented by the current administration, Bunting says, and the industry is in the midst of a milk surplus nationwide and on the home front.

DOWNTURN: Illinois has already lost 15 dairy farms in 2018, according to the Illinois Milk Producers’ Association.

Dennis Tonak is the manager of Mid-West Dairymen’s Co., a co-op that includes 109 dairy farms in northern Illinois and southern Wisconsin. He cites another contributing factor to lower dairy prices for producers. Cheese plants must discount prices to be profitable, or even break even.

“Federal order price formulas are based on average selling prices for bulk cheddar cheese, bulk butter, dried milk and whey powder,” he explains. “It includes a ‘make cost’ factor that has not been updated for years, and with current energy costs and processor operating costs, that cost factor is well below the actual cost of producing the product. If the cost factors were updated, that would result in producers receiving even lower prices. So, no one has wanted to update them.”

As a result, manufacturing plants are not able to pay much of a premium — if at all — for the milk they buy, Tonak says.

“In some cases, if a producer is not willing to take a discounted price, the plant doesn’t buy the milk. They aren’t going to buy milk and operate at a loss,” he says. “You can have all the plant capacity in the world, but if you don’t have a customer for the product you produce, what are you going to do with that product?”

Illinois is a fluid state
Tonak says very little Illinois milk is used in cheese and dairy-product production.

“The majority of plant capacity in Illinois has been dedicated to fluid milk, and over the years, fluid milk consumption has declined. That’s had an impact on the structure of our dairy industry in Illinois,” he says.

Fluid milk is not storable, Tonak explains. And when more milk is being produced than can be processed in an area, the milk searches for a home wherever it can be found. That has led to some milk from other states, including Michigan, finding a home in Illinois and southern Wisconsin. 

“Some milk moves fairly great distances to find a home, and sometimes that home is in Wisconsin, northern Illinois or Iowa,” he says. “The plants buy the milk they’ve already contracted to buy, but they may also take the opportunity to buy lower-cost milk when available.”

For a few years in the spring and early summer, milk has been dumped in New York and surrounding states, Tonak says. Michigan producers have ended up with milk that has no home and needed to be dumped this year.

“Some of the distant milk coming into local plants is coming in under long-term contracts,” he says. “Some of the local milk is also under long-term contracts. But when you have a situation where a local supply gets replaced by distant milk, that local milk has to go somewhere, and it becomes part of the low, no-premium or discounted-premium supply chain.”

Serving on the Mid-West Dairymen’s Co. board of directors, Lawfer is seeing the direct effects of this situation.

“We are losing five farms from our co-op, right now,” he says. “At the sale barn yesterday, I was asked if I wanted to buy a herd of registered cows — it was one of those herds. And that’s what makes you feel the worst — seeing the smaller farms disappear. They’re not the ones adding to the surplus, but they’re the ones who are going out of business. This is all they’ve done. It’s their family’s livelihood.”

PARTNERSHIP: Julie and Ron Lawfer, Kent, Ill., come from multigenerational dairy farms in northwestern Illinois. Today, they farm 700 acres and milk 180 cows with two sons, Ben and John Lawfer.

Help is available
Help during this downtime of the dairy industry is available.

Dairy producers can take advantage of the updated USDA Margin Protection Program passed with the new farm bill, Bunting says.

“This can assist farmers during financial uncertainty,” she says.

And in early August, the American Farm Bureau Federation announced the development of a new federal crop insurance product called Dairy Revenue Protection. This insurance closes the gap between the revenue guarantee and the actual milk revenue if prices or revenues decline. It is expected to be available on Oct. 9.

Check back tomorrow for more on how the Lawfers have managed in the dairy downturn.

Lee writes from Wellington, Ill.