As 2015 comes to a close, it's worth taking a look back before you and your dairy farm operation step into 2016.
Here's the top five things that impacted the dairy markets this year and what you and your farm operation need to know for the year ahead.
1. Risk Management Matters
Farmers across the country felt the pinch of tight margins this year after diving off the highest milk prices in history. The lesson learned? Having a risk management plan is essential to surviving economic downturns. Know your operation’s risk tolerance and have a strategy in place. “No single approach works for every farm every year,” says Greg Bethard, chief financial officer for Pagel’s Ponderosa Dairy and Dairy Dreams, which is located near Kewaunee, Wis. “Milk markets are fluid (pun intended) and volatile. The reality is that black swan events like 2009 and 2014 do (occur), can (occur) and will occur again.”
2. Sometimes More is Less
When prices are good, farmers tend to capitalize and milk more cows. This year made it clear that when prices are down, farmers try to make up for it in volume and milk more cows. That isn’t helping your milk check says Marin Bozic.
3. Partnerships Produce Results
With export sales softening, domestic demand for dairy products has carried the milk price throughout 2015, says Tom Gallagher, president and CEO of Dairy Management Inc. He says the partnerships DMI has established with restaurant chains such as McDonalds, Taco Bell and Dominos are pushing domestic use of products and increasing milk sales. Bottom line, the 15 cents/CWT you pay for promotion is increasing fast food sales.
4. Exports Are Important
The high prices of 2014 were driven by export markets. “The 2015 global market crash has depressed U.S. exports and pushed down producer returns,” says Tim Hunt, an economist at Rabobank. “If U.S. butterfat premiums erode in coming months, farmgate prices will fall further.” However, Hunt says the price could turn around if exports pick up.
5. D.C. Can’t Help Much
It’s safe to say farmers have met their fair share of policy struggles in 2015. Country-of-origin labeling (COOL) was finally repealed in the December omnibus budget bill. Farmers who enrolled in MPP for 2015 were disappointed when payouts didn’t happen as they had hoped. The EPA rolled out the controversial Clean Water Rule, which remains in legal limbo despite attempts to kill it in Congress. As for the landmark trade agreement known as the Trans Pacific Partnership, the jury is still out as to what it will mean for dairy.
Which of these five factors affected your dairy farm the most in 2015? Which do you think will continue to impact you in 2016? Let us know in the comments.