Financial Advice for Dairy Farmers Going into 2023
Balance sheets and dairy farmers breathed a sigh of relief when milk prices hit $22.50/cwt. in 2022, an $1.50/cwt. increase from the all-milk price record set in 2014. While higher milk prices were welcomed, farmers also faced significantly higher input costs.
“Unfortunately, the cost of producing milk were at record levels and took a lot of that high price away from dairy farmers in terms of margins,” Peter Vitaliano, chief economist for National Milk Producers Federation (NMPF) says.
With the flip of the New Year, the tides have changed, bringing lower milk prices while input costs still remain elevated. Independent dairy consultant Gary Sipiorski is not surprised that dairy producers have responded by producing even more milk with the stronger milk prices that have been around since late 2020.
“Once again, the milk cycle curve of volatility is showing its downward move,” he says. “How long will the cycle be that way is unknown. There are a lot of factors with domestic cow numbers and consumption, along with global cow numbers and exports.”
The USDA November Milk Production report illustrated a 1.3% increase in November’s milk production over the previous year. Following suit, cow numbers also showed growth with an increase of 38,000 additional head over the previous year.
U.S. milk production will likely be up in the first half of the year just on cow numbers alone, according to Stephen Cain, NMPF’s director of economic research and analysis.
Financial Advice Moving Forward
Sipiorski says that those dairy producers that were able to prepay 2023 expenses and/or were able to defer some of their 2022 income, along with marketing some of 2023 milk, may find 2023 a little easier to operate. At least for the short term.
“All dairy producers will have to deal with inflationary prices that may not go away,” he says. “A possible recession in 2023 may back off some consumer buying habits.”
According to Sipiorski, there is a real need now for producers to sit down and crunch realistic projections for 2023 with milk prices and operating expenses.
“Lender conversations may be in order to secure lines of credit if cash shortages show up,” he says.
Sipiorski shares four things producers should consider to help maximize a margin in 2023.
Four Things to Consider:
Put extra attention to expenses. Pay attention to each expense item. Sipiorski suggests paying extra attention to the larger expenses and discussing them with family, managers, and employees to all consider if any savings can be found.
Analyze custom work. Custom tillage, manure handling and harvesting should be visited with a pencil to see if owning, renting or custom work makes sense.
Maximize components and milk quality. Maximizing milk components and quality should be worked on, especially with limited bases for shipping milk pounds.
Marketing Discussions. Milk marketing using government-supported programs and discussions with brokers should be researched to find a margin. Remember owners always make the final decisions.
January 17, 2023