“Those are always unfortunate stories but an opportunity for those who have a longer view of growth in front of them,” he says. “Especially if they’re looking to stay in farming for the next couple of decades and pass a farm on to the next generation.”
Mike North, principal with Ever.Ag says that decades of statistics support that dairies will leave the space and will continue to get larger in the coming year.
“How they do so will be the question,” North says. “In a world where ‘base/excess’ programs are now commonplace, I do believe that some expanding dairies will buy base in an effort to grow in certain geographies.”
North adds that some of the ongoing processor expansions taking place in Kansas, South Dakota and Texas attract only the largest of dairies.
“This will further drive the expansion statistics,” he says. “So, yes, numerically, and because of the underlying trend, more dairies will leave the space than those who choose to expand.”
For those producers who are struggling with finding or sustaining a margin, Ehmke says he would strongly encourage them to sign up for the Dairy Margin Coverage (DMC) program if they haven’t done so already.
“That’s already paid out in August and September because of the high feed costs,” he says. “DMC is a program I would absolutely encourage everyone to look at going forward.”
With margins getting tighter and tighter, risk management is a fundamental key in helping producers manage for a margin.
“It’s going to take a nimbler marketer and nimbler manager to manage your costs and revenue,” Ehmke says. “These are where the star dairy farmers are born in these kinds of market environments.”
As 2022 comes to a close, Ehmke says that if producers have had a profitable year, as many did, there is an opportunity to pull some of their costs out of 2023 and into 2022 by prepaying more inputs.
“Prepaying on more inputs, whether that is feed, fuel, fertilizer, or whatever else that you can prepay, pulls down your taxable income for 2022 while at the same time securing your feed and other inputs for 2023,” he says. “You’re at least buying yourself some sleep and knowing that you’ve got those inputs already secured.”
Farmers can also work with their coops to defer income into 2022, Ehmke adds.
Independent dairy financial consultant Gary Sipiorski concurs with Ehmke and also suggests prepaying some of 2023 expenses based on your accountant’s recommendations.
“I’d also suggest considering milk marketing when prices reflect a margin,” he says. “Once again this is totally up to the owner to make these kinds of decisions.”
Sipiorski also advises that every producer sit down and perform a 2023 projection.
“Use 2022 as an expense guide and consider where the future milk markets are with advice from knowledgeable universities or brokers to use as a milk price,” he says.
