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WCMA

Upper Midwest prospects for 2010

John Umhoefer

John Umhoefer is executive director of the Wisconsin Cheese Makers Association. He contributes this column monthly for Cheese Market News®.

Dairy product price and product storage indicators point to an anemic spring for dairy producers and processors. WCMA has collected anecdotes of softened demand for cheese in January and world dairy prices have dropped in anticipation of more than adequate supplies.

In 2010, demand must rise or supply must fall to rebuild equity on dairy farms from coast to coast.

WCMA recently interviewed a small group of Wisconsin dairy producers to learn the factors that impacted their milk production last year and to hear their prognosis for making milk in 2010. This second article focuses on their individual plans for 2010.

Dan Monson with Spring Grove Dairy, Brodhead, Wis. (2,000 cows) told WCMA: “I’m optimistic for 2010 — you have to be an optimist in this business. But following 2009, we expect it may take two to three years of recovery to approach the business goals and objectives we’ve set for the farm.”

That recovery period means the Spring Grove will not move forward with plans to build a dry cow, heifer and transitional cow facility in 2010. “We’ll work with the facilities we have,” Monson said.

Spring Grove will add cows through internal growth in 2010 and will continue reduced culling rates. “We do not intend to purchase cows this year,” Monson said, noting that production per cow may be slightly lower in 2010.

Paying down debt is the key priority, Monson said. “Our operating message through 2010 will be: Making more with less.”

Dean Strauss, Majestic Meadows Dairy, Sheboygan Falls, Wis. (825 cows) had similar thoughts on 2010. Majestic Meadows plans to add a small number of cows, but will focus on paying down debt, he said. Strauss intends to use risk management tools to reduce the bottom-end risk in milk price.

Looking forward, Strauss is uncertain if Wisconsin will maintain 3 percent growth in 2010. Weather conditions that increased milk production last year may not return next summer, he said.

Bob Topel, North Crest Dairy, Waterloo, Wis. (285 cows) plans modest growth in 2010 to max out his facility at 300 cows. He anticipates lower-cost feed in 2010, but expects relatively strong cow numbers nationwide to hold down milk prices.

North Crest is looking forward, Topel said. “You invest long term in dairy. This isn’t an industry where you step in, make some money and step out. You know you’re going to have ups and downs and you have to run your business for the long haul.” Topel worked with his banker to extend his line of credit two times in 2009 and rolled the farm’s loans into a longer payback package.

Topel supports federal policy that would create revenue guarantees via an insurance program for producers. Dollars spent on the Milk Income Loss Contract program and price supports could subsidize insurance premiums paid by producers, he said. And without price support purchases, Topel said, processors would naturally manage milk supply in line with market demand.

Jim Ostrom, Milk Source LLC, Kaukauna, Wis., is a partner in Omro Dairy, Tidy-View Dairy and Rosendale Dairy. “This year will be a game-changer for farm businesses and you’ll see farmers adopting financial tools to protect their margins. Dairymen will use physical delivery contracts, futures contracts and options — puts and calls — to protect margins,” Ostrom predicted.

“I believe you’ll see some shake-out of farms in 2010, but overall I think Wisconsin will do well this year,” Ostrom added. “We hear from our consultants that their calendars for expansions are filling up for 2010.”

Milk Source recently received state permits to populate the second phase of Rosendale Dairy, adding about 3,000 cows this winter.

Jim Mlsna, Ocooch Dairy, Hillsboro, Wis. (580 cows) is working out spring financing with his banker and expects per-cow production growth at his farm to match the 6 percent growth seen in 2009.

“We have the advantage of a next generation coming into the business,” Mlsna said, “while some farmers nearing the end of their career may choose this year to retire.”

Jerry Meissner, Norm-E-Lane Farm, Chili, Wis. (2,200 cows) told WCMA that it’s crucial for farms to (at least) break even in 2010. “I don’t foresee a huge exodus in farms in Wisconsin — some will stop milking,” Meissner said. “We’re positioning ourselves this year with risk management tools to assure a price that’s close to break even. I think that in 2009 a farm either learned that they’ve got to use these tools or they’re never going to learn it.”

Norm-E-Lane will grow modestly in 2010, adding a dry cow barn and another 100 cows, Meissner said.

“Overall, I think Wisconsin is in a good position,” Meissner told WCMA. “We’ve done a lot of good things at the state level, like livestock siting legislation, to encourage dairy farming. Our ability to grow feed really stood out last year compared to Western states.” Meissner expects Wisconsin to continue above-average milk production gains in 2010.

Dan Monson from Spring Grove Dairy echoed Jerry Meissner’s thoughts: “Nationally, another downturn in 2010 may be more than many farms can handle,” Monson said. “But the Upper Midwest has the advantage of assets in land, home-grown feeds and generally lower debt. I’m seeing a lot of growth in our area, and I’m excited about the dairy industry in the Upper Midwest.”

CMN

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.

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