The land of milk and money: Local dairy farmers cope with chronically low milk prices, uncertain futures
Phillip Rotz fears for his family's future in dairy farming.
His small 55-cow farm, Twin Oaks Dairy near Dunvilla, has been around for about 45 years. Rotz and his brother took it over from their parents and now run it together. They're both married and have four children each, so the farm is supporting 14 people.
As Rotz says, "That's a lot of people to support with 55 cows."
Turning a profit has become a challenge for Twin Oaks Dairy in recent years, as chronically low milk prices cut into the business' bottom line. The Rotzes are in a situation that many U.S. dairy farmers are in right now: Their income from milk has decreased significantly, while operational costs around the farm have stayed the same or risen. It's getting harder and harder to make a living.
"When I started, everybody told me that there wasn't going to be a future—the big dairies were going to take over," Rotz says. "I didn't believe it, and that's why I got into it. But now... I don't know what kind of a future there is for my kids as a small farm in the dairy industry."
Typically, milk prices swing up and down on three-year cycles, but 2018 is now the fourth year in a row of lower-than-average prices. With no signs of that changing any time soon, farming families across the country are having to make some tough choices.
Kristine Spadgenske, who is a board member on the Minnesota Dairy Promotion Council and is active in the Becker County Dairy Association, says she's heard a lot of talk about milk prices in recent years, and knows of a number of families who are struggling.
"We have farmers that are having very difficult conversations and are needing to make very difficult decisions," she says. "These are farmers that eat, live and breathe farming, and they're having to sit down at their tables and ask whether they can continue to live off these milk prices or continue to eat up equity—which you can only do for so long. Or, do you just make the decision that it's time to exit the business?"
Glass half empty
The slump in milk prices is caught up in a web of contributing factors. The modern dairy industry is a world market, affected by global supply and demand, imports and exports, and the exchange rate of the U.S. dollar. Since the European Union did away with its milk quotas in 2015, European countries have been producing more milk. When there's more milk to go around, the price farmers can fetch for it goes down.
A few years ago, U.S. farmers were making about $18 for every 100 pounds of milk they produced (which equates to about 11.6 gallons). Now, they're getting around $15.
"Our milk prices are very much affected by supply and demand in other countries," says Spadgenske.
Right now, dairy exports out of the U.S. are surging—one of the few pieces of positive news for dairy farmers. In May, Spadgenske says, the dairy industry "reached an all-time high in our exports, of 18.8 percent... One out of every seven tankers (full of milk) is going overseas."
Those national exports have a big impact on local dairy farms. The majority of milk produced in Becker County goes into cheese, Spadgenske says, which is an exportable product. Much of the rest remains fluid milk, which is also exportable.
"Everybody in the dairy industry is very much involved in that export market, and it very much affects our prices," she says.
U.S. milk prices have also been affected by a decline in fluid milk consumption. Spadgenske says people are still consuming dairy—in the form of yogurt, cheese and other milk-based products—but they're not drinking it by the glass the way they once did.
"All those things have had a sharp impact on our milk price," she explains. "And it's definitely been some tough years."
Spadgenske and her husband, Mark, along with Mark's twin brother, run a 300-cow dairy operation about 20 miles east of Frazee. Since milk prices dropped, they've seen a one-third reduction in their income.
Spadgenske Dairy Farm uses a high-efficiency milking system, and has little debt, so the family's managing, Spadgenske says, "But I know that's not true of every farm. I know how difficult it is for them and their businesses and what they're going through."
At Twin Oaks Dairy, Rotz says the dairy operation is "hanging even"—not losing money, but not really making any, either. The family is scrimping where it can, putting off any non essential purchases and buying their supplies by the pallet so they can get bigger volume discounts.
"It makes it tough to do anything extra, like upgrade machinery or anything like that," Rotz says.
Milk prices affect all farms, big or small, but Rotz believes smaller farms are at a greater financial disadvantage. Bigger producers benefit from bigger volume discounts on their supplies, he says, and co-ops offer discounts to the larger producers since they don't have to make as many stops to fill their trucks up with milk.
Smaller farms also face more hurdles with financing, as their tighter profit margins make it more difficult for them to qualify for bank loans, Rotz says. This puts expansion projects and major technology upgrades—which would allow the farm to grow—out of reach for small farmers, while larger farms just keep expanding more and more.
"It's a system that's set up to help the big guy, and I don't know how to fix that," he says. "It's not exactly equal... The dairy business isn't that different from all small businesses—the family businesses seem to be disappearing, and the mega businesses are taking over."
There are no easy solutions for dairy farmers who are struggling. The dairy industry is "not a heavily subsidized industry," according to Spadgenske, and a USDA Farm Service Agency safety net program—which she describes as "almost like an insurance program for milk"—doesn't always result in enough of a return to make it worth a farmer's while to pay the premiums.
Adding to farmers' frustrations is the uncertainty of dairy's future. The forecast for milk prices isn't encouraging, and it remains to be seen what, if any, impact President Trump's trade measures will have on dairy exports.
A June 24 New York Times report states that Trump has singled out dairy as an industry that's at a global disadvantage. He's been "demanding new trade agreements and slapping tariffs on allies to reset what he says are deeply unfair terms that hurt American companies and workers," according to the report. Some farmers are hopeful that Trump's tactics will level the global playing field, but others are worried about possible retaliation from other nations, which could hurt U.S. producers.
"I don't see it changing any time soon," Rotz says of the situation for U.S. dairy farmers. "That's the discouraging part. To me, it's going to take something drastic to make it change."
Glass half full
Over the past decade, the number of dairy farms in Becker County has dropped—from 76 farms in 2008 to 67 today, according to the Minnesota Department of Agriculture. In the year 2000, there were 140 farms in the county.
So where did they all go? In some cases, smaller farms merged together to share costs and resources. Other times, farmers who were close to retirement chose to exit a little earlier than planned rather than try to wait out the slump in milk prices. Others were forced to close up shop or switch gears after months of barely breaking even or operating in the red.
Yet as the number of dairy farms in Becker County has decreased, the number of dairy cows has increased, from 7,100 cows a decade ago to 7,800 today. There are fewer farms, but more cows, which is indicative of one of the major solutions dairy farmers have come up with to combat reduced profits from low milk prices—increased efficiency.
Robotic milking technologies allow farmers to beef up their herds without having to also beef up their labor costs. Many dairy farmers around Becker County are already using the technology, and others, including Rotz, are considering making the switch.
"We've visited other farms that were in the same situation we're in and they went to a modern double-robot barn and they're liking it," Rotz says. "They've doubled their herds and they've said they're spending about the same amount of time working it as before."
Upgrading the family's 100-year-old barn and installing all that new tech would be a huge investment, and Rotz says that even with a doubled herd he's not sure he could afford the loan payments. So for now, he's holding off. If or when the price of milk goes back up, Twin Oaks Dairy may be able to get those upgrades.
Until then, the family is managing, thanks to their crops of organic corn. The corn is bringing in enough revenue to make up for the family's lost dairy profits.
"That's helped a lot," says Rotz. "If it was conventional corn, that wouldn't help that much, because that price is low, too. But it's helped considerably that we've certified our corn organic."
Going organic is another creative solution that dairy farmers are coming up with to bolster their bottom lines while milk prices are low. They're also working off-farm jobs, switching to beef cattle, and adding new or additional crops.
"Many farms are looking at diversification...to supplement that income," says Spadgenske.
Most farmers are doing whatever they can to keep their farms going, as they have no desire to leave the business and, in some cases, like Rotz's, they want their kids to have a successful future in dairy farming.
"It is truly who you are," Spadgenske says of being a dairy farmer. "It is in your blood. It is in your DNA."
In spite of the challenges dairy farmers face, most are still carrying on, optimistically waiting for the day when their cows will again turn a profit.
"We're farmers," says Spadgenske with a smile. "We're very positive thinkers. We always feel that there'll be a light at the end of the tunnel. One thing about the dairy industry: we have highs and lows. When you take on the job of a farmer, you know that's a part of the work that you do."