Tom Hall, Senior Agronomist, Rooster Strategic Solutions
In 1981, Wisconsin was the top-producing dairy state in the country, a title it had held for decades, and nearly half of U.S. production came from farms with 80 cows or fewer. Today, milk production is dominated by farms with thousands of cows, with California holding the top spot among newcomers like Idaho, New Mexico, and Texas.
What happened? And what can dairy producers learn in order to stay in business in the future?
Rooster did a deep dive into the dairy industry to see which farms survived between 1981 and 2020, and to see what traits the survivors had in common. Specifically, we looked at 32 Pennsylvania dairy farms that I worked with in 1981 and 1982. Only nine of them are in business today. The characteristics of these nine remaining businesses are instrumental.
The number of farms continues to decline. According to the USDA’s monthly Milk Production report, 2020 showed another annual decline in the number of licensed dairy operations in the United States. Granted, this shouldn’t be a surprise considering the upheaval in the industry caused by a global pandemic, but the trend has been on the decline for several years, long before the Covid-19 outbreak. Since 2003, the U.S. has lost more than half of its licensed dairy operations.
Milk production, however, is on the rise. Annual milk production in the U.S. last year increased to 223 billion pounds, a 2-percent bump over 2019. This extends an increase year-over-year since 1999, when total milk production topped out at 162 billion pounds.
Business fundamentals are the difference. Looking at the nine remaining Pennsylvania dairy operations, we found an even split between large operations with 1000 or more cows, mid-size operations with 100 to 1000 cows, and small operations with fewer than 100 cows. What we learned, however, was that these remaining dairies had several traits in common.
Here are the Rooster-ranked traits of dairy farms that successfully navigated 40 years of change:
- Outstanding credit record with banks, vendors, and fellow farmers
- Actively preparing a next generation to lead the farm
- Tolerance for risk (large and mid)
- Livestock and/or agronomic expertise
- Responsibility and leadership are shared across the operation
- Incorporates consultants and advisers to supplement their personal expertise (large and mid)
- Excited about their farming enterprise and ready to share about their operation
- A diversified enterprise (small farms)
- Active in the community
No surprise that having a solid financial foundation and reputation is a key driver of success. In contrast, none of the farms that were financed by USDA FHA in 1981 are still in business today. FHA loans require little to no equity, and this fact highlights the importance of having financial reserves in times of low commodity prices.
Another interesting takeaway was the impact of succession planning. We believe a strong family foundation is as important as the financial foundation. The nine remaining farms all demonstrated shared leadership over time with family members responsible for different segments of the operation – i.e., cows, crops, and replacement animals. In contrast, the farms where the next generation performed as reluctant labor (or didn’t participate at all) didn’t survive.
Over time, farmland is an appreciating asset. Every time a farm expands, the farmer must perform a risk/benefit analysis as to whether to use their farm equity to secure expansion funding. In our Pennsylvania study, we saw three farms that left the business when their farm’s value as housing far outweighed the value as a working dairy.
For small and mid-size farms, diversification was one of the keys to longevity. Two of these farms leveraged their high rolling Dairy Herd Improvement Association (DHIA) herd average (+30,000 pounds) into a successful genetics supplier or a replacement cow business. The long-lived small farms in our survey were all members of a faith-based community that is famous for carpentry, building framing, welding, and farmer’s markets.
A common trait for the mid- to large farms is their openness to engage with outside expertise on the farm. Specifically: Nutritionists, financial advisors, veterinarians, and crop consultants. Advising farmers is not for the faint-of-heart; successful farms should always challenge advisors and their advice, but the ability to get an outside point of view is essential to long life.
And one more thing: A common thread among the nine remaining dairies is that the owners/operators are seen as thought leaders and influencers. Farmers with a long track record through good times and bad have earned the respect of the community. This doesn’t necessarily mean you must have a large following on social media; an ideal influencer is simply one who runs an operation that’s financially sound, is grooming the next generation, and continues to be excited about farming.