DRIFTLESS - It’s a rough year for dairy farmers.

Just ask John Nolan, co-owner with his brother Pat of Nolan Family Farm, an operation near Prairie du Chien where the brothers milk 170 cows.

The Nolans got a nearly 50 percent pay cut over last year. In 2022, prices paid to farmers for their milk were a record high. This year, it’s close to a record low.

“It’s the lowest they’ve been since the 1980s,” Nolan said. “We’ve never been in the red in our bank account before now—but our prices aren’t going down for feed or fertilizer. I got a $40,000 fertilizer bill and a $40,000 feed bill. That’s okay when you’re used to getting a milk check for $30,000 every few weeks, but instead you get a check for $15,000? I don’t like to complain but you can’t function on this with everything else so expensive. It’s a lot of stress.”

Jason Sparrgrove, a dairy farmer who co-owns Udder Brothers’ Creamery in Boscobel, has the same complaint.

“Our saving grace is we have a lot of feed that we purchased already last year. If we hadn’t done that, there isn’t enough money to keep going,” said Sparrgrove.

Supply and demand

The mystery of how we got in our current predicament begins at the turn of the year 2021, according to Leonard Polzin.

He’s not only a dairy farmer, but also an economist who serves as Extension Dairy Markets and Policy Outreach Specialist for UW-Madison Division of Extension.

“Back in late 2021 and early 2022, we were still in a low-interest-rate environment, still coming out of the COVID period, the supply chain disruptions were smoothing out, but still present, and we were also seeing incredibly high fuel prices,” he said. Other factors, including geopolitical events and the weather, pushed production down.

Added together, these factors made for a slight decline in milk production, globally.

“In milk-producing countries, their domestic needs were met, but the additional amount for export simply wasn’t there,” said Polzin. “In the U.S., even though we saw the same pressures, we were one of the few countries able to bring products into the international market.”

Now. Normally when this happens, bigger dairy farms respond by adding more cows. “Producers are very responsive to price. When margins are good, people expand production,” said Polzin. In this case, however, inflation killed the buzz: the high cost of building materials and feed during 2022 kept farmers from expanding.

But that was then

By the beginning of 2023, according to Polzin, not only were large dairy herds expanding to grab some of that market, but the milk-producing countries that had seen a dip in production were back up and running.

The result? A dramatic oversupply of milk.

“That’s nationwide, not only in the Midwest, producers are up on milk. The only one that’s down is Texas, because of the heat.” said Terry Hanson, who serves as the General Manager of Scenic Central Milk Producers, a farmers cooperative based in Boscobel with about 300 members. “We have not dumped milk…. Yet. We’ve come close.”

The Nolans aren’t so lucky. They belong to the nation’s largest cheese coop, Associated Milk Producers Incorporated (AMPI).

This summer, AMPI had so much excess milk it had no place to store it. Instead, the coop told the brothers to pour their milk down the drain.

Changes afoot

The hard times in American dairies come on the eve of what could prove to be dramatic changes.

The U.S. Department of Agriculture (USDA), which plays a key role in how dairy farmers get paid, is holding a hearing in August to review what’s known as “Federal Milk Marketing Orders” (FMMO).

Pour a cold glass of milk and settle in now, because “complicated” is an understatement when it comes to these rules, which date back to the Great Depression and were last reformed in 2020.

For starters, get rid of your notion of a gallon of milk. Instead, farmers get paid for the weight of the fat and protein their milk contains—that is, for the “components” that will go into the butter, cheese, or other product made from their milk.

There’s a certain sense to that. The healthier the cow, the better managed the dairy, the more fat and protein in the milk.

Harder to understand is the “make allowance.” Theoretically, that’s the cost of turning the milk into a finished product like cheese or yogurt—including labor, other additives, equipment, and so on. Those costs are subtracted from the price paid to farmers.

Like your proverbial pre-teen, the manufacturers would, not surprisingly, like a bigger allowance. Farmers, on the other hand, aren’t sure why they should be subsidizing the cost of cheesemakers and the like. Especially since the companies mark up their products for retail consumption anyway.

But wait, there’s more.

The different components of milk (i.e., fat, protein, solids) have different values based on their final consumer product. To keep things fair for dairy producers, the FMMO calls for the money earned to be pooled and distributed equally among all producers, no matter how their milk is ultimately used.

“In theory that sounds awesome,” said Polzin. “But with different FMMOs in different areas, some farmers could be receiving more or less, and nowhere near all of the money is pooled. The rules are different depending on whether you are pooled and what geography you’re in, and the rules can change on a monthly basis.”

The August hearing will be the first substantial revision of the FMMO in more than 20 years.

“There’s 21 proposals out there for changes,” chuckled Hanson, at Scenic Central. “The committee will be hearing comments from plants and from dairymen. There will be a lot of discussion.”

Meanwhile, back at the ranch

It’s a complicated back story, but for farmers, the math is simple: less money in plus the same money out is unsustainable.

It’s partly the reason that so many smaller dairy farms are going out of business. One of the only ways to continue to cover costs is to scale up. That provides the cash flow to, for example, buy specialized equipment that lowers labor costs or respond to changes in the marketplace.

“Dairy farmers are most definitely at the mercy of the market,” Polzin said. “Any gain you have has to be gained from either reducing the cost or increasing efficiency.”

For farmers like the Nolans, there’s an unfairness baked into the USDA rules.

“No one is taking a pay cut except the farmers,” Nolan said. “The manufacturers, if they lower their employees’ wages, they’ll quit. We have no choice. We have to milk our cows or sell them. I love farming, but now it’s like, Jesus, I’m running in the red and everyone else is just having fun.”