Bill Shuler’s last year has been a revelation for the Michigan dairy farmer, turning everything he always thought he knew about the family’s dairy farm completely upside down.
“In the last year, my life has been amazing, incredible,” Shuler says. “And that’s an understatement.”
Shuler and his family operate a small dairy farm near the southeast shore of Lake Michigan. Milking 50 cows in a tie stall barn, the farm was too small and too labour intensive to survive much longer. So Shuler, his wife Carolyn and sons Billy and Wyatt made some big changes.
Shuler Dairy Farms is typical of the 86 per cent of America’s 41,000 dairy farms (as of the 2012 Census of Agriculture) that milk fewer than 200 cows.
These smaller farms are mostly run by families with family labour. And they have found dealing with erratic milk prices to be their biggest challenge.
“Two years ago I was getting 25 cents a pound for my milk,” says Schuler. “It was 13 cents by early this summer.
“If you’re milking thousands of cows you might be able to get by on $1 per cow per day,” he says, then adds, “I can’t survive on that.”
The stark reality of milk-price volatility is why it’s the 14 per cent of farms with more than 1,000 cows that produce most U.S. milk, and are growing fastest.
Dairy farmers are squeezed by increasing expenses and lower returns despite greater exports. Prices have been lower over the past two years, but have stabilized and begun to move up again in 2017, and there are more dairy cows being retained and more milk being produced.
Farmers are getting $2 to $3 more per hundredweight of milk so far in 2017, says University of Wisconsin professor emeritus Bob Cropp, whose dairy market reports are followed across the industry.
Milk prices are cyclical, Cropp points out, but each time they tick down, more small farms drops off the map.
Large ones sometimes fail too, of course. But there’s one big difference. When large farms fail, they tend to get bought up by other, larger dairy farms.
“The trend will be to larger farms and fewer farms,” says Cropp. “We still have probably 40 per cent of farms that are relatively small that are under 75 cows. Those farms have facilities that are becoming obsolete, and often older farmers.”
On such farms, a decision becomes inevitable: either get out, or size up with a larger facility and bigger herd. “It might not be 1,000 cows,” Cropp says, “but will likely be 400 or 600.”
Plus, if they’re bringing in a younger generation, they often start looking at more flexible ways to structure the operation, like creating a farm run by two or three families, with more of the work done by employees.
So, what’s the answer for small dairy farmers who can’t size up, perhaps because they’re still paying off the mortgage on the home farm?
For them, Cropp says, the challenge is to innovate, diversify and find efficiencies while also saving on labour.
Many, like Shuler Dairy Farms, are looking to create their own opportunities.
“Some of our smaller farms are doing very well,” says Cropp. “There are a number of organic or grassland-based farms. Many of them are selling to cheese operations making a speciality cheese or a value-added cheese. They keep cost of production down by being grassland, minimal input and selling to a smaller milk plant that is adding value.”
Larger farms, fewer farms
Dairy farms are not unlike the rest of American agriculture, where there are large numbers of small farms producing a little, a small number of very large farms producing a lot, with fewer and fewer farms in between.
In 2015, the USDA Economic Research Service reported that 90 per cent of U.S. farms were small family operations with under $350,000 in annual gross income.
These 90 per cent, however, only account for 24 per cent of the value of production. Large-scale farms (mostly also family farms) with at least $1 million in gross cash farm income were only 2.9 per cent of the total, but made up 42 per cent of total production. (Non-family farms accounted for 11 per cent of agriculture production.)
This past May, the USDA studied dairy farms with 100 cows in 23 leading dairy states and found they produced 24,400 pounds of milk per lactation at 13 cents per pound.
In Canada, those farms would be above average size, but at that milk price, the survey shows they would come in at the top end of the “small farm” designation, with just under $350,000 gross income.
Larger farms have more flexibility to manage ups and downs in the market, providing they are focused on low-cost production.
An example worth looking at is Royal Farms, an open-lot dairy in the High Plains region of Kansas, where Kyle Averhoff, is a partner and general manager.
“The past two years have been tighter than the years prior, but in our geography, it has still not been too bad,” Averhoff says.
Averhoff and his 60 employees milk 6,500 cows and have about that number of replacement stock on the farm built in 2000.
“Our dairy is like other dairies,” Averhoff says. “We make our living taking good care of our cows and our people, and trying to do things right.”
The company also operates another smaller dairy nearby, and they strive to be efficient, making heavy use of risk management in their milk pricing, with margins being protected on about two-thirds of their milk through futures and options.
Averhoff keeps his focus on their core business. Royal Farms is dedicated to milking cows, and he believes their future is in growth. “Our continued goal is to improve and to grow, and to get better at what we currently do. And as things fit, we would like the opportunity to milk more cows.”
The geography and community in the area are friendly to livestock, so when the opportunity arises, there won’t be many barriers, except the big one: labour.
Averhoff speaks highly of his mostly Hispanic workforce, but the rhetoric from Donald Trump has been troubling.
“It’s more concerning from a standpoint of the welfare of our people and their extended families,” Averhoff says. Many of his employees have family members involved in the immigration process, usually in bringing families to join the workers in the United States and setting up their children as full citizens.
Meanwhile, smaller dairy farms in the United States are working to be more labour efficient, strategically cutting back on hired labour and managing the herd more with family, backed up by robotic technology.
That’s what’s happening at the Shulers’ farm. They are midway through a multi-year plan to transform the farm, as sons Billy, 29, and Wyatt, 26, come back home to farm. The first step has been to gradually expand the land base so they can upgrade their field equipment. The second step is to build a new free-stall dairy barn with a robotic milking system to lessen the amount of time the family has to spend milking cows.
They started milking in the new barn in March 2016, and while they continue to milk about 50 cows, they are gradually adding to the herd with 60 animals due to calve by the end of January.
Family is central to the farm, and the construction of the new barn was hastened by the declining health of Bill’s father. They wanted him to see the plans and the direction of the farm before he passed away.
“I like to tell people the good Lord enabled us,” says Shuler. “If my father did not get as sick as he did as quickly as he did, we might not have pulled the trigger.”
Shuler says if they hadn’t, they likely would have been forced out of milking cows by last January due to the low price of milk and the inefficiency of the old barn. The new composting pack barn has room for 120 cows, all easily managed with family labour.
Robotic milking is a big part of it. Shuler talks of how the family all recently went to a 3 p.m. wedding, and no one had to get up in the middle of it to get back home.
That, he says, was a farm first.
Exports continue to grow
The source of revenue for American dairy farms is changing. Commodity milk is low margin, so dairy farmers are looking elsewhere to assure revenue into the future.
Royal Farms has invested in a new dairy processing plant being built by Dairy Farmers of America in their area as a way to assure a local buyer for their milk.
Cropp sees it as good strategy, but adds that current and future growth in demand for commodity milk in the United States is coming from outside its borders. Domestically, growth in the milk market is mostly in cheese and yogurt versus fluid milk, and is about one per cent per year.
With milk production growing at about two per cent per year, American producers know they need to grab more exports.
USDA milk export reports show that April, the last month for which numbers are available, was the eleventh straight month of increasing exports for the American dairy sector, accounting for 14.6 per cent of total U.S. milk production.
“I think it is a positive,” Averhoff says of exports. “When I’ve looked at a lot of the information on where competitive countries are in their incremental costs, the U.S. system is poised to have a share of the global growth.”
Cropp agrees. “We have excellent forage and grain supply,” he says, pointing out that New Zealand has a limited and increasingly expensive land base, which is capping their ability to increase milk per cow. Europe could increase its milk supply, but leading EU producers like the Netherlands are reducing cow numbers due to environmental concerns.
A new market for the Shulers
Back in Baroda, Michigan, the Shulers are looking to a new kind of customer to assure the future market for their milk.
Shuler Dairy Farm has four wineries within four miles. There are three nearby microbreweries too, and the farm is close to the Warren Dunes State Park, which drew 400,000 visitors last year.
The Shulers are also just two miles off I94 heading to Chicago.
Add up all of that potential nearby market and you arrive at Stage 3 of the Shuler farm reinvention — agri-tourism, i.e. bringing visitors to the farm and selling them products is the big bet for the Shulers.
They know what’s at stake. “It’s going to have to work or we’re out of business,” says Shuler.
In the past year the farm has been visited by thousands of people from all over the United States and Canada. They tour the farm and then buy ice cream from a stand on the farm.
The farm has become a showpiece for DeLaval, the company that supplied the robots, and 100 Canadians were scheduled to be through the barn in August.
Talking to so many strangers has reaffirmed Shuler’s faith in humanity.
“The good guys are still winning,” he says. “The people coming through are just amazing, and they have incredible stories.”
The end of Stage 3 is yet to be completed. It includes building a processing building on the farm to make yogurt or ice cream.
“This isn’t for me, it’s for my two sons,” says Shuler.
Despite the Shuler family’s big bet, Shuler is still nervous. Their farm is becoming a rarity in the area. Other than Andrews University, with its 700-cow herd, there are only four other dairy farms left in their county, all under 80 cows, while 30 years ago there were 30 herds.
Of course, that doesn’t mean the cows have disappeared. Just across the county line, a large dairy milking 3,500 cows is building a new facility which will have 24 robots.
“The big herds just keep adding cows,” Shuler says.
Indeed, there’s serious growth happening in the traditional milk producing areas of the United States where lots of water is available to grow good forage. Michigan milk production is up 30 per cent in six years, according to Hoard’s Dairyman. Wisconsin has increased its production by more than 10 per cent and New York 16 per cent in the same time period. Most of that increase is coming from large herds.
As smaller, often older farms grapple with generational change and how to cash flow new facilities and technology, Averhoff expects to see the trend to larger herds continue, as it has for decades.
“The industry for a long time has supported a lot of diversity in herd sizes and geography,” he says.
And Averhoff is hopeful. “We need to have all types of operations across the country. In some geographies dairies are more scalable, but we can coexist.”