A Parting of The Ways in Pennsylvania’s Dairy Industry
On average, Pennsylvania dairy farms are now seeing a higher income over feed cost per cow (IOFC) per day, based on 75 lb. of milk production, than the national average. In August, Pennsylvania farms had an average IOFC of $9.29/cow versus $8.78 for the nation as a whole. In September, Pennsylvania’s IOFC jumped to $9.68/cow while the U.S. average dipped back to $8.64.
Extension dairy specialists at Pennsylvania State University, however, are starting to see a split in the future prospects of the state’s dairy farms. They call it “bifurcation,” and explain what’s happening in their September Dairy Outlook:
“In 2017, as we recover from the low prices of 2015 and the low margins of 2015 and 2016, Pennsylvania’s dairy industry seems to be separating into two groups. The first group are dairies where costs are being controlled successfully, a profitable margin is being made and that profit is being held to return some liquidity to the farm operation, or used to expand. These farms are seeing opportunities for expansion because they have ruthlessly controlled costs and believe that they can obtain an increased profit by building their dairy enterprise.
“The other group of dairies in Pennsylvania have not been able to control costs, and even with low grain prices, they are not rebuilding liquidity. These operations, after burning through their equity during 2015 and 2016, are not able to rebuild equity in a way that would make lenders comfortable with extending additional credit to them for expansion.
“In some ways, as the industry bifurcates along successful cost control and maintaining margin, it seems like we are living through a watershed moment in our state’s industry. Just how big a change these times will make on our industry remains to be seen, but the potential for significant restructuring of our state’s industry seems great.”