If you live in Minnesota or Wisconsin, you might have noticed an additional deduction in your milk check. While farmers in most milk sheds throughout the U.S. have paid the majority of the cost to haul their milk for a decade or more, producers in Minnesota and Wisconsin are just starting to see the deductions.
“Throughout most of the U.S., dairy producers pay a majority of their hauling bills. In Wisconsin and Minnesota that historically has not been the case,” explains Matt Lange, a dairy business consultant with Compeer Financial. “It’s always been subsidized or factored into the pay scale. Now the producers are being asked to pay more for their hauling.”
To accommodate that, producers need to take a good look at budgets and determine the best way to absorb the costs. According to Ohio veterinarian Mel Wenger, hauling costs are the largest deduction his clients see on their milk checks. “This varies based on the hauler’s agreement with the processor and the producer,” he says. “In my own practice it varies 50¢ among producers.”
With costs increasing and no relief in sight, some farmers are looking to haul their own milk.
“I met with a dairy two weeks ago that hauls their own milk, and they don’t have any problem with it,” Lange says. “They feel that it’s going pretty well and the owner in fact does some of the driving.”
According to Lange, there are several factors producers should consider before deciding that becoming a milk hauler is a business expansion they should take on.
Operating costs, not capital expenses. “It’s not just the cost of the tanker and truck, that’s actually the cheap part,” Lange says. “Dairies want to run the numbers on buying a truck and trailer, which is great, but we need to look at it not so much from a capital investment standpoint, but from an operating standpoint, so they need to figure out labor costs and then what do you do with the labor.”
Somebody has to drive the truck. “The hardest part sometimes is figuring out how to keep the driver busy,” he says. “Especially for a moderate sized dairy, say 1,000 cows or less, what do you do with that person when they’re not hauling milk?”
3. Insurance and employee certification
Obviously there are additional insurance expenses associated with hauling milk. Also, the driver will have to become a certified milk sampler to comply with the PMO. Right now, the hauling company most likely takes the sample from your tank before the milk is put on the truck. That responsibility will now fall to your dairy.
Do you ship all your milk to one plant? If not, the logistics of hauling your own could become cumbersome, Lange says. “If the producer’s milk is going to multiple plants and not just from point A to point B, it certainly could add to the cost and routes could change. In some cases, because existing haulers have multiple routes and are picking up at various locations, their hauling costs will be lower than a specific dairy. For some producers, hauling their own milk will not be cost effective.”
Producers paying all or a portion of hauling costs is not something that will go away anytime soon, Lange says.
“I think at some point in time, pretty much everybody’s going to be paying for their own hauling, at least I would say 70% to 80% of the hauling bill going forward,” he says.
In addition, he thinks the cost of hauling milk could change things in the dairy industry.
“It may come to pass that proximity to the plant will provide some advantages to certain producers,” he says. “So if we have larger dairies closer to a plant that will bear some value.”
Note: This story appears in the April 2018 magazine issue of Dairy Herd Management.