2025 has been anything but smooth sailing for dairy producers. With immigration reforms and pending tariffs creating uncertainty, it adds to the difficulty for producers to strategically plan their dairy’s next steps. Independent dairy financial consultant, Gary Sipiorski, suggests five key areas that producers should focus on to successfully navigate the year ahead.
1. Prepare for Uncertainty
Producers should set themselves up to expect anything in 2025. Currently, the milk prices for Class III and Class IV are hovering around $20 and $22, respectively. Despite lower U.S. milk production, the dairy herd remains stable at around 9.3 million cows. The shortage of heifers would typically suggest that prices should be at least 20% higher. However, the future market continues to fluctuate, with tariffs (or the absence thereof) potentially impacting dairy exports.
2. Projections Are Key
Despite the unpredictable market, it remains crucial to making projections. Using last year’s expenses as a base along with a conservative milk price can help in completing these projections. It’s important to make an informed estimate to understand your path forward.
3. Monitor Interest Rates
Producers need to be acutely aware of interest rates. Many five-year interest rate locks are due for renewal after being established in 2020. Lender relationships remain of paramount importance, especially considering that some lenders are becoming hesitant about extending agricultural loans.
4. Engage in Best Guessing
When engaging with lenders, it’s vital to bring along the year-end balance sheet, year-end income statement, and your best projections. A written business plan detailing 3 to 5 major items and any necessary purchases is key. Ensuring lines of credit are approved can provide financial stability amidst uncertainty.
5. Leverage Artificial Intelligence
Artificial Intelligence has permeated various aspects of our lives, and dairy production is no exception. When considering any equipment purchases, producers should explore how this technology can provide better information and support more informed decision-making.
By remaining adaptable and mindful of these key areas, dairy producers can better position themselves to handle the uncertainties and challenges that 2025 presents.
Key Metrics for Dairy Profitability
According to Steve Schwoerer, vice president of animal ag lending for dairy with Compeer, three important metrics separate the top 25% in profitability from the bottom 25%.
• Feed benchmarks. These might include feed cost per cow or feed cost per hundredweight (cwt). Benchmarking feed conversion—how much milk is produced for every pound of dry matter a cow eats—and the cost of the dairy ration per cow per day in dry matter, are critical. Some dairies achieve high milk production but at a cost that undermines profitability.
• Labor cost. Either labor cost per cow or labor cost per cwt.
• Net herd replacement cost. Are producers getting enough money for cull cows and beef calves in comparison to what it costs them to raise a dairy replacement.
By focusing on these metrics and strategic areas, dairy producers can not only survive but potentially thrive in a challenging economic climate.
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