A few dairies have pushed pause on building projects due to interest rates and market uncertainties. Others are stuck in limbo not knowing whether to move forward or wait it out.
According to Don Mayer, district manager for the upper Midwest with DeLaval, the slowdown of some building projects is largely due to high-interest rates and building costs. He adds, “While interest rates are higher than they were over the last couple of years they are not terrible.”
Curtis Gerrits, a senior dairy leading specialist with Compeer Financial says that dairies who have had the plans in place to do improvements—whether that is to expand or enter construction—are moving forward for the most part.
“The main focus has not necessarily been on interest costs but rather what the return on their investment would be,” Gerrits notes. “These dairies typically have planned capital investment projects 1-3 years out and have built a business model to sustain these projects even if/when interest rates and material pricing are inflated compared to historical averages.”
Chad Huyser, president of Lely North America concurs with Gerrits, stating that while current economic factors have impacted them so far in 2023, they are working with dairies who have decided to push forward.
“Many dairies are moving forward with their plans,” he shares. “Whether rising interest rates or volatile inflation metrics, dairies and their lenders are being very practical when it comes to the investment strategy on these long-term CAPEX type investments. That said, investments in facilities and technology can bring about efficiencies, improved cow comfort/health and more enhanced data to help make better decisions related to the cost drivers of producing milk and supportive of cash flow.”
Huyser adds that 2023 continues to look to be a positive year overall for Lely.
“We do see some headwinds developing in the short term (i.e., interest rates, inflation, etc.) but overall, we continue to be very optimistic about the future adoption of technology and dairy automation solutions,” he states.
A producer recently told Mayer that the first three loans he received for farming hovered around 10% interest.
“He told me that if rates go down in the next 12 to 24 months he will refinance,” he shares. “In my opinion, there is a shortage of skilled builders for dairies, many contractors are booked 12 and 18 months out.”
Gerrits says dairies are continuing to talk with their builders on projects for the second half of 2023 and into 2024.
“Most reasonings on delaying projects are surrounding contractor scheduling availability, interest costs from a cash flow perspective, processing capacity (for milk cow housing), and the current dip in overall milk price,” he says.
Gerrits shares that he is mostly seeing building projects that include:
- Added on-farm heifer housing.
- Improvements to existing facilities such as ventilation, steelwork (headlocks and freestalls), and automation (herd health automation).
- Dry cow housing upgrades and additions.
- Some milk cow housing (this has been limited primarily due to milk processing capacity)
Mayer adds that one major challenge producers are struggling with is finding a milk market.
“I have a customer who would like to go from 500 to 1,000 cows however their coop will not take the additional milk,” he says.
