Inflation, Increasing Input Costs and Lack of Labor: The Trifecta of Pressures Weighing on U.S. Dairy Producers

A dairy with a track record spanning over four decades is where you can find Tom Crave, part-owner of Crave Brothers Farm in Waterloo, Wisconsin.

“Almost all the milk we produce goes to our cheese factory and is made into cheese and mass distributed throughout the United States,” says Crave.

Striving for efficiency, the 40-year-old dairy recently got an upgrade, with a rotary parlor that has only been in operation since April. 

“Last year, we built a new milking parlor that's much more efficient,” says Crave. “We are putting as many cows through there as we can with the facilities that we have."

The decision to invest in infrastructure on his dairy farm is one he doesn’t regret.

“It's wonderful,” says Crave. “It's very cow-friendly and milker-friendly. The employees love it.”

Increasing Input Costs

A year later, investments like the one on Crave's farm are coming at an even higher cost, as is nearly every other input on dairy farms.

“The biggest one that I worry about, though, is inflation. The cost of goods, fertilizer this coming spring, seed, machinery, parts repairs; everything is going up, even fuel,” adds Crave. “We've had a respectable milk price this last year. But inflation is gouging into that.”

Crave isn’t alone in battling the growing concerns about a spike in costs, as inflation and rising costs weigh on dairy farms across the country right now. And it's an issue being discussed at World Dairy Expo this year. 

“I would say a lot of farmers if they've got their cow herd, they're going to try to maintain that and try to work through this period of high grain prices, feed prices and hay prices,” says Tanner Ehmke, lead economist with CoBank. “So I wouldn't expect it would be a sharp drop by any means, but I would say it's definitely steady to declining as a way I would describe the future cow herd.”

Declining Dairy Herd Numbers

Recent USDA reports show overall cow herd numbers starting to taper off, which is a sign of changing dynamics in the U.S. dairy industry.

“Changing the national herd is like turning an aircraft carrier around in the ocean, it takes seven miles of open ocean to turn a big ship around. And that's what it's like to drop our herd size,” says Jim Ostrom, partner of Milk Source “It takes a lot of pain in order to send enough signals to the marketplace to drop back.”

Milk Source, an innovative dairy with a footprint in Wisconsin, Michigan and Missouri, is watching the costs angle closely.

“We're feeling substantial pressure from feed inflation, and I believe every producer in the country is feeling it,” he adds.

The higher costs are eating into outlooks, and milk prices have backed off the last year’s highs, with prices down $7.50 per cwt. The softer milk prices aren’t helping cushion the rise in costs.

“We raise a lot of our own feed, but even when you do that, that's still generally 40% to 50% of your feed costs,” says Ostrom. “So, a 30% inflation on half your feed cost is still out of inflation.”

Lack of Labor

The concerns about waning margins aren’t just sitting with sourcing feed, but the labor woes that have plagued the dairy industry for years. Those issues sourcing enough labor are only getting more severe as the lack of labor is impacting more than just agriculture.

“Labor is a situation all over the country, as we all know. It's been in the headlines, and agriculture, unfortunately, is at the forefront of that,” says Ehmke. “We’re always labor tight in agriculture, that story never seems to go away. I would say in dairy, it's a situation of trying to find immigrant labor. Immigration is down a little bit, numbers are down a little bit for dairy, it's going to be a situation of can you find somebody locally in a very rural area.”

It’s not just capturing the milk on farms being impacted by a lack of labor, but also processing it into dairy products.

“Some processes are running shorter hours, and especially in the Northeast, that's resulted in some milk being dumped more so than we had seen pre-COVID,” says Ehmke. “And unfortunately, this situation isn't going away anytime soon. This forces the question of automation forces, and the question of do we expand? If so, how do we expand? It really brings technology to the forefront."

As costs continue to rise, the dynamics in dairy continue to change. That’s why some producers say the situation dairy farmers are currently facing could expedite consolidation in the dairy industry.