In full-throttle agriculture, farmers get hurt
MILWAUKEE — It's been called "full-throttle agriculture," where production surges, markets buckle and farms are left tangled in the wreckage.
Chris Holman, who farms near Stevens Point, Wis., says it's been going on for years, and it's getting worse.
A regional director for the group Wisconsin Farmers Union, he points to the recent crisis in which dozens of dairy farms lost their milk buyer and were nearly forced out of business in a marketplace flooded with their product.
The buyer, Grassland Dairy Products of Greenwood, said it dropped the farms May 1 because it lost millions of dollars of business in Canada.
Dairy plants and farms in New York also were affected by a loss of Canadian business – prompting President Donald Trump, state and federal lawmakers to call for an investigation of trade pacts.
All but a couple of the Wisconsin farms that had contracts with Grassland have since found another milk buyer.
Yet Holman says Canada was wrongly blamed for the crisis. He and others argue the situation stemmed from U.S. agriculture running at full-speed, nonstop, regardless of the consequences.
He points to state programs, such as "Grow Wisconsin Dairy 30x20," as having compounded the problem.
"Beyond pushing dairy farmers to reach 30 billion pounds of milk production a year by 2020, the initiative – with no sense of irony – provides grants to improve the long-term viability of Wisconsin's dairy industry," Holman said.
In 2016, Wisconsin dairy farmers produced slightly more than 30 billion pounds of milk, or 3.5 billion gallons, for the first time.
While the number of Wisconsin dairy farms has been declining for years – to about 9,230 now from 14,265 in 2007 – milk production has increased as farms have become bigger and more efficient
The new production milestone came even as the global market was awash in dairy products and prices paid to farmers were depressed due to the oversupply.
"Full-throttle agriculture" has some farmers drowning in milk.
"When you have farmers themselves saying there's too much milk out there, you know that's a problem," said Steven Deller, a University of Wisconsin-Madison agricultural economist.
Now, even some farmers normally against intervention in the free market are calling for some type of supply management system to help keep things in balance.
When markets are up, dairy farmers increase production to take advantage of higher prices. Then, when a glut of milk drives prices down, they milk even more cows in an effort to generate more income – although it further depresses prices.
"If that's not a recipe for more of the same, I don't know what is," Holman said.
Small and midsize farms are being forced out of business by these kinds of cycles, according to Holman, whose Nami Moon Farms raises poultry, meat, vegetables and honey that's sold to restaurants and at public markets.
"This all has a predictable end," he said, with big farms and multinational conglomerates eventually controlling much of U.S. agriculture.
State officials say the money they've poured into agriculture over the years, with efforts like Grow Wisconsin Dairy 30x20, has benefited farms of all sizes.
The 30x20 program, started in 2012, provides grants of up to $5,000 for farms, and up to $50,000 for dairy processors, to help them in areas such as business and succession planning.
The goal of 30 billion pounds of milk a year was set by the dairy industry, according to state officials, as Wisconsin still trails California in annual milk production by about 10 billion pounds.
The 30x20 program has $400,000 a year available for dairy farms and processors, in total, and since 2012 has awarded grants to 200 farms and 13 processors.
The funding comes from state general purpose revenue, and farmers that get the grants are expected to provide a 20 percent match.
State officials say they're "size neutral" regarding farms that apply for the money.
"I don't think we need a program that's just designated to increase milk volume. I think we need programs that provide support across the industry," said Daniel Smith, an administrator with the state Department of Agriculture, Trade and Consumer Protection.
Farm expansions have been aided by other sources, too.
In recent years, the U.S. Small Business Administration more than doubled the dollar value of general small business loans it guaranteed to large livestock farms known as CAFOs, or concentrated animal feeding operations.
The amount, nationwide, soared from $224 million in 2012 to more than $652 million in 2015, according to the agency.
In Wisconsin, the number of CAFOs has grown by 400 percent from 50 in 2000 to 252 in 2016, state figures show, and the mega-size farms have played a key role in growing milk production as farm numbers have fallen.
University of Wisconsin-Madison economists estimate that farms of 500 or more cows accounted for 40 percent of state milk production in 2013 compared with 22 percent in 2007.
Critics say CAFOs have flooded the market with milk and have jacked up the cost of land, making it difficult for neighboring farms to compete for acreage.
"These big dairies are just expanding, expanding, expanding. We, as farmers, just kill ourselves," said Michael Slattery, a Manitowoc County farmer.
"We are overproducing in dairy and grain. People are not responding to markets, to reduce their production, like you think they would," said Slattery, who spent years in international banking before he became a farmer.
Farms have used investment tax credits for expansions, something that critics of large operations would like to see curbed.
But personal business decisions, not tax credits, drive farm expansions, according to industry experts.
"There was a study done that asked why dairy farms were expanding. And the number one reason was the farmers wanted more personal time. ... If you are milking 60 to 100 cows, you are basically operating the place yourself because you can't afford hired help. It's 365 days a year, and you don't get a break," Deller said.
Many of the expansions have taken place at small and midsize farms, such as 100 to 200 cows, or 400 to 500, said Mike North, president of the Wisconsin Dairy Business Association.
"We understand the importance of growth," North said. "If we are to have the next generation return to the farm, we need to make it economically viable for them."
Milk surpluses and rising land prices are problems for all farms, not just the small operations, according to North.
"We really haven't gotten to that place where it's so dog-eat-dog that one neighbor has, in fact, wiped out someone else," he said.
But if the markets for milk don't keep up with growth in milk production, mega-size farms will dominate, according to Deller.
Then "long-term, the smaller farms are going to get squeezed out," he said.
Year could be rough on the farm
It's going to be a rough year in farming if commodity prices, including beef and grain, don't rebound soon.
Nearly 90 percent of agricultural lenders have seen an overall decline in farm profitability in the last 12 months, according to a survey by the American Bankers Association and the Federal Agricultural Mortgage Corp.
Markets for grain, beef, poultry, pork and dairy are notoriously cyclical, but industry observers say they've seen more permanent changes that will further fuel consolidation of producers and processors.
The survey of more than 350 lenders showed they were most concerned about commodity prices, liquidity and farm income.
"It's a pretty stressful time in the dairy business," said Edward Coates, vice chairman of the agricultural and rural bankers committee of the American Bankers Association.
There's more milk than processors can handle, with much of it flowing into Wisconsin from Michigan and other states, and the recent crisis with farms dropped by Grassland Dairy Products could easily resurface as many of those operations found only temporary homes for their milk.
It wouldn't be surprising if more farms lost their milk buyers – leaving them with nowhere for their milk to go and cows that have to be milked 365 days a year.
"It's a very delicate situation right now," Coates said.