Dairy prices are too low to meet the cost of doing business, so rather than cut costs, Mike McMahon, owner of EZ Acres farm in Homer, will expand nearly 25 percent.
“It’s a very difficult economic time for dairy and we are entering our fifth year of producing milk at or below cost,” McMahon said Tuesday. “At the same time we took in two junior partners four years ago, so there’s now four owners instead of two here so we need to expand the dairy to accommodate that.”
McMahon said he is building a 15,000-square-foot facility for around $400,000 and adding about 200 more cows to the 800 he already has. He also said that he is likely to hire two more full-time employees and a part-time employee.
McMahon sells to Byrne Dairy and his milk gets around $15.70 per hundredweight, or 100 pounds of milk. The cost to produce it is about $16.50 per hundredweight.
To make a profit, including feed, labor, electricity and depreciation, he said actually needs to sell around $19 per hundredweight.
“We’re kind of working in the negative numbers all the time or so close to the edge,” he said. “And as a result of increased production by dairy farms across the country and the fact that our exports are off by a considerable amount as a result of the tariff wars going on with the current administration, were not seeing nearly enough product go offshore as we need to be profitable.”
He noted that Mexico is our the country’s largest dairy trade partner, but exports are down 20%. With China it’s down 40%, he said. That’s because the country’s United States- Mexico- Canada Agreement, which replaced the North American Free Trade Agreement, hasn’t gone into effect yet, although it was signed in November. Tariff talks are ongoing with China.
However, because he is expanding, McMahon will incur a penalty from Byrne Dairy, which is trying to control the supply by limiting overproduction. That penalty is determined by the difference between last year’s production and this year’s. Byrne would pay a lower price for the extra milk.
However, McMahon said the penalty price is better than not expanding at all.
But owners of some smaller farms say farm growth in general is a hindrance.
“That shoots everybody in the foot,” said Alvin “Sandy” Doty Jr. “The little guy doesn’t have the option to keep on adding more cows.”
Doty has 70 cows at his farm in Willet. He doesn’t plan to expand.
“Farmers are their own worst enemy,” he said. “When prices are bad, they want to put on more cows to make a profit and if the prices are good then they want to put on more cows. That’s a lot of what has led to overproduction.”
Doty said both he and his son, Jeffrey Doty, have had to take on other jobs to supplement the farm income. Doty drives a dump truck, while his son drives a school bus.
“I’m third generation and my son’s fourth,” he said. “Or he’d like to be fourth.”
One solution Doty mentions is government-set supply management. Each farm would get a quota and would get paid for meeting that quota; any extra production would be bought at a cheaper rate.
“That’s what Canada has had for years,” he said. “It’s worked well for them. That would be immensely helpful for the little farmers trying to get by.”
McMahon said he reads reports daily that switch between saying that dairy prices will increase in the second half of the year and then saying they won’t.
“It’s anybody’s guess,” he said. “The biggest factor I believe is going to be resolving the tariffs situation. If they could get that done we could get back to trading with Mexico and China like we used to and that would open our markets back up. Farmers always have hope and we hope that those things will get done and if they do, we should see better milk prices.”