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Thread: Exit plan

  1. #1
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    Default Exit plan

    In our area there is more talk than ever of quitting. Long time well to do dairymen are so sick of the last 3 years of 'ok' to 'poor' prices they wonder if it's time. We are in year 19 of taking over from our dad and never have ever thought of throwing in the towel till now. Just no bright spots price wise in the foreseeable future it feels (CME) like. Do you hold on (borrow) and pray for a turn around or cut n run before it gets darker? The 1st guys who quit in years like this always do better than the last ones. Just so disheartening to see the markets and their neg results. I cant find any econ who is thinking something is gonna suddenly break. You guys?

    Anyone else feeling this way? Just for some reason this feels so much more....hopeless than 09

  2. #2
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    Quote Originally Posted by Troydairy View Post
    In our area there is more talk than ever of quitting. Long time well to do dairymen are so sick of the last 3 years of 'ok' to 'poor' prices they wonder if it's time. We are in year 19 of taking over from our dad and never have ever thought of throwing in the towel till now. Just no bright spots price wise in the foreseeable future it feels (CME) like. Do you hold on (borrow) and pray for a turn around or cut n run before it gets darker? The 1st guys who quit in years like this always do better than the last ones. Just so disheartening to see the markets and their neg results. I cant find any econ who is thinking something is gonna suddenly break. You guys?

    Anyone else feeling this way? Just for some reason this feels so much more....hopeless than 09

    I fully intended to milk until I fell over dead in the barn. But I'm selling. Don't expect to be milking by March 1. I'm not yet forty and I feel like I have to start life all over. But this has exhausted all the capital I've got with the exception of the land. I wish I had moved on this even a couple months ago. The way cattle prices are falling, I'll be lucky to get out without losing my butt.

    I don't see this like 09, which was just a bad market. I see this as a huge shift in the industry.like hogs and chickens did long ago. I don't see that anybody not milking 1000's will survive this. I don't expect co-ops as a way of marketing milk will survive this. I don't expect the independence and autonomy of individual farms will survive this. I am expecting that milk prices below costs of production will go on and on until the industry is totally consolidated.

    The very largest farms here are still in full expansion mode. In just the last couple weeks, I've heard of construction of a new 7000, a new 4000 and a new 3000 cow within a short distance of me. Even this market can't stop them.

  3. #3
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    If you aren't adding cows every few years or have no intentions of doing so than it will get progressively harder. I fully expect within 10 years that the average dairy farm will have over 1000 cows. That said, higher prices will come next year but they will not be of a level that they will bring huge profits to counter losses for those that are losing money the last 3 years. Processors prefer tanker loads from single farms. Some small producers will find a niche processor but we are moving to a barbell shape in the industry... small producers for niche and large producers for efficiency.

    I've decided to stay in. It's going to be a long march of flatish prices while the world sorts out production. Europe has a lot of milk to add yet since the fall of quota.
    DiederichFarm
    "You are only as good as your next success, not your last" Sir Jock Stirrup

  4. #4
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    It is going to get a lot uglier before things turn around. I have been watching auction barn websites and they are having lots of last minute sales. Could be for a variety of reasons but I am guessing most are throwing in the towel before **** hits the fan on prices. I know here in eastern Wisconsin I can think of at least 2, 3000 cows or larger dairies currently under construction. My neighbor, as in 1/4 mile north of us has permits filed to add another 3,000 cows. He currently milks around 5,000. Not sure what the answer is but the decision to borrow more money is tough. I am 36 years old and question often weather I should keep borrowing on my line of credit just to have the opportunity to continue milking cows. It is hard as a midsize producer to really ever have my day end. Always worried about that cow that is calving at night, etc. Would it be easier to have a job where at the end of the day I punch out my time card and say see you tomorrow, I am sure it would be but that is not my personality.


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  5. #5
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    I'm not sure why everyone just assumes only the biggest of the big will survive this? Didn't Troy just expand in the last year?

  6. #6
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    Quote Originally Posted by whistle pig View Post
    I'm not sure why everyone just assumes only the biggest of the big will survive this? Didn't Troy just expand in the last year?
    Consolidation is the natural state of mature market production. Size increases and operations exit. Processors prefer fewer large accounts than many small ones. Efficiency and specializing of staff allows larger operators to better adapt. Further, regulations make clear that larger operations will continue to make sense
    DiederichFarm
    "You are only as good as your next success, not your last" Sir Jock Stirrup

  7. #7
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    We made the decision this past weekend. I mentioned that I got my budget and projections through 2021 done and there was absolutely no glimmer of hope that my current model for dairying was going to cut it. Why burn equity in that case? If I get out now, I'll at least maintain enough equity to consider my next move. Trudging along for three more years and having nothing to show for greatly diminished equity just makes zero sense when you take the emotion out of the equation. I like cows, but I hate losing money even more. So I'm at peace with the decision we came to. The future will be interesting, that is for sure.

  8. #8
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    Quote Originally Posted by drdiederich View Post
    Consolidation is the natural state of mature market production. Size increases and operations exit. Processors prefer fewer large accounts than many small ones. Efficiency and specializing of staff allows larger operators to better adapt. Further, regulations make clear that larger operations will continue to make sense

    Yout crystal ball is no better than mine or anyone else's....sure it's easy to point out long term trends and make claims of the future but a lot of water has to go over the dam first.

    If that is your belief, you may want to plan your own exit also... Your still quite a ways from 1,000 cows if that's the salvation mark.

  9. #9
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    Quote Originally Posted by whistle pig View Post
    Yout crystal ball is no better than mine or anyone else's....sure it's easy to point out long term trends and make claims of the future but a lot of water has to go over the dam first.

    If that is your belief, you may want to plan your own exit also... Your still quite a ways from 1,000 cows if that's the salvation mark.
    He'll be getting closer after he takes a few more off my hands

  10. #10
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    Quote Originally Posted by whistle pig View Post
    I'm not sure why everyone just assumes only the biggest of the big will survive this? Didn't Troy just expand in the last year?
    My opinion,for what its worth, is the single site farm, no matter how many cows is over. Its simply going to take too much money to survive a decade long downturn. Nobody's daddy left them that much money. Its going to take investors or, better yet direct links to the processors who've always made the money, no matter what price milk is. The farms I mention above, are all tied more or less directly to a conglomerate that has almost as many processing plants as it does farms. As well as fruit/nut/beef/hog/chicken and who only knows what else. Price of milk don't mean much to people like that.

  11. #11
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    Quote Originally Posted by whistle pig View Post
    Yout crystal ball is no better than mine or anyone else's....sure it's easy to point out long term trends and make claims of the future but a lot of water has to go over the dam first.

    If that is your belief, you may want to plan your own exit also... Your still quite a ways from 1,000 cows if that's the salvation mark.
    I never said my crystal ball was perfect... you asked why people think bigger is an answer or salvation....i answered your question.

    I'm quite aware of my farm size and the economics at play surrounding my farm.
    DiederichFarm
    "You are only as good as your next success, not your last" Sir Jock Stirrup

  12. #12
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    Curious -- do ya'll see the situation being any different on the east coast? Say, New York, Pennsylvania, and Virginia? I don't see the large dairies that you all describe; Most seem to top out at 600, with a few 1k dairies. There's a much higher proportion of Amish and Old Order Mennonites shipping milk, and presumably willing to run lower profit margins for the privilege of doing so. It's primarily a fluid market, with correspondingly higher prices.

    Thoughts?

  13. #13
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    You all speak of conventional dairy’s I’m guessing. Organic dairy’s have a different model. There customers like to see the smaller operations. I’m in Vermont and we have the large 1k dairy’s but not a lot. The land base dose not support a 2k dairy vary well. What’s everyone’s thought on the organic market?

  14. #14
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    Quote Originally Posted by Bairdswift View Post
    You all speak of conventional dairyís Iím guessing. Organic dairyís have a different model. There customers like to see the smaller operations. Iím in Vermont and we have the large 1k dairyís but not a lot. The land base dose not support a 2k dairy vary well. Whatís everyoneís thought on the organic market?
    Organic is struggling also you just donít hear about it as much. The current pay price for organic milk is down to $27/cwt from $40/cwt just 2 years ago. There are lots of certified organic cows for sale in WI. One of my friends families who switched to organic about 10 years ago says they are not making any more profit than when they are conventional. You have to be able to produce all of your protein and energy if you are organic to truly make good profits in organic production.


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  15. #15
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    Quote Originally Posted by kipps View Post
    Curious -- do ya'll see the situation being any different on the east coast? Say, New York, Pennsylvania, and Virginia? I don't see the large dairies that you all describe; Most seem to top out at 600, with a few 1k dairies. There's a much higher proportion of Amish and Old Order Mennonites shipping milk, and presumably willing to run lower profit margins for the privilege of doing so. It's primarily a fluid market, with correspondingly higher prices.

    Thoughts?
    I think there will be regional based demand but size will still matter. I can get many efficiencies buy owning 4 or 8 or whatever 700 cow farms... not all of the ones large farms have but many of them... professional accounting, capital access, permit knowledge and expertise, buying power. There are already farms out east doing some of this.

    There will also be a strong niche market for various style product closer to population centers, wherever they are. This seems to always be the case.... the more people in an area, the easier it us to cater to smaller groups with more specific tastes.
    DiederichFarm
    "You are only as good as your next success, not your last" Sir Jock Stirrup

  16. #16
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    Quote Originally Posted by Bairdswift View Post
    You all speak of conventional dairyís Iím guessing. Organic dairyís have a different model. There customers like to see the smaller operations. Iím in Vermont and we have the large 1k dairyís but not a lot. The land base dose not support a 2k dairy vary well. Whatís everyoneís thought on the organic market?
    That's true to an extent... but lower cost wins... in most sectors of organic it is actually more concentrated than in conventional... ie lather producers supply more percent of the product.
    DiederichFarm
    "You are only as good as your next success, not your last" Sir Jock Stirrup

  17. #17
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    The organic market seems to be maturing. My dairy income was down almost $100,000 in 17' from 16'. I'm a long way from red ink though. We have been under a quota for almost a year now and I don't see that changing in the foreseeable future. It's been sever years since my coop has taken on a new producer.

    It doesn't matter if your conventional or organic, survival is all about your cost of production. The guys working on tight margins are going to be the ones struggling regardless of size.

  18. #18
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    Quote Originally Posted by whistle pig View Post
    It doesn't matter if your conventional or organic, survival is all about your cost of production. The guys working on tight margins are going to be the ones struggling regardless of size.
    This.

    Pretty much the biggest driving force in my decision. Instead of hoping and praying for higher milk prices, I've concluded my current model just doesn't have a competitive cost of production. The equity is there to continue, but what's the point in burning it up?

  19. #19

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    Is there a future in dairy anymore? I have a local processor that picks up almost all 40-70 cow dairies at around $14 hundred weight after premiums. I believe we are seeing about a $13-14 break-even on a 50 cow dairy, so I don't think we are losing any money. My goal is to buy out a retiring farmer in 5 years or so and our local processor supports smaller dairies. Are most farms/regions getting less than $13-$14 a hundred is your break-even higher?

  20. #20
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    Quote Originally Posted by Ryan Wiemken View Post
    Is there a future in dairy anymore? I have a local processor that picks up almost all 40-70 cow dairies at around $14 hundred weight after premiums. I believe we are seeing about a $13-14 break-even on a 50 cow dairy, so I don't think we are losing any money. My goal is to buy out a retiring farmer in 5 years or so and our local processor supports smaller dairies. Are most farms/regions getting less than $13-$14 a hundred is your break-even higher?
    Depends on your location. Most break even cost are in the $17+ range from my experience. Land around here is nothing less then $8,500/acre. Last year a 300 acre farm sold for $15,000/acre yet. The record land sale 2 miles from us was $18,405/acre at auction. We canít farm any further east because Lake Michigan doesnít grow crops well. Everything depends on debt load and location.


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