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Should I exit the dairy industry?

Peter Callan Published on 22 March 2010

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This article was #14 in PDmag's Top 25 most-well read articles in 2010.

Summary: As a former dairyman, Peter Callan knew what producers were going through at the end of 2009. In this article, he discussed how to go about making the decision to leave dairy farming and pursue another career.

Because this article was so popular, we asked Callan a follow-up question:

Q. You sold your herd in 1999. What was the most difficult part of making that decision? What has been the greatest benefit or opportunity since selling the herd?
A . Having grown up on a dairy-cash crop farm, I always enjoyed working with cattle. I studied agricultural economics in college with the goal of returning to the family farm. Dairy farming would be my life’s work. The long hours were taking a toll on my health in 1999. I was running myself into the ground. In addition I did not have children to take over the farm. The cows were not going to take of me if I became unable to work. It is not worth dying for a herd of cows! Thus I sold the farm. Once the cattle and farm are sold the decision is irreversible. I have not regretted my decision because I have my health.

The greatest benefit? I can still walk! Due to arthritis in my fingers, it is difficult for me to read my handwriting. Thank goodness that I can type and use Word!

The other benefit has been new opportunities. In 2008 and 2009, I worked with a number of dairy and crop producers in Zambia and Uganda teaching agribusiness principles to improve the profitability of their farms. As a dairy farmer, I would never have dreamed that I would have the opportunity have my way paid to go and teach agriculture in Africa.
Peter Callan, Virginia Cooperative Extension


Click a link below to read other articles in the Top 25:
Crossbreeding study participants share observations, opinions: http://bit.ly/PDTop25_15
Every herd has metritis: http://bit.ly/PDTop25_16
World Dairy Expo video: http://bit.ly/PDTop25_17
5 Things I can't do without: Darin Dykstra: http://bit.ly/PDTop25_18
Let's agree on a few things about MPCs: http://bit.ly/PDTop25_19
Oregon State cows monitored 24-7: http://bit.ly/PDTop25_20
Brubakers find many benefits with methane digester: http://bit.ly/PDTop25_21
How to adjust rations to incorporate BMR corn silage: http://bit.ly/PDTop25_22
Time to reclaim animal well-being as our issue: http://bit.ly/PDTop25_23
3 open minutes with Doug Maddox and Gary Genske: http://bit.ly/PDTop25_24
3 open minutes with David Martosko of HumaneWatch: http://bit.ly/PDTop25_25

ARTICLE

Many dairymen are questioning their future in the dairy industry. Can they recover the significant losses in equity that occurred in 2009? Many farmers decided that they would stay on their farms and find a way to make it in the past year. Their debt loads increased by using farm equity as collateral for operating loans to cover for shortfalls in the milk check. How much additional equity will be lost before they exit the industry? If prices remain at last year’s level, many producers will be forced to sell their herds in 2010. Who makes this decision? The owner? The bank? Does the owner want to stay in business and lose all his hard-earned equity? Will health issues force the dispersal of the herd?

In my opinion, I feel that psychology plays a prominent role in the decision-making process to exit the industry. For many producers, dairy farming is both a lifestyle and a business. Many producers have the attitude that “we have had low milk prices before and stayed in business. We just have to ‘dig in’ and keep going. Eventually prices will increase. They always have before.” The owner’s pride interferes with making sound economic decisions.

In addition, fear of the unknown plays a major part in deciding to stay on the farm. Where will we live? Who is going to hire a middle-aged man who has always milked cows for a living? Human nature says that people like security and do not want to leave their comfort zone. Thus producers decide to hang on and the losses in equity mount each day.

For many producers, their personal identity is a reflection of the financial success of the business. Their life revolves around the farm. What is their definition of success? Acres of land owned? Number of cows milked? Number of four-wheel-drive tractors owned? The number of children and grandchildren employed on the farm? How they have grown the business during their tenure as manager? And the list goes on. Thus a producer could have done everything right (planted and harvested crops on a timely basis, fed a balanced ration to his herd that maximized the use of high-quality home-grown forages) and still have not made money due to factors beyond his control. Drought and a combination of low milk and/or high grain prices raise havoc with cash flows. Is this farmer considered a “failure”?

Is “success” measured in the accumulation of financial assets? Many dairymen have given freely of their time and talents to local government, farm, community and church groups to enhance the quality of life in their communities. These dairymen took time to attend their children’s school activities. In my opinion, these producers succinctly define the meaning of “success.” These dairymen should be proud of themselves because they used their most precious asset (time) to help improve the lives of their families and neighbors.

Most dairymen put their lives into managing and operating their farms. They have sacrificed their health and time to ensure that the farms keep operating. How many current and former dairymen have artificial knees and hips? When a dairyman can honesty look himself in the mirror and say that he gave more than 100 percent of his efforts to the success of his farm, then he can start to look at his business objectively.

Dairy farming is a business. Banks will continue to make loans to producers as long as producers have the cash flow to service debt and collateral to secure the loan. Once the producer reaches the point where he has used all his equity and/or lacks cash flow to service the debt, the producer is forced to sell the business.

The economics of the dairy industry have dramatically changed in the past 30 years. In the coming years, the dairymen who survive and remain competitive (maintain and increase equity) are the ones who have the lowest production costs in a volatile world marketplace.

Maximizing profit per unit of production can be achieved in several ways. The price of technology (e.g. dairy facilities, milking equipment, tractors, forage harvesters etc.) continues to rise each year. On many farms, herd sizes have increased to spread these investment costs over larger numbers of cows to justify the investments. Conversely, many dairies have embraced the philosophy of grazing dairies, which have minimal purchased inputs, equipment and overhead. Producers must calculate how to maximize returns to their land, labor, and capital.

Let us be realistic; dairymen have limited political power in the U.S. due to their small numbers. Although many politicians are sympathetic to dairy farmers’ plight, they have to cater to the needs of the non-farm population to be re-elected. Our elected representatives have promoted a cheap food policy at the national level since the 1930’s to retain their elected offices. Due to record deficits, it appears that the federal government will be unable to provide additional “financial safety nets – subsidies” to help dairy farmers stay in business. Thus producers must determine how their farm fits into the global marketplace and make a profit without depending on government subsidies to generate positive cash flows.

All businesses will be sold to either a family member or an outside party. We do not live forever. Many producers have made minimal contributions to social security. Consequently, they will receive minimum payments of social security benefits in their retirement years. The proceeds from the sale of cattle, equipment and land fund producers’ retirements. What happens when a producer sells his assets and after debts are repaid and taxes are paid, the producer has few if any funds to show for his life’s work? Does a producer want to have worked all his life and have nothing to show for it? What will dairymen live on in their retirement years? Do producers want to live in poverty in their retirement years?

Who will make the decision to sell the cows? Producer? Banker? Doctors? Sometimes producers are forced to sell their herds ASAP when they are faced with life-threatening health issues. The bottom line is as follows: Does the producer want to remain in control of his business and decide to sell the farm on his time frame (maintaining equity for retirement) or will he let others (bank, doctors) make these decisions for him?

It is a scary thought to sell your farm, change occupations and begin a new lifestyle because there are so many uncertainties. Frightening! Fearful! These are a few of the words that can describe this life-changing event. As a former dairy farmer who sold his farm in December 1999, the decision to sell my herd and dairy was the most difficult decision that I ever made. Once the cattle and farm are sold, the decision is irreversible.

Future issues will discuss the process of selling the farm and life after farming. Is there life after farming? Absolutely yes! Farmers have a number of skills that can be transferred to the workplace. A farmer and his family may have to move to find employment. Today I live more than 400 miles from my family. My experience has been that there are good people wherever you go. Community, school and church activities are great ways to make new friends in your community. Who knows, you may like the location of your new home better that the area where you operated your farm. Life is an adventure! PD

Peter Callan
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