Challenges on. Changes in the. Landscape of Pennsylvania s Dairy Industry. Dairy s Contribution to Pennsylvania. Marketplace.

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1 CURRENT STATE OF PENNSYLVANIA S DAIRY INDUSTRY WHAT I WILL COVER TODAY: Dairy s Contribution to Pennsylvania Challenges on the Supply Side Landscape of Pennsylvania s Dairy Industry Changes in the Marketplace 1

2 Dairy s Contribution to Pennsylvania PENNSYLVANIA NATIONAL LEADER IN DAIRY Second Largest Number of Dairy Farms at 6,570 farms 525,000 Head of Dairy Cows Seventh Largest Industry in Total Milk Production Leader In: Butter Ice Cream Swiss Cheese 7 TH 2

3 WHAT DAIRY S WORTH TO PENNSYLVANIA In terms of: A Local Abundant Source of High Quality, Nutrient-Rich Dairy Foods Valuable Economic Revenue Generation Local, Competitive Job Opportunities Wide Open Spaces and Conservation of Our Natural Resources Tourism Opportunities in Rural Communities PENNSYLVANIA COMMUNITIES EXPORT MILK, IMPORT MONEY Pennsylvania dairy products moves up and down Eastern seaport, exported outside country Farms send milk off their farms, bring money back into local community Farms support highly-competitive jobs, with wages averaging between $ $25.07 per hour for skilled worker 3

4 Landscape of Pennsylvania Dairy Industry PENNSYLVANIA S MILK SHED IS GROWING January 2018 Pennsylvania s Rolling 12-Month Average Reached Billion Pounds in January Up 1.4 Percent from 2017 Highest Level Since 2000 But Still Falling Behind Nationally Michigan and Texas Both Surpassed Pennsylvania in 2017 Now Falling to Seventh Largest Industry 4

5 Lbs/cow/year PENNSYLVANIA GROWTH IS ALL FROM MILK PER COW, BUT SLOW 27, % 25, % +36.1% 22,500 20, % 17,500 15, PA NY WI MI CHANGING DEMOGRAPHICS OF PENNSYLVANIA FARMS State s Dairy Herd is Shrinking Down 5,000 Head Over Past Two Years 525,000 Head Total Milk Production Per Cow is Improving Up 1.4 Percent from Year Ago Still 200 Pounds Below National Average Herd Size is Growing 80 Cows on Average Per Farm Still 100 Cows Below National Average 5

6 PROPORTION OF COWS ON FARMS, BY SIZE 60% 50% 40% 30% 20% 10% PA NY MI WI 0% 1 to 9 10 to to to to to or more Farm Size, Milk Cows Source: NASS, 2012 Ag Census Challenges on Supply Side 6

7 CHANGING DEMOGRAPHICS OF PENNSYLVANIA FARMS Pennsylvania s Dairy Farms are Generational Businesses Many Owners Over Age of 55 Farms Faced With Diverse Challenges Strict Environmental Pressure High Land Values Greater Access to Market = Greater Access for Consumers Higher Cost of Production PENNSYLVANIA HAS HIGHER AVERAGE COST OF PRODUCTION, BUT WIDE RANGE BETWEEN HIGH AND LOW $ US AVERAGE: $ PA AVERAGE: $

8 ARE PENNSYLVANIA DAIRY FARMS GROWING? Questions Is Your Farm Currently Producing Milk for Sale Total Cow Numbers Total Number of Heifers How Much Milk Was Produced Yesterday 9,293 lbs. 7,397 lbs. 5,504 lbs. What Is The Typical Somatic Cell Count 100, , , , , ,000 Primary Operator s Year Born * From Pennsylvania Dairy Producer Survey Completed in Summer 2017 IS MANAGEMENT IMPROVING ON PA FARMS? Have you used financial consultants or accounting services? 59.3% 62.6% 56.4% Have you been using a professional feed nutritionist on a regular basis? 87.3% 87.7% 86.5% Implemented a systematic breeding program such as a timed A.I. program? 57.7% 60.2% 33.7% Developed a written business plan for my dairy operation? 15.8% 15.3% 11.7% Developed a formalized succession or transition plan? 13.2% 12.9% 10.0% Have you used Crop Insurance? 23.2% 31.5% 35.0% Have you used Risk Management programs OTHER THAN Crop Insurance? 14.3% 10.6% 7.2% Have you participated in Risk Management education? 14.6% 17.8% 22.0% Have you completed or maintained a manure management plan for your farm 74.6% 67.0% * From Pennsylvania Dairy Producer Survey Completed in Summer

9 MOST LIMITING FACTORS TO GROWTH * From Pennsylvania Dairy Producer Survey Completed in Summer 2017 Changes in the Marketplace 9

10 GLOBAL MARKETPLACE Pennsylvania Dairy Farms Are Operating In a Global Marketplace About 14 Percent of the Total Milk Solids Produced in US Exported in 2017 Global Factors Pressuring Mailbox Price Powder Supplies Building in Europe Key Dairy Regions Increasing in Milk Supply US Milk Production Continues to Grow Despite Soft Prices CHANGING MARKETPLACE IN NORTHEAST 100% 80% 60% 40% 20% 0% Class I 34.3% 32.0% 43.9% 24.4% 24.3% Class II 17.3% 24.1% 23.9% Class III 29.1% 17.5% 19.5% 9.7% Class IV 2000 avg 2015 avg April 2016 Class I (drinking milk) declining sales has led to plant closures Class II (yogurt) production has declined in the Northeast compared to 3 years ago Limited demand and underutilized plant capacity older Class I plants, newly built manufacturing plants More Milk Going Into Class III & IV (Cheese and Butter/Powder) Class IV is the lowest priced Class 10

11 CHANGING MARKETPLACE IN NORTHEAST 100% 80% 60% 40% 20% 0% Class I 34.3% 32.0% 43.9% 24.4% 24.3% Class II 17.3% 24.1% 23.9% Class III 29.1% 17.5% 19.5% 9.7% Class IV 2000 avg 2015 avg April 2016 Changing Class I Utilization Shrinking Basis Between Pennsylvania Mailbox Prices and Class III Price. Changing Processing Needs Causing Short-term Balancing Challenges First Time in History When Producers Can t Find Market MARGIN STRESS IN US VERSUS PENNSYLVANIA Class I Sales Shrinking Region Oversupplied Result: Tighter Margin Between PA and US Average Price 11

12 MILK BASIS ERODING IN PENNSYLVANIA Milk Basis Defined as Difference Between Price Dairy Farmer Receives in Mailbox and Class III Milk Price. Pennsylvania Dairy Farmers Have Historically Had A Very High Basis and a Higher Average Price Than Almost All Other Regions in US Over Past Five Years, That Basis Has Eroded At Least $1 Or More on Most Farms On Average Dairy Farm With 70 Cows Producing 70 Pounds Per Day --- Nearly $20,000 Loss Annually What s It Worth: Dairy Is A Major Contributor To The Commonwealth In Terms Of Local Quality Products, Good Jobs, Valuable Economic Revenue, And Wide Open Spaces What s It Look Like: Our Dairy Farms Are Generational Businesses, Traditionally Smaller Than Average, With Higher Costs Of Production Than In Other Regions Of The Country What s The Challenge: Dairy Farm Families In Pennsylvania Must Become More Competitive And Lower Their Cost Of Production, But Are Slow To Utilize Resources Or Adopt BMPS To Drive This What s Happening In The Market: Pennsylvania Is Competing In A Global Marketplace, And The Northeast Region Is Currently Oversupplied. Traditionally A Fluid Milk State, Pennsylvania Milk Is Now Moving Into Other Classes Which Is Lowering The Basis Or The Difference Between Our Milk Price And The National Average. TO SUMMARIZE: 12