Testimony Offered for Pennsylvania Farm Bureau
Before the Pennsylvania Milk Marketing Board
Regarding the Level and Durationof the Class I Over-Order Premium


September 7, 2016

Presented by Glenn Stoltzfus
Dairy Farmer, Pennwood Farms
Chairman, PFB Dairy Committee
 
Introduction
This testimony is offered on behalf of Pennsylvania Farm Bureau, an organization representing nearly 62,000 farm and rural family members throughout Pennsylvania. Dairy farmers are the largest segment of producers within Farm Bureau membership.


My name is Glenn Stoltzfus. I operate Pennwood Farms in partnership with my three brothers, Don, Dwight and Duane, in Berlin, Somerset County. We milk just shy of 600 Holsteins. We also raise all of our heifer calves and have a custom grower who feeds approximately 250 of those heifers. Our milk production per cow averages 80 pounds per day. We ship our milk to Maryland & Virginia Milk Producers Cooperative Association, Inc. Eighty to ninety percent of our income comes from our milk check.


My brothers and I farm approximately 1,300 acres (700 owned acres), growing corn, soybeans, alfalfa and grass hay. We grow all of our forages and high moisture corn, and we often sell our excess corn.


Pennwood Farms might not be as typical as a traditional Pennsylvania-style average herd sized, one owner operation. Our farm business needs to financially support the four owners and their families. So, in addition to having a larger herd size, we’ve expanded to other areas to help supplement our income. For example, we do custom crop work for farmers. We also place a high priority on good genetics, selling top genetics, doing embryo transfer work, etc. In fact, I’d estimate we’ve sold between 60 and 100 head per year for purposes other than culling for the last eight or so years. These sales are made throughout the year, often to repeat customers and range from breeding age heifers to mature cows.
In addition to my on farm activities, I am a member of the PFB State Board of Directors and I am the Chair of PFB’s Dairy Committee.
Farm Bureau would like to thank the Pennsylvania Milk Marketing Board (PMMB) for providing the opportunity to offer testimony regarding the over-order premium. The objective of our testimony today is to offer evidence in support of our recommendation that the Board increase the Class I over-order premium to $1.90 per hundredweight for six months. We also support continuation of the fuel adjuster premium as calculated under the Board’s current Order.


Conditions on Pennwood Farms
For background purposes, we reviewed financial records and receipts from Pennwood Farms to compile the base numbers discussed today. I am estimating from review of those records that Pennwood Farms incurred an average cost of $21.60 per hundredweight in 2015 for production of milk. Although I am not offering figures related to our farm’s total cost of production for 2016, I’d estimate that our average cost of production for this year will be similar to the level we incurred last year.


Prepaying expenses is one of those important lessons we learned the hard way from the dairy crash in 2009. In the year or so before 2009, instead of prepaying expenses, we updated equipment. Our decision not to prepay our feed, fertilizer and other production expenses hurt us, because during the dairy downturn, we still had to pay off the significant debt we incurred from these production expenses. We faced a significant financial challenge, as we saw our margins shrink. Now, whenever possible, we try to prepay production expenses, in order to best manage our farm’s finances and income tax liability. We were able to prepay a portion of our crop expenses in both 2013 and 2014 for the next year. However, this isn’t always possible and, unfortunately, we were unable to prepay our expenses for 2016.


Income over feed costs (IOFC) provides an excellent way to look at margins on farms. Table 1  shows the monthly averages of IFOC per cow for the first six months of 2016. As you can see from Table 1, our farm’s IOFC for January was $9.37. Over the six-month period, this number dropped by 29 percent to $6.63 by June.


As I mentioned earlier, at Pennwood Farms, we grow all of our corn silage, alfalfa and hay. We do however, purchase protein – generally soybean meal – and feed concentrate, along with some other supplements for our herd. Tables 2 and 3 show the average of prices paid for feed concentrate and protein during the six-month periods of January through June in years 2013, 2014, 2015 and 2016.


As you can see in Table 2, the average price of feed concentrate during this six-month period has increased from $586.83 per ton in 2013 to mid-$600 range in 2014 and 2015 before dropping to $590 in 2016. In Table 3, our average January to June protein costs dropped from $466.67 per ton in 2013 to $359.17 per ton in 2016.


Like all dairy farmers, we also have to take into account other costs which affect our margins. Next, I’ll highlight our fuel and insurance costs which also add significantly to our expenses.
Though prices for gasoline have decreased significantly, fuel costs represent a significant portion of our expenses. Tables 4 and 5 provide figures for our total annual fuel cost ($110,229 in 2015) and off-road fuel costs per gallon during our busy months ($1.62 average in 2016), and demonstrate the continued need for the fuel adjuster. Our farm’s insurance costs – for both our property and liability and worker’s compensation – have also increased, as you can see on Table 6  and Table 7. Our property and liability insurance has increased by 35 percent, from $15,776 in 2011 to $21,330 in 2015. Our worker’s compensation insurance has also increased by 33 percent, from $14,582 in 2011 to $19,426 in 2015.


I hope these numbers give the Board a snapshot of what conditions we’re facing on the farm. I want to highlight however that the downward trends in feed and gas prices don’t mean that everything is fine. It’s just the opposite. As we often say, margins tell the story. And with a 29 percent drop in income over feed costs from January to June, and further reductions since then, I can assure you that farms are struggling.


We came through 2015 okay. We didn’t have any extra money, but because we did everything possible to reduce expenses and maximize feed efficiency, we were fine. In the first half of 2016, we were still doing “okay”. We were definitely stretched thin, but we paid the bills, even though we put off updates, improvements and only did repairs that were absolutely necessary. But all that changed in April and May. Suddenly we weren’t okay. Our margins took a hard hit – feed costs bumped up and milk checks went down even more. Since we were already operating a tight ship, there wasn’t anything else we could do to reduce expenses. We had to call the bank for financial options and to develop a strategy for moving forward. And, while times have been tough for my farm, I know there are other farmers in dire straits.


And there are still serious questions about the impact of this year’s weather conditions will have on production of feed crops around the state. My little corner of Somerset County has been blessed with some very timely rain, giving our farm a very good hay harvest. I believe our farm should have average to above average corn yields as well. But, as you might know, other farmers haven’t been so lucky and are facing low to no corn and hay yields this year. This will be a problem if milk prices continue to stay depressed and farmers find themselves needing to buy replacement feed and forage for crops that were wiped out by extreme weather conditions.


We have also been lucky so far this summer in Somerset County by not having too many days above 90 degrees in temperature. This meant that our milk production has remained strong. In other areas of the state, however, the heat and humidity have taken a toll on the cows.


Conclusion
I believe it’s clear that Pennsylvania’s dairy farmers – myself included – are facing extremely difficult conditions on the farm. For more than a year, prices and incomes for dairy farmers have been seriously below what we received during the high period of milk prices in 2014 and 2015. Many farmers are very concerned that the financial harm from this recent downturn in price will be worse than what they experienced during 2009 price downturn. While it is positive to see projections for some price recovery on the horizon, I wonder if it will be enough. Maybe it will be enough for some dairy farmers, but I fear that the conditions in 2016 may be very challenging for farmers to recover from.


Again, Pennsylvania Farm Bureau strongly recommends that the Board adopt an order that increases the current Class I over-order premium to $1.90 per hundredweight for the next six months, as well as continuing the Class I premium fuel adjuster established under the Board’s current order.


When Farm Bureau’s Dairy Committee recommended raising the over-order premium during our meeting in August, we did not make the decision lightly. The current conditions on dairy farms is difficult and some will even say dire. In the past, the Pennsylvania Milk Marketing Board has shown a willingness to raise the premium when conditions warranted it. As you may recall, in April of 2008, the Board substantially increased the premium from $1.35, and kept the over-order premium at or above the $2.15 level during that long period of extremely low prices to dairy farmers. Over the past few years, it has dropped to $1.60, the level it was at during part of 2007. It’s time that the premium is raised again. Dairy farmers are counting on the Board to help them financially survive this downturn.


Thank you for considering our request and for hearing my testimony today. I’d be happy to answer any further questions you might have.