Long road to recovery

Written by Marjie Knust and Christine Bush
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In 2008, Joe Macedo was enjoying his life as a dairy farmer, milking about 3,200 cows on four dairies in Tipton, Calif. A year later, things took a drastic turn.
Milk prices dropped while feed costs skyrocketed. The negative margins lasted for months, making cash flow an ongoing struggle. Macedo took the advice of his banker to cut feed costs by 10 percent in an attempt to save money.

“Cutting feed costs was a negative,” he says.

The lower quality feed affected milk quality and production. So, Macedo culled his low-producing cows and increased the quality of his feed. He also sold one of his dairies and stopped renting another. Down to two dairies, and about 2,000 cows, Macedo says at the time, his future in the industry looked bleak.

“It was scary times,” he says. “We didn’t know if we were going to lose it all.”

Five years ago, Macedo was not alone. Producers throughout the country struggled with cash flow, and many lost generations of equity in their operations. Others exited the business completely.

“2009 was unlike any time that we’ve experienced for decades,” says John Wilson, DFA’s senior vice president and chief fluid marketing officer.

In fall 2009, Leader published a special issue focusing on how producers were working to survive and their hopes for emerging from the grasp of economic hardship. Of the members featured in the issue, all made it through the downturn and remain in the dairy industry.

While each producer battled different challenges and used different strategies to protect the livelihood they love, all agree that 2009 changed the dairy industry in more ways than one.

Today, Macedo has changed the way he manages his dairies, growing three-fourths of his own feed and working with a nutritionist to make sure his herd is getting the right nutrients for the least amount of money. Although he milks one-third fewer cows than he did five years ago, Macedo says he’s getting higher milk production and increased quality. He also switched banks and hired a dairy financial adviser.

“A lot of stress was lifted June 1, 2013, when I switched banks,” he says. “With my old bank, I was under a microscope. They did inventory on my operation every month. It was very stressful. Now, I can do business as usual.”

During the financial downturn of 2009, the banking industry was taking its own hit. Denis Burke, a DFA member in Ruth, Mich., was in the middle of a $1.9 million expansion when the low milk price cycle hit.

“I had to go to the bankers two times to get it finished,” he says. “They gave me what I needed. They were short-term loans with more interest, but I had a smaller bank and they were in the same financial place as I was.”

Burke increased his herd from 600 cows to 1,100, built three freestall barns and converted his parlor from a double-eight to a double-24 parabone.

“If I hadn’t done the expansion, I don’t think I would have made it,” he says. “I was too small to survive. I was running too many cows through. The parlor was old and couldn’t keep up.”

Today, Burke milks 1,500 cows and continues to build equity in his operation.

Gerald Hoekman, a fifth-generation dairy producer in Dublin, Texas, says he was lucky to have significant equity in his operation when the low price cycle hit.
“I was never deep in debt,” he says. “That’s why I’m here today. I keep plenty of equity, and I stayed with that plan.”