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Financial Management Alternatives for Low Milk Prices

Suggestions for improving farm's financial position during economic downturn.

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Updated:

June 1, 2026

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During the last four years, 2022 to 2025, Class III milk witnessed a perfect milk price roller coaster. The beginning of 2022 signaled good news. The U.S. Class III Milk Price climbed from $20.38 in January to $25.21 in May (Table 1).

Line graph and table showing US class III milk prices for 2022-2026 — Table 1. U.S. Class III Milk Price 2022-2026.

However, over the next several months, the Class III milk prices gradually plummeted to $13.77 in July 2023. A short-lived improvement followed two months later, in September 2023, with $18.39/cwt milk. Next, a drop to $15.17 in January 2024 and back to $23.34 in September 2024, a difference close to $8.00/cwt.

The following year, the Class III milk price oscillated between $17.00 and $19.00/cwt most of the year (USDA, 2026). Of the past four years, 2023 marked the lowest earnings per cow, and thus, the lowest profitability (Northeast Dairy Summary, 2025).

The difference in revenue for a drop in milk price of one dollar for an average PA dairy farm of 100 cows producing 75 lbs. of milk/day/cow would be about $2,280/month. For a drop of $8.00/cwt the loss of revenue could be $18,240.

Dairy producers with Class IV milk prices also experienced large price differences during the last four years. Class IV milk prices were more stable throughout 2022, ranging from $24/cwt to almost $26/cwt for ten months of the year, averaging $24.47/cwt. Then, it plummeted below $19/cwt for more than half of the year, averaging $19.11/cwt in 2023. A steady incline was seen during first nine months of 2024 and then a decline for the next 15 months to a lowest of $13.64/cwt in December 2025.

Line graph and table showing US class IV milk prices for 2022-2026 — Table 2. U.S. Class IV Milk Price 2022-2026

A survey of 154 PA dairy farms indicates that the average cost of producing milk in 2023 was $21.24/cwt. Dairy herds with 99 cows or fewer averaged $21.01/cwt, 100-299 cows averaged $20.87/cwt, and herds with 300 cows or more averaged $21.88/cwt (Cost of producing milk in Pennsylvania, 2023). So, most of the time over the last four years, producers were receiving prices below their production costs.

So, what can dairy producers do to improve their financial position?

Here are a few steps producers can take to improve the farm position in down-cycles. Not all steps are suitable for every operation. Individual differences in farm management create different opportunities. Possible income increases and/or expense adjustments can be explored and made on the farm by the farm manager. Others, such as capital adjustments and loan options, could involve working with advisors and vendors outside the farm.

The first step is to fight the urge to deny the problem exists. Discuss the situation with others. Talk to your management team (spouse, family, lender, and partner). Here are several ideas and alternatives that should serve as guidelines to improve income and/or cut costs, impacting the income and expense of the business, as well as its capital and debt capacity.

Income and Expense Options

Analyze both this year and next year's cash flow – this is the first area to address. Look for ways to reduce expenses without harming revenue. Some alternatives may be beneficial for one year but detrimental in the other year. Also, tax implications of alternatives may affect both years. Much like in prior years, with tight margins, many farms do not have to have much space to make additional changes.
Evaluate risk management options. Financial conditions can be improved by learning to use options, contracts, insurance, financial reserves, and other risk management tools to address future risks.
Re-evaluate and reduce your expenses for this year. Nonessential repairs can be cut. Seriously review the need for capital expenditures for machinery, equipment, and buildings.
Explore alternative income opportunities. There may be ways to increase income that have not been used before. The potential of increasing non-farm income to replace declining farm income may be an alternative for some farm families.
Consider all possible (legal) ways to minimize taxes. Take advantage of income averaging. Also, remember that net operating losses can now be carried back up to 5 years. Talk with your accountant or financial advisor about options.
Talk with landowners about renegotiating cash rents. Consider changing to a share rent or a flexible cash rent for the future of increased risk. A good starting point for rent negotiation is estimating the revenues and costs for both the tenant and the landowner.
Consider selling low-producing animals or animals that require unusually high operating expenses, such as treatments, too many breedings, etc.

Capital Adjustments and Loan Options

Weigh the interest savings from taking out Commodity Credit Corporation (CCC) loans vs. the income potential from the Loan Deficiency Payment (LDP). The LDP may be more beneficial if you do not need the cash flow generated by the CCC loan.
Liquidate unprofitable enterprises. Weigh the pros and cons of these decisions. If short-term debt can be substantially reduced by selling the assets these enterprises use, cash flow may improve dramatically. To make liquidation pay, you need to find a more profitable way to employ the resources they were using. This is often operator labor. You may need to consider increased off-farm employment, for example, to use the freed-up time profitably. Again, before selling any assets, it is a good idea to talk with your accountant or financial advisor about potential tax implications.
Look for available low interest rates and consider refinancing your debt. Spending money to refinance may be very wise even in a tight cash flow situation. Even a 1% drop in an interest rate can be worthwhile for reducing cash flow requirements, as well as the cost of borrowing for loans to be held longer than the next 3-4 years. Carefully evaluate the costs and benefits of refinancing.
Move short-term debt to long-term debt by refinancing. This can be a very good strategy only if your business is able to handle the debt load in the future and if the management is able to ensure that a short-term debt problem will not recur in another year or two.
Sell excess assets. How much machinery is needed to farm? Sell any extra tractors or equipment that you and your team decide you do not need. Be certain that sales of assets do not create unintended consequences with tax burdens or lender expectations. Consider short-term rental or lease of your land. This is viable if your situation looks bleak this year, but you have solid evidence that the situation may improve in future years. This option may sound very drastic, but it may make good financial sense. If you can’t obtain sufficient operating funds from your lender or from your own reserves, renting your own land to someone else and continuing to farm the land you rent may help preserve your farm operation through a tough period for better years in the future. Talking with your lenders and landowners is certainly necessary so they all know your plans and reasons.
If you are considering making a decision to exit the dairy business, get some help with sound strategies to preserve equity. Even though it is heart wrenching and dream shattering, many farmers who have quit realize that they can live happily in town and in other jobs. The skills and qualities possessed by farmers (management, personnel, leadership, initiative, work ethic, honesty, etc.) are what other employers are looking for.

Check Penn State Extension Dairy workshops, webinars and articles to find information and tools to evaluate your business before making final decision to retain equity and position for the future.