SD dairy farmers look to bright future
SIOUX FALLS, S.D. (AP)--At a time when prices have plummeted for dairy farmers, South Dakota dairy farmers are coming together with a new marketing group and fresh optimism for growth.
After posting historic highs last summer, milk prices lost about half that value, and butter, cheese and dry milk products also declined sharply late in 2008.
Food Industry News predicts prices will remain low through much of 2009, and a major component of the federal government's safety net for dairy farmers, the Milk Income Loss Contract program, has production limits that cap payments at the rate of about a 145-cow operation--on the small side of U.S. dairy farms.
"There are people who know the exact date of how long they can hang on," said Walt Bones, a partner in the Turner County Dairy near Parker.
So why could participants at the Central Plains Dairy Expo in Sioux Falls muster so much enthusiasm?
"This is not a dying industry. We're going to need more milk," Robert Cropp, professor emeritus at the University of Wisconsin, declared in a keynote address at the expo.
Furthermore, Northern Plains states are ideally positioned to fill that need and benefit from the demand, he said.
Bones also thinks a rise in milk futures prices indicates the dairy industry will experience a broad rally in the last quarter of this year.
"It won't make up for the last six or eight months," he said. "But we should be able to make a little profit."
In another show of support for a bright future, a new commodity group, the South Dakota Dairy Producers, announced at the expo it is forming to be a voice for the state's 451 dairy farms, to provide leadership for the industry and to help shape public policy beneficial to dairying.
The head of the new organization is Marv Post. He began farming in a partnership in 1977 and went out on his own in 1982 near Volga. Today he and a son milk about 100 head between them. They also raise registered Holsteins, and Post grows crops on about 1,200 acres.
"It's our business and our hobby. Most of our family vacations were going to the World Dairy Expos," he said of dairy farming.
In high school, Post knew he wanted to farm and he worked for a farmer after graduating. To get to the point where he could afford to do it himself, he earned a manufacturing degree at South Dakota State University and went on to a career in food processing in Illinois and Wisconsin.
Once he started farming, Post went at it full speed.
"When the kids were small, I never shut the combine off," he said. Now at a point in life where financial pressures are less, he's ready to give something back to the industry through the SDDP.
After bottoming out in 2003 at about 83,000 cows, the industry in South Dakota rebounded rapidly, and the South Dakota Agricultural Statistics Service estimates there are now 90,000 cows on the state's dairy farms.
South Dakota has been hurt less by low milk prices than other dairying regions because there remains a plentiful supply of comparatively low-cost feed for those cattle, according to Cropp. Hay, corn and dried distillers grain, a byproduct of ethanol production, are all produced in abundance in the state.
Maximizing milk production relative to feed cost is the key to surviving the current downturn, said Lloyd Metzger, head of the Dairy Science Department at South Dakota State University.
"It really depends on how well you've protected yourself on the feed side," he said.
The competitive advantage in feed costs is not the only one this region enjoys over Western states such as California and Idaho that experienced the most recent wave of dairying expansion but have to import much of their feed. Milk processors in Midwest states such as South Dakota offer producers premiums for high-quality milk and large volumes of milk production that are not paid in the West, Cropp said.
While those have declined lately, according to Bones "the Midwest is a great place to be doing dairy," he said.
Dairy cows thrive in the climate here. There is an available work force for farmers. Cropp said the diversity of herd sizes and production techniques virtually ensures some sector of the state's dairy industry will be able to take advantage of any economies of scale or other opportunities that present themselves, and South Dakota is close to many major markets.
While the amount of fluid milk used in the U.S. has remained relatively steady for a decade or more, the real growth in the industry is in cheese production, Cropp said. From Sioux Falls, it takes 2.8 cents to move a pound of cheese to Chicago, 4.2 cents to move it to Dallas, and 6.8 cents to ship it to New York. The corresponding costs of shipping cheese made in California to those cities are 10.5 cents, 8.5 cents and 14.4 cents, respectively, according to Cropp.
South Dakota is served by five cheese processors, two fluid milk plants, a milk powder plant and a whey processor. The opening of the Green Meadow Foods cheese in Hull, Iowa, late this year will provide a market for another 700 million pounds of milk annually, about what 50,000 cattle can produce, according to Roger Scheibe, chief executive officer of the new SDDP.
The new cheese plant is a welcome development, Bones said. Area dairy farmers "were on the edge of producing more than we could process," he said.
While the headlong expansion of the South Dakota dairy industry in the past few years is likely to slow because of the current economy, according to Scheibe and SDSU's Metzger, Bones points out low prices are not entirely unwelcome.
The price of replacement cattle has dropped from about $2,200 a head to $1,200. Steel prices are also down, and building contractors are eager to find work. It's all good news for someone looking to build a dairy.
"One man's challenge is another man's opportunity," Bones said.