A growing number of producers change course with the future in mind
The future looks a lot different for California dairy producer Melvin Simoes. The change began several weeks ago as Simoes watched backhoes, PVC irrigation pipes and 4'-deep trenches transform two 80-acre blocks of land near his Tulare, Calif., dairy.
Later this spring, those 160 acres—normally devoted to corn silage and wheat—will be sprouting young almond trees.
California dairy producer Melvin Simoes is converting 160 acres of cropland into almond orchards. As part of the $1 million transformation, pipelines are being buried underground to deliver water to the trees by drip irrigation.
Although he’s never grown almonds or any other crop besides feed for his dairy, Simoes has embarked on what he calls a "nerve-wracking but exciting" venture.
"Dairying is not what it used to be," says Simoes, 49. "I want financial security. I want to leave my children something they can manage."
Simoes is one of a growing number of U.S. dairy producers who have stepped outside of their comfort zones to secure their future. Some are diversifying into lucrative crops such as almonds, walnuts and pistachios. Others are branching into retail and marketing their own dairy products or expanding their dairy operations into other states.
Driving these makeover efforts is a desire to capture profits that will enable them to remain in production agriculture. For nearly five years, dairies have struggled as soaring production costs, especially for feed, have led to low or even red-ink margins. Even with 2013’s rebound in milk prices to $20 per cwt., many dairy operations remain burdened by heavy debt loads. Social and regulatory pressures also are squeezing dairy production.
"Since 2009, the numbers have just not been lining up," Simoes says. "I was in denial of just how bad it is. Even some of the top dairymen are going out of business. I would love to stay in the dairy business, but I had to have a secondary plan."
Almond Craze. In California farming circles, it’s hard to ignore the success of almonds. The Golden State grows virtually 100% of the nation’s almonds—and 80% of the world’s supply. During the past crop year, California produced its second-largest crop at 1.88 billion pounds, according to the Almond Board of California. In 2013, the state’s almond acreage with producing trees reached an all-time high of 810,000. Only forage takes up more acreage in California.
Growing global demand for the nut has absorbed the increasingly larger crops, and prices have remained strong; 2013’s farm-gate price for almonds rose to $2.58 per pound, the second highest in 10 years. For dairies, almond’s are also attractive because the orchards use less water than feed crops and don’t come with manure management regulations. The nut harvest occurs once a year—not every day. Unlike milk, almonds can go straight to storage for shipment as needed.
"Most land being sold [in the San Joaquin Valley] is being purchased by people who intend to plant trees or some type of permanent planting," says Cornell Kasbergen, who owns a large dairy near Tulare. "I have had some dairymen tell me that for the dairy to compete with permanent plantings, milk would have to be well over $25 per cwt."
Robert Matlick, a partner with the California-based CPA firm of Frazer Frost LLP, offers business consulting services to agriculture, mostly to the western dairy industry. He named several San Joaquin Valley dairies that have expanded into permanent crops. Many others are watching or intend to do the same.
Simoes’ revelation about the vulnerability of his dairy’s future hit him this past summer while driving past his neighbor’s pistachio orchard. There, Simoes saw irrigation drip lines precisely delivering water—California’s most embattled natural resource—to each tree. Glancing to his right, he saw his own corn silage field, flooded 2' deep to irrigate the crop in the triple-digit temperatures.