Capacity reached the limit at several milk processing plants this spring.  

Western processors implement supply control programs

What do you do with an extra 5.7 billion pounds of milk?

That’s what the U.S. dairy industry has wrestled with this year as the nation’s dairies churn out a record volume of milk. USDA’s projected 201.9 billion pounds of milk for 2012 means the nation will produce 5.7 billion pounds, or 5.2%, more than last year.

To curb the flood of milk that has filled many plants to capacity, several dairy processors implemented supply control programs or cut volume premiums this spring.

"Normally there’s more capacity in the Midwest, but this year, plants are full all over," says Robin Schmahl, dairy marketing specialist with AgDairy LLC in Wisconsin.

The Idaho Dairymen’s Association reported in April that milk from California had been "hitting the road and traveling as far as Iowa looking for a home."

"Plants in the Upper Midwest are full because of milk shipments from California and Idaho," says Bob LeFebvre of Minnesota Milk Producers Association.

In California, where the situation has been particularly acute—March 2012 output alone rose 221 million pounds over year-earlier levels—Land O’Lakes took unusual action. Rather than ship its excess California milk elsewhere and accept heavy discounts from other processors, it implemented a three-option plan to cut production among its 235 Golden State members, says Tom Barcellos, a Central California dairy producer and Land O’Lakes delegate.

The effort, which took effect on April 1, extends to June 30. The goal? To reduce daily milk flow into Land O’Lakes’ Tulare, Calif., plant by more than 1.1 million pounds.

One option gave members a premium of 30¢ per cwt. if they reduced their modified temporary base by 6%. That reduced daily milk receipts by 285,000 lb. A second option, which offered an incentive to terminate membership, resulted in Land O’Lakes buying out 17 dairies in Tulare and Kings Counties and cutting the milk flow by 765,000 lb., Barcellos says. Under the third option, members could abide by their March 1 modified base rate and face a penalty of $10 per cwt. on anything over that production amount.

In March, California Dairies Inc. (CDI), the state’s largest dairy processing co-op, sent notices urging members to abide by its internal supply program, in place since 2008.

Producers were reminded they faced over-base charges if they exceeded their allotted CDI production base. Dairy Farmers of America has also put curbs on members’ milk output in Utah.

Increased volume from its members helped fill United Dairymen of Arizona’s (UDA) Tempe plant "to very efficient levels," says CEO Keith Murfield. "Normally, we can handle 200 million pounds of outside milk a year, but this year we’ll only be able to help on a limited scale."

Land O’Lakes has reduced daily milk flow into its Tulare, Calif., plant by more than 1.1 million pounds.

The heavy U.S. milk supply is largely due to the mild winter, an earlier-than-normal spring flush among herds and high per-cow output. Worsening the West’s strained processing capacity was the closure of a dryer at a Darigold powder plant in Lynden, Wash., after a February explosion. That forced the Northwest dairy co-op to cut operations by 50%. The dryer, one of two at the plant, won’t be operational until spring 2013.

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