Silver Lining among the Clouds for Idaho’s Dairies

August 21, 2012

By: Catherine Merlo, Dairy Today Western and Online Editor

Map graphic courtesy of Idaho Dairymen's Association.

Despite high feed costs and narrow profit margins, there’s good news for Idaho’s dairies.

First, the bad news regarding the nation’s No. 3 milk-producing state.

In Idaho, dairies representing more than 50% of the state’s milk production are in special-asset status with lenders, says Rick Naerebout with the Idaho Dairymen’s Association (IDA).

Special-asset status means the bank has transferred a loan to its “workout” department for closer scrutiny, which sometimes leads to pulling the loan or liquidating collateral.

Idaho dairies are wrestling with the double whammy of high feed costs and milk prices that are among the nation’s lowest. Feed availability and affordability are particularly big concerns for dairies in the wake of 2012’s record drought, which has gripped much of the nation, shrinking crops and sending corn prices through the roof at $8 per bu.

“Dairy margins are narrow, if existent,” says Naerebout.

2012’s downturn comes on the heels of 2009’s brutal economic downturn, which hit dairies nationwide, says Dr. Scott Brown, agricultural economist with the University of Missouri. “Even today, many dairy producers are still trying to recover from the economic hit they endured during [2009],” Brown says.

Idaho’s dairy industry is not a part of the Federal Order pricing system, and its milk prices don’t reach the levels of many other states. In 2010, Idaho’s All-Milk price trailed the Texas All-Milk price by $2.90 per cwt., says Brown. By 2011, the gap widened even further.

One factor in Idaho’s lower milk prices is its pricing formula. Producers are paid on a cheese yield formula that doesn’t take into account the value of whey in a similar fashion to the federal order minimum Class III price, says Brown. Another reason for the state’s lower prices is that Idaho milk is primarily used for producing cheese, and prices have lagged behind other dairy commodity levels. In addition, Brown says, Idaho’s milk output rate has outpaced milk growth in other parts of the U.S. The local supply and demand situation in Idaho may be contributing to the state’s lower milk prices.

Further, “the distance from Idaho to demand centers for milk and milk products is among the farthest in the country,” Brown says.

But that distance is narrowing, and that’s where things are starting to look up for Idaho’s 560 dairies.

Dairy food manufacturers recently have built new plants or expanded existing operations in the Gem State. Jerome Cheese (part of Davisco Foods), Sorrento, and Gossner Foods all have invested capital to increase the capacity of their Idaho plants, says Naerebout.