By Shirley Chapman
During the past decade, the Texas Panhandle and eastern New Mexico milk shed has quietly grown to become the third largest milk-producing area in the country. Not bad considering this area was once only known for cattle feedlots.
So what spurred the transformation? According to David Anderson, Extension dairy and livestock economist at Texas A&M University, it was an ideal mix.
The Panhandle has always been an agricultural production area. "People here accept and understand production agriculture," he says. "The infrastructure was already here because of the cattle feeders, the climate is great for cows, producers were able to buy land and the permitting process was not overly burdensome."
Add those factors together, and you get a recipe that not only attracted large dairies but also helped draw milk processing plants to the region.
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If Anderson had to pick one word to describe the outlook of producers and processors in the area, it would be "optimistic," he says.
Strengths. The Southern climate and recent processor growth in the area are two big advantages. Texas dairy producers also tend to be progressive, Anderson says. They will need all of that business acumen going forward to control costs, especially as interest rates start to rise, he adds.
Weaknesses. Texas is a feed-deficit state. The high corn and alfalfa prices have been tough for many dairy producers—how tough depends on whether you had the ability to grow any crops and what your cash reserve was before feed prices spiked and the economy took a nose dive in 2009.
In addition, more producers need to embrace and use the marketing tools available to them, Anderson says. Used correctly, these tools can help maintain margins when input and output costs both fluctuate.
Opportunities. While fluid milk consumption might be declining, total milk products consumed is climbing. Think about cheese, yogurt, whey proteins and other milk products that you now see included in more and more foods. Add in a recovering global economy and consumers in other countries who now have the income to upgrade their diets, and the stage is set for higher dairy demand globally. Texas dairy producers and processors have lots of room to grow and help meet this market.
Threats. Water is the biggest threat for the dairy industry in Texas, Anderson explains. Water quality, water conservation and water recycling are important tools for dairy producers everywhere—but Texas is a drier, more arid state.
In 2011, Texas suffered its worst drought ever and still has not returned to normal weather patterns. Add in the huge amount of water now used for the oil industry in hydraulic fracturing or "fracking," and many producers wonder about the water supply for the future.
"People don’t understand and appreciate how long it takes for an underground aquifer, such as the Ogallala Aquifer, to recharge," he says. Aquifers are not an endless supply of water. The industry will suffer without a clean, reliable source of quality water.
Other threats include continued slow economic growth that never really allows dairy demand to grow. Rising interest rates will add to the cost of doing business. Anyone without a debt-management plan could find themselves pinched.
- April 2014