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Cheaper Feed, Higher Milk Premiums Position Midwest to Compete

July 22, 2014
FJM 6472   Copy
Dairy cows feed at this South Dakota dairy. A new study shows Midwest ration costs to be among the lowest of other growth regions.  
 
 

A new study shows Midwest ration costs to be among the lowest of other growth regions, while its milk price premiums are often 25%-50% higher.

Source: Midwest Dairy Association

The Midwest has the potential to capture its share of growing domestic and global dairy demand opportunities, according to a recently completed economic study funded by the Midwest Dairy Association through the dairy checkoff.

The study, conducted by Blimling and Associates, Inc., was carried out under the direction of the Midwest Dairy Foods Research Center’s Dairy Economic Advisory Council, consisting of dairy farmer and processor leaders.

Titled "A Path Forward," it points out the region’s land and water infrastructure, positive business climate, capital resource availability and favorable returns as key ingredients that could help determine its place in projected U.S. dairy market growth of 15% by 2022. With more than 15% of domestic milk production (on a total solids basis) now being exported, the study was designed to assess the factors that could help Midwest states respond to the changing marketplace and continue to capture the significant economic impact provided by the dairy industry.

The study shows Midwest ration costs to be among the lowest of other growth regions, such as Michigan, Colorado and Idaho. At the same, milk price premiums often exceed $2/cwt., 25% to 50% higher than these competing states.

Nevertheless, milk production in the Midwest dipped to a 40-year low in 2004, but has rebounded by 15% as of 2013. Yet, as examined in the study, several factors have contributed to slowing on-farm expansions, including increased land prices, tighter lending requirements and many attractive alternatives competing for producers’ resources and capital. Growth in "greenfield" (new facility) processing capacity has been limited by relatively high farm milk prices, high freight costs and uncertainty surrounding future product mix.

At the same time, the study identified a potential Midwest role in "backfilling" for demand created by products leaving the country, as well as a focus on cheese and value-added products.
Three themes emerged from a series of interviews with dairy farmers and processors regarding the study’s findings: market assessment, public support to grow and thrive, and dairy development.

Dairy industry leaders --  including co-op and private processors, dairy farmers and others -- met to review the information in early June and expressed support for the following initiatives:

• Pursue a "growth and prosperity" strategy across the region, aiming to maintain share of U.S. milk supply while paying producers a nationally competitive milk price;

• Enhance state dairy economic development plans including South Dakota’s Dairy Drive, Grow Nebraska Dairy, Dairy Iowa and the North Dakota Dairy Coalition; and a repurposed Minnesota Dairy Leaders Roundtable;

• Identify pre-competitive domestic and global value-added product marketing challenges and opportunities through the Midwest Dairy Foods Research Center; and

• Build on Midwest Dairy’s consumer confidence initiatives to address dairy farmers’ "public license" to operate, thrive and grow.

Midwest Dairy and other stakeholders will determine how to apply the study’s recommendations and what further information is required, along with identifying what entities should be engaged in initiatives surrounding them. A summary of the report can be found at www.midwestdairy.com.

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