By Shirley Chapman
The only way to describe the past five years in New Mexico’s dairy industry is brutal.
Producers have weathered a perfect storm of cascading events that led to the loss of 21% of dairies in the state, says Robert Hagevoort, Extension dairy specialist at New Mexico State University.
Five years of drought—two of them extreme—slashed forage production in the Southwest. Drought in the Midwest also hurt corn and forage production, further reducing regional feed supplies. The ethanol mandate pushed corn prices through the roof, and a stagnant farm bill left large dairy producers without a safety net.
During the economic downturn in 2009, bankers got nervous. To protect their businesses, banks changed how they valued on-farm assets. One day an operation was worth $10 million on paper, and the next it was worth just $7 million, Hagevoort explains. Banks stopped lending and reevaluated all dairies. Eroded equity changed feed deliveries to cash on delivery.
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"Producers were left floating (or sinking) like a fishing bobber," he says. Without a line of credit, they were unable to forward contract for feed. Extraordinarily high feed cost, combined with the added cost of shipping forages in from as far away as Canada, increased their costs. Some families lost generations worth of equity in 18 months—or less.
Fast forward to today. The new farm bill includes a margin insurance provision for dairy producers, corn prices have moderated and the outlook for milk prices is good. For me, Hagevoort says, "I believe the glass is half full of milk in New Mexico."
Strengths. Producers here know how to produce a lot of high-quality, low somatic cell count (SCC) milk. The high desert climate is great for cow production. The days might get hot, but at an altitude of 4,000', it cools off at night and there is always a breeze.
Comfortable cows produce more milk. That’s why New Mexico consistently ranks No. 1—at 24,944 lb.—in milk production per cow.
Weaknesses. Producers in New Mexico producers cannot grow all of the feed they need, and shipping costs for feed can add up fast. When drought struck the Midwest, forages came from even further away. In 2011, forages were bought from as far away as Canada, Wisconsin and Minnesota. The longer the distance, the higher the shipping cost.
Opportunities. The best outlook for New Mexico is exporting dairy products made from very high-quality, low SCC milk. About 20 buyers from Asian markets recently visited the area looking for products specifically made from only the highest quality of milk.
"With the right incentives, producers here can produce milk under 100,000 SCC all day long," says Hagevoort. Historically, co-ops have blended all milk together. One co-op is looking at how best to deliver specialty dairy products to these clients in order to receive a premium for the higher quality milk. That premium could then help offset the higher feed cost here. This developing market could set a new standard for the future.
Threats. Water in this desert climate is the biggest threat. Hagevoort’s research shows that during the recent drought, evapotranspiration rates have been 20% to 30% higher than normal. That means a well pumping 200 gal. per minute now needs to pump 250 gal. per minute to keep up with crop demand. The prolonged drought also means the drawdown of the Ogallala Aquifer in the past couple of years has been much faster than normal.
In general, at the time of this writing in mid-February, the dark clouds of the New Mexico dairy industry’s perfect storm seem to have subsided some. The markets look brighter, the political environment provides some clarity and only Mother Nature can change the pace of this process. The glass is indeed half full.
Kudos to the producers and their families who have done so much more with so much less during these last five challenging years. If you were challenged to be more sustainable to begin with, those who survived this storm definitely have achieved this goal.
- April 2014