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RSS By: Jim Dickrell, Dairy Today

Jim Dickrell is the editor of Dairy Today and is based in Monticello, Minn.

A Four-Way Win for Dairy

Mar 23, 2012

Dairy Farmers of America’s announcement last week of its plan to build a whole-milk powder plant focused on exports in Fallon, Nev., has the potential to be a four-way win for dairy producers.

 
Win #1: The plant, with ground breaking likely to come by early summer, will require 2 million pounds of milk per day when it’s operational in late summer 2013. That will require Fallon dairy producers to essentially double cow numbers, or recruit other producers to the region. Already, some producers in the area are making expansion plans. Their greatest hurdle (more on this later) will be to convince local lenders to supply the capital.
 
Win #2: Fallon producers will no longer be required to truck their milk to California plants. The savings will come not only in hauling costs saved but peace of mind. Moving Nevada milk into California’s state-controlled order has always been a point of friction. Nevada producers live in constant fear that that access to market will be cut off, and with it their livelihood. Other than Reno, the next closest processing plant is 500 miles away. To get some sense of that distance, that’s like moving milk from Sacramento to San Diego or from Madison, Wis., to Fargo, N.D.
 
Win #3: The Fallon plant frees up California processing capacity. After 2009 and 2010, the California industry has rebounded to pre-recession levels. So the Fallon plant announcement should be welcomed news on both sides of the state border, particularly by DFA members from both states. And it should help boost California’s Class I utilization—at least until California producers make up the manufacturing milk losses to the Fallon plant.
 
Win #4: And probably the biggest win of all: DFA is showing global customers it is willing to invest in processing capacity specifically designed to meet their unique ingredient needs. Yes, the plant will be capable of producing domestic skim milk powder if world demand for whole milk powder evaporates. But the mission of the Fallon plant, first and foremost, is to supply products to meet international customer needs.
 
This is precisely the point of the Bain Study, which shows a latent supply gap of some 7 billion pounds of milk over the next few years. To meet this need, the U.S. must produce products that the global market needs—not products we produce for U.S. markets that we happen to have in surplus every now and then.
 
With this commitment comes market risk. The Fallon milk price is being targeted at Class IV plus 25¢ to 30¢/cwt. Year in, year out, this is essentially our basic manufacturing price. Few dairy producers have gotten rich at these levels. It’s one reason some bankers are already showing reluctance to finance new, $2 million milking parlors in Fallon. (See Win #1.)
 
In the end, the Fallon plant is not an automatic home run. It shows that while some will benefit by its mere existence, others will take the risk that it will be successful.
DFA and the local Fallon producers who are willing to step up to the plate should be commended. Kudos to these guys for slapping on their batting helmets against world-class competition.
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COMMENTS (3 Comments)

Ric Ohge - Belmond, IA
What isn't mentioned, but is a surprising benefit of this, is there's a huge market that will buy it. Powdered Non-Fat Dry Milk doesn't taste that great, is a so-so ingredient for use as a recipe ingredient, and with current understandings about fat, not even that nutritious. WHOLE dry milk is something completely different, and I believe will be utilized by many consumers, particularly for cooking and baking. It's said, "timing is everything", and in this case, it could prove to be true.
11:13 AM Mar 27th
 
Calvin D. Paulson - Harrisonburg, VA
This news brings another "win", the abilities of a combined group of Dairymen, free of government hand-outs. Our nation's fear of food shortages after WW11 - gave birth to "subsidised agriculture". Until our fell-fed taxpayer's shook thier cheeseburger at Washington DC. How to keep supply up/$cost down? IMPORTS! After 9/11/01 we were getting buried alive in foriegn milk powder. The ability to reconstitute powder into a delicious food was ready for testing. We in the Southeast were fluid short with a great "port" begging for business. Under resolutions legislative ability at a young DFA (feb '02) southeast, put foward in " issues for Board considerations", the implementation of a supply management program. A farmer-funded ( self imposed tariff on every CWT of milked produced). In theory, funds would grow ahead of supplies to export in foriegn markets ( not to my burdened SE & home). But that same day I(we all)advocated the "fuel-saving" SMA. It was to save hauling costs, in the humid/deficit south. In respect to current developments, lets not forget the victories incurred by DFA's United efforts, and noted increase in world markets. The intentions were to protect domestic production, eliminate government intrustion into free-market policy. World trade=Priceless!
10:30 AM Mar 27th
 

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