Sep 15, 2014
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RSS By: Jim Dickrell, Dairy Today

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

Why Can’t the Midwest Keep Up Its Dairy Share?

Jul 28, 2014

The results of a new study confirm what most farmers and processors know – along with a few surprises.

Editor’s note: Dairy Today is conducting our own expansion survey. We’d like to know your attitudes toward expansion, whether you plan to grow or not. And if you don’t, the reasons why. Take the 10 minute survey by clicking here

Anyone and everyone who has traveled the back roads of the western Corn Belt know instinctively that this is a great place to milk cows. Productive land, open space, cow-friendly climate and agricultural infrastructure not only dominate the landscape, it is its very fabric.

And yet, milk production in Iowa, Minnesota, Nebraska and North and South Dakota as a share of national production is just half of what it was 40 years. This five-state area is producing just 8% of the nation’s milk, down from 16% in 1970. Though production has rebounded somewhat in the last decade, the region is still a shadow of the dairy powerhouse it once was.

There are signs of life and rejuvenation along Interstate 29, which runs down the eastern edge of the Dakotas and the western border of Iowa. Both cows and processing have migrated to this "I-29" corridor, proving that commercial dairy production and manufacturing can survive and thrive in the region. But why hasn’t dairy taken off in other areas of the region?

The Midwest Dairy Association (MDA), the regional checkoff program for these western Corn Belt states plus Arkansas, Illinois, Kansas, Missouri and eastern Oklahoma, decided to find out. MDA commissioned Blimling and Associates and Dairy.com to conduct a comprehensive, competitive market analysis.

The idea stemmed from now-famous Bain Study, which showed that the United States is best positioned to fill growing world demand for dairy products, says Mike Kruger, MDA’s CEO. "So we asked the questions: What is the Midwest’s share of that growth, and what’s the dairy checkoff’s role in that market opportunity?"

The result is a 217-page report, "A Path Forward," that looks at both dairy farm and processing competitiveness compared to other growing dairy regions. The results confirm what most farmers and processors know. But it also has a few surprises, and some sobering spreadsheets on what an investment in a dairy operation requires.

For example, we know that the western Corn Belt enjoys strong milk price premiums, often beating comparable manufacturing areas by 50¢ to $1/cwt. But that’s a double edge sword—making dairy products manufactured here less competitive in national and global markets.

We also know that the western Corn Belt enjoys cheaper feed, last year’s massive winter-kill of alfalfa notwithstanding. South Dakota’s five-year ration cost average (2008-2012) was a hair over $6.50/cwt. of milk produced. That’s 25¢ better than Wisconsin and $1.25 better than Idaho.

The real shock came in dairy facility building and land costs, which have doubled in the last decade. A 3,000-cow, cross-ventilated facility with 100 acres for the site and 500 acres of cropland in South Dakota now costs upwards of $25 million. A comparable facility in Wisconsin or Michigan is $22 million. The difference is more expensive land farther west: $12,000/acre in South Dakota versus $6,000 in Wisconsin and Michigan.

In all these areas, only a select few dairy producers have the financial leverage to build facilities of this scale. So it’s going to be up to everyone else to decide if they’re willing to grow incrementally, from 80 cows to 150, from 150 to 300, and so on.

MDA’s "Path Forward" is just the first step. Western Corn Belt states must decide if dairy is their future. Dairy farmers are at the core of this decision, because only they can make the financial investments on the ground to make it happen.

Western Corn Belt farmers have faced this question for the past four decades. Often, they have said "no." But the time is fast approaching for a collective "yes." In another decade, it will be too late.

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