Built for Export

April 2, 2013 08:51 PM
Built for Export

DFA’s new high-end powder plant will supply world markets by year’s end.

The four silver silos that tower above the Fallon, Nev., construction site are visible from miles away.

Beneath them, dozens of workers in neon-yellow vests and hard hats are moving trucks, cranes and hydraulic lifts over cement slabs and tire-treaded dirt. Another building just a stone’s throw away is inching upward almost as tall as the silos, its walls still a framework of rebar and concrete. Nearby, a massive cone-shaped structure, resembling a space capsule, waits to be lifted and lowered into the building where it will, by year’s end, go to work as the plant’s drying unit.

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More details on DFA’s plant

This is the $85 million dry ingredients plant being built by Dairy Farmers of America (DFA), the first processing facility the mega-cooperative has built from the ground up. It’s only the fourth dairy processing plant in Nevada, and perhaps the only U.S. dairy facility built exclusively to supply quality whole milk powder to the export market.

Scheduled to go into operation late this year, DFA’s Fallon plant marks a big step for the nationwide co-op. It’s a strategic investment in the future of DFA and its 15,000 members, a venture designed specifically to meet the growing global demand for safe, high-quality dairy products, say DFA leaders.

"Today, the U.S. exports about 14% of its milk production," says Gary Stueve, vice president of operations for DFA’s Western area. "Twenty years ago, that number was only 3% to 4%. There’s an opportunity there."

The facility—the only dry ingredients plant in Nevada—joins DFA’s 30 wholly owned plants located across the U.S. Once it starts up this November, the Fallon plant will need 24 months to reach full steam, when it will process 2 million pounds of milk per day and produce some 225,000 lb. of dried dairy ingredients daily. That translates to nearly 90 million pounds of high-quality milk powders and other dried ingredients yearly.

That output won’t be big by the industry standards of the Leprinos and the Krafts. (Leprino’s new cheese plant in Greeley, Colo., for example, is ramping up to take in 7 million pounds of milk a day.) "Our Fallon plant is sized right for the area," Stueve says.

What makes DFA’s new operation unique is its ability to produce to demand. "This will not be a balancing plant," Stueve says. "We won’t fluctuate the volume. It will have customers behind the products."

DFA expects its high-quality milk powder to head to emerging, protein-hungry markets like China, where competitors such as New Zealand and Australia sell their dairy products. DFA says its member pay price in Fallon will be based on Class I and Class IV drivers.

The Fallon plant will truck its finished powder via intermodal containers to California’s Port of Oakland, some 275 miles to the west. "It’s a straight shot into the Port of Oakland on Highway 80," Stueve says. "The distance is not much farther than from Visalia [Calif.] to Oakland."

When DFA looked for a site for its export-supplying venture, it bypassed costly, regulation-ridden California and chose instead the big-sky country of northwest Nevada. Fallon, the county seat of Churchill County, is predominantly agricultural with a population of about 8,600 people.

With 22 local dairies and 15,000 milk cows, Fallon had an already entrenched milk supply, says Al Trace, DFA’s director of member services.

Ultimately, 90% of the needed milk is likely to lie within a 60-mile radius of the new plant.

"We’ll need another 1 million pounds a day," to supply the plant, Trace adds. "We’re expecting more local growth plus new facilities to supplement the local milk supply."

That means Nevada dairies will supply the plant’s milk. Many see that as a win-win situation for both Nevada and California dairies.

"Before, Nevada’s milk largely went to California," Stueve says. "Now Nevada’s milk will be staying home. That creates opportunity for DFA’s California members. Both California and Nevada members will see growth out of this project."

Since it broke ground in April 2012, the plant has generated ripples of hope and excitement among local dairy producers and the Fallon community.

The 110,000-sq.-ft. plant means much-needed jobs for Fallon. In construction alone, some 75 people are at work on the site. Once the plant goes online, at least 45 full-time positions will be needed to operate it . Even more employment opportunities are expected to open up in the community, on local farms and in farm-related industries.

"The community of Fallon is excited about this plant and sees this as a positive addition," says Wes Clark, DFA’s plant manager. "The city has helped us in every way to move forward on the project."

The new plant has also drawn visits from dairy producers from other areas, curious about whether Fallon might hold new opportunities for them. "We’ve gotten interest from East Coast producers, but it’s primarily West Coast ones that are most interested," Trace says. "One California dairy is very interested in building a satellite dairy near Fallon."

Local dairies like Hillside Dairy, in operation since 1915 and now run by brothers Eric, Pete and Neil Olsen, may stand to gain the most from the new plant.

"We’re very grateful for the plant," says Eric Olsen, a local dairyman. "DFA is putting its trust in us."

Plant Gives Hope to Local Dairies

Eric Olsen

For Eric Olsen and his family dairy, the new plant means their milk will no longer ship to California. As DFA members, the Olsens helped spearhead the effort to build the plant in Fallon, Nev.

For Eric Olsen, DFA’s new Fallon plant provides something he and his family greatly need right now: hope for the future.

"The new plant will give us a stable milk market and a price we can live with," he says. "It will also give us the ability to grow."

The Olsens have been dairying in Nevada since 1915. Today, brothers Eric, Pete and Neil operate their Fallon dairy in partnership with their father. Hillside Dairy, which milks 2,000 cows, sits about 15 miles from DFA’s new Fallon plant. (Pete is also a DFA board member.)

Like many other Western dairies, the Olsens are struggling with high feed costs and lower profitability. They grow about 65% to 70% of the dairy’s forage needs, but other expenses have increased the dairy’s total production cost to about $18 per cwt. That’s a real number with everything added in, Eric adds, not an understated cost he hears other producers claim.

While feed is abundant, it’s no longer cheap for the Olsens. Plenty of alfalfa hay passes through the Fallon area on its way to California from the northern Nevada valleys where it’s grown. But hay now commands $250 per ton, while spot market corn has a steep price of $340 per ton.

"It’s never been this bad in dairy in the past 25 years," Eric says. "It’s like we’ve been dragged behind a truck for the past four years. But we think we’re through the worst of it."

The Olsens are still deciding whether they’ll expand their Hillside Dairy to meet the demands of the new Fallon plant. They’re helping young family members build two new dairies nearby, and that will be their focus for a while. But if Eric and his brothers decide to expand, they have 500 acres where the dairy now sits, plus another 602 acres of farmland nearby. They also rent another 300 acres.

Having a new processing plant in their neighborhood will create a new market for the Olsens and their fellow Nevada dairies. For years, the Olsens have been shipping three loads or more a day of Class I milk into California. Now that milk will head straight to the new Fallon plant. The prospect of new dairies has also boosted farmland values in the Fallon area to $7,000 to $7,500 per acre.

Committing to the new plant also required Nevada dairies to give up a valuable asset last year: the quota entitlement that had significantly boosted their milk price for years.

"Our dairy had a substantial amount of quota and it was very valuable," Eric says. "But we agreed to get rid of it. Why would anyone new come to Nevada, without quota, to supply the plant?"

That was a trade-off Nevada dairies were willing to make to attract the additional milk the new plant will need. Dairies like the Olsens are optimistic the new Fallon plant will make that change—and DFA’s investment—worthwhile.

"We’re all hopeful," Eric says.

New Opportunities beckon in Nevada

Dry Ingredients Plant Fallon

DFA’s dry ingredients plant in Fallon, set on 31.5 acres, will process 2 million pounds of milk per day, all from Nevada dairies.

Since DFA’s new Fallon plant increases the daily need for local milk by about 1.2 million pounds, several dairy producers from across the U.S. have shown interest in relocating to the site.

What they’ve learned is this:

The city sits about 60 miles east of Reno, at the Nevada junction of the east-west U.S. Highway 50 and the north-south U.S. Highway 95.

Located in the high desert, Fallon has an arid climate whose crops rely on irrigation. Average annual rainfall is about 5", and winter snowfall is not uncommon. Temperatures generally range from the 90°s in the summer to the 40°s in the winter, although lows can drop to below freezing.

Nevada counts 28 dairies, including 22 in the Fallon area. Per-cow production averages 22,143 lb. The state’s dairies produce 620 million pounds of milk each year.

Most dairies in the area operate with open-lot housing.

The area has an ample supply of feed. The principle crop grown is alfalfa with an average of four cuttings a year.

Fallon has a business-friendly environment with an easy permitting process. "If everything’s aligned, it takes 18 months to build a new dairy," says Al Trace, DFA’s director of member services.

Nevada has no personal income or inheritance tax.

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