California Goes Nuts

January 23, 2014 07:22 PM
California Goes Nuts

More of the state’s dairies are diversifying into permanent crops.

The future will look a whole lot different for California dairy producer Melvin Simoes.

Two of Simoes’ 80-acre blocks near his Tulare, Calif., dairy were transformed late last year by ground-digging equipment, 4'-deep trenches and PVC irrigation pipes. This spring, those 160 acres—normally devoted to corn silage and wheat to feed his dairy herd—will be filled with young almond trees.

Although he’s never grown almonds or any crop other than feed for his dairy, Simoes has embarked on what he calls a "nerve-wracking but exciting" venture.

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"Dairying is not what it used to be," says the 49-year-old dairyman. "I want some financial security. I want to leave my children something they can manage." 

Simoes is one of a growing number of California dairy producers who are diversifying into lucrative permanent crops like almonds, walnuts, pistachios and grapes.

"Since 2009, the dairy numbers have just not been lining up," he says. "I was in denial of just how bad it is. Now we’re all weathering the storm. Even some of the top dairymen are going out of business. I would love to stay in the dairy business forever, but I had to have a secondary plan."

In California farming circles, it’s hard to ignore the success of almonds. The Golden State grows virtually 100% of the nation’s supply and 80% of the world’s almonds. In 2013, the state reached an all-time high of 810,000 acres for producing almond trees. Only hay production takes up more acreage in California.

Increasing global demand for the nuts has absorbed the ever-larger crops, and prices have remained strong. The 2013 farm-gate price for almonds rose to $2.58 per pound, the second highest in 10 years.

For dairy farmers, almonds also offer other attractions. The orchards use less water than feed crops and don’t come with increasingly complicated manure management regulations. The nut harvest occurs once a year, not every day. And almonds can head straight into storage for shipment as needed.

"Most land being sold [in the San Joaquin Valley] is being purchased by people who intend to plant trees or some type of permanent planting," says Cornell Kasbergen, who owns a large dairy near Tulare. "Many dairies are being removed. Land being farmed to grow feed for dairy cattle is not the highest and best use of land today. I have had some dairymen tell me that for the dairy to compete with permanent plantings, milk would have to be more than $25 per cwt."

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Even with California’s expanding almond production, prices continue to rise on increasing global demand for the nuts.

Kasbergen himself plans to plant trees in two years.

Some 80% to 85% of the state’s dairies are looking at or are already diversifying into permanent crops, says Tom Mendes, a longtime dairy producer who exited the industry about a year ago when he sold his facility. His property is now being converted to almond production.

"If you’re a dairy that’s not diversifying, your chances of staying in the dairy industry will be very small," Mendes says.

The transition from feed crops to trees and vines is likely to impede the state’s dairy competitiveness. "Having less acreage devoted to feed crops will drive up costs," Mendes says. "That means dairies are not going to expand here, and much of supplying world markets with dairy products will come from other states."

Michael Marsh, president of Western United Dairymen, agrees. "The trend among dairies to diversify will likely pick up," he says. "The competition for land will push up prices and be a hindrance to our dairies’ competitiveness with other states."

Simoes’ revelation about the vulnerability of his dairy’s future hit him this past summer as he drove past his neighbor’s pistachio orchard. There, Simoes saw irrigation drip-lines slowly and precisely delivering water -- California’s most embattled natural resource -- to each tree. Opposite that, he saw his own corn silage field, flooded 2' deep with the water needed to irrigate in the triple-digit heat.

"That was the kicker for me," Simoes says. "In the dairy business, we can buy a lot of what we need, but not water. The days of ample water are going to be gone."

Simoes had already downsized his milking string to 1,500 cows from 1,700 two years earlier. His 48 milking machines allow him to milk the herd three times a day, so his milk production remained high. But fewer cows left him with excess feed supply. He began to wonder if he could use less land for feed in favor of more profitable cash crops.

Both his banker and accountant supported his decision to diversify into almonds. The ultimate approval, however, came from his father, Mario, a longtime dairy producer. "That was the moment I knew it was time to starting digging the holes," Simoes says.

Simoes is lucky in one way. His expansion into almonds didn’t require him to buy new land, now priced at $14,000 per acre or higher in his area. Instead, he chose two of his own fields, where soil sampling indicated that almond trees would thrive in the heavy soil. He’s investing close to $1 million into his almond venture and using his land as collateral, something he never would have considered before.

Simoes won’t know for five to 10 years if his almond venture merits his investment. He’s relying on an almond production expert to secure his tree stock, manage the orchards and advise him on marketing his crop. The almond trees will yield their first small crop in three years. By the fourth year, his investment will have grown to $2 million. "Year four is when I should start seeing my return on investment," he says. "This is a long-term endeavor."

But the California dairyman is hopeful. "The phone never stops ringing with a dairy," Simoes says. "I look at my neighbors with tree crops, and it’s so peaceful there. I hope the trees can give me that." 

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