Upper Midwest Ripe for a New Dairy Processing Plant

August 5, 2016 12:39 PM
 
DT_Dairy_Processor

As milk production has increased in South Dakota, Minnesota and Iowa, the Upper Midwest has become ripe for a new dairy processing plant.

What remains to be seen is whether North Dakota's dairy industry, which has been shrinking rather than growing as in neighboring states, will be able to benefit.

"I do believe the whole area will see additional processing capacity," said Marin Bozic, a dairy economist at the University of Minnesota, speaking of the four-state area of North Dakota, South Dakota, Minnesota and Iowa.

Mark Watne of the North Dakota Farmers Union, which led a campaign against industry-requested exemptions to the state anti-corporate farming law for dairy and pork producers, has said low prices are what's leading to dairy closures.

But, according to researchers, the Upper Midwest has better profit margins on dairy than other parts of the country and lower pricing could be what's needed to spur processing investment.

South Dakota has seen 10 to 12 percent annual production growth, and growth has continued in Iowa and Minnesota, Bozic told The Bismarck Tribune. Meanwhile, Idaho, California and Texas, where growth has happened previously, are not expected to grow anymore, or at least not at the same pace.

So, with the right framework to stimulate investment, the Upper Midwest stands to benefit from this realignment, which Bozic said will likely happen somewhere along the Interstate 29 corridor.

Potential new processing could be cheese production in particular, Bozic said, as cheese has a longer shelf life than fluid milk and the Upper Midwest is well positioned to reach both the East and West coasts.

"When it comes to cheeses, I think we're in a real good position," he said.

A new cheese plant would likely require 3 million to 5 million pounds of milk per day, "which is a substantial amount," Bozic said, requiring about 100,000 cows to support it.

"We have to beat the economics of building elsewhere," Bozic said, in order for the region to attract a new plant.

Most importantly, the region will have to instill confidence in potential investors that the plant will be full of milk from day one. Secondly, fluid milk prices have to be competitive.

"We're very close to the level that premiums are attractive," which has not been the case for a long time, Bozic said.

A couple years ago, milk prices were indicative of a shrinking number of dairy farms, Bozic said. As farm numbers dropped, production dropped. As production dropped, processors were paying higher prices trying to get their hands on a more limited milk supply.

"The basis was positive, and quite substantial, which is great for producers but not so great if you want to grow processing," he said.

That is no longer the case, Bozic said: "There's a new reality on the ground."

The reason: As production has increased, processing plants are no longer competing; they're awash in milk. And agriculture as an industry is "a price taker, not a price maker," Bozic said.

"The price is what it is," he said. "So you might as well increase quantity if you can't increase price."

NDFU disagrees, advocating instead for crop protections.

Bozic said agriculture is like a treadmill, you have to run just to stand still.

"You have to continually reinvest in your dairy to keep it at a cost that will keep it competitive," said Bozic, indicating producers will have to decide if it is best for them to stay in the milk business or not. A sufficient number of producers, particularly in South Dakota, are finding it profitable to invest in their operations and grow.

Investment cost is extremely high in the dairy industry. It can cost $20 million to $40 million for a 3,000- or 4,000-cow dairy.

Still, "North Dakota is prime for dairy expansion," said J.W. Schroeder, a dairy specialist at North Dakota State University, especially with the state's sugar beets and ethanol plants creating feed. "Right now, animal agriculture could be adding value to less than $3 corn.. But like any business, it needs an infusion of money."

North Dakota dairy producers tried to get more investment through the proposed exemptions to the state's corporate farming law, Schroeder said. But with the recent referendum vote striking down legislation passed in the last legislative session, the industry is on the hunt for a next step.

The North Dakota Dairy Coalition is partnering with South Dakota on a research project, which is about to start now that funding has been secured from both states, to determine the possibility of a new milk processing plant in the region. The study will cover advantages and disadvantages of the region, where the processor should be located and what type of plant would make the most sense. It also will identify what steps need to be taken to attract such a plant.

"Dairy people have been out looking for an alternative; they didn't wait to see the results of the (referendum) vote," Schroeder said. "It's not that the dairy industry has been sitting on its hands. They have been out pounding the pavement."

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Comments

 
Spell Check

Ben Habeger
West Bend, IA
8/6/2016 09:24 AM
 

  We have several large dairies in this area. Also need organic soyben and corn processing plant.

 
 

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