Idaho’s Dairy Dilemma

Published on: 15:39PM Sep 07, 2012

Idaho’s dairy industry is between the proverbial rock and a hard place. The rock is soaring feed costs; the hard place—some of the lowest milk prices in the nation.

A recent analysis done for the Idaho Dairymen’s Association (IDA) by Scott Brown, a dairy and ag economist with the University of Missouri lays out the conundrum:

• Idaho milk prices are among the lowest in the nation, often trailing the U.S. all-milk price by $1/cwt., and in January 2009, by $2.50/cwt. “The growing gap since 2009 between the U.S. and Idaho all-milk prices provides an early indication of one of the issues that has kept financial balance sheets in a tough position in Idaho,” says Brown.

• Idaho feed costs are driven by national corn and soybean markets, both of which have soared this year. The good news, competitively speaking, is that Idaho’s costs for these commodities mirrors those of other regions—with freight to Idaho the only difference. The bad news is that alfalfa is in somewhat limited supply—a million Idaho acres or so. While there is land available to grow more alfalfa, it will have to compete for those acres with soaring corn and wheat prices.
• Dairy processing capacity is also limiting, and a major factor in Idaho’s lower milk prices. “The number of Idaho dairy manufacturing plants has remained fairly constant at between 18 and 20 over the past two decades despite the large growth in Idaho milk production,” says Brown. In the central region of the U.S., in contrast, the number of dairy processing plants has increased 17% between 2006 and 2011, he says.
There is a bright spot on the horizon—in fact, it’s nearly completed in the form of a Chobani’s new yogurt plant in Twin Falls, with a rumored start-up next month and 1 million to 2 million pounds of milk intake early next year. Eventually, the plant will take in 6 million to 7 million pounds of milk per day, according to various media reports.
Already, the Chobani’s plant is having an impact on milk price. Both Jerome Cheese and Glanbia have adjusted their pay prices, says Bob Naerebout, IDA executive director.
The key will be to keep all of the plants a little hungry for milk. Idaho dairy producers have been their own worst collective enemy—filling up additional processing capacity nearly as quickly as the plants come on-line.
This time, things might be different. “Lenders are reluctant to allow rapid expansion,” says Naerebout.
For one thing, filling up plants leads to lower prices. For another, there simply isn’t enough equity left in existing dairy operations to leverage a lot of additional growth.
Another option is for Idaho dairy producers to actually work together in collectively pricing their milk through marketing agencies in common (MAIC). Historically, however, Idaho dairymen have been individualists to the core—often to their own detriment.
Naerebout points to the Midwest where MAICs have played a significant role in obtaining better prices for farmers. Both Idaho and Wisconsin, for example, are huge producers of commodity cheese. Whereas Idaho has been at and often below Class III prices, Wisconsin producers command Class III plus $1.50/cwt. or more.The difference is that Wisconsin dairy co-ops actually cooperate.
The other difference is that Wisconsin processing plants have 10% to 15% more capacity than milk supply.So it still comes back to demand and supply. All the cooperation in the world won’t mean much if processing plants don’t have to bid for milk.Read the complete report on Idaho’s competitive position by clicking here.