The state’s producers react to record milk prices and softening corn costs.
Dairy producer Mike Monteiro spent nearly $1 million late last year to drill three new wells on his 2,500-acre farm near Hanford, Calif. Two consecutive years of drought, in 2012 and 2013, had reduced his farm’s corn silage crop, persuading him to make the capital expenditure.
Now, with California in its third year of drought, he’s glad he did.
"With the three wells, we’ll have enough water to plant normally," Monteiro says. "But we’re going to have to spend a lot of money on the cost of pumping that water."
At 900’ below ground, the new wells will draw up water from far deeper levels than Monteiro is accustomed to. Groundwater depth, electricity costs and wear and tear on equipment will increase his water costs by 50% to 60%.
Still, Monteiro says it's "business as usual" on his family operation, which milks 7,000 cows on three dairies and raises 7,000 replacements in California’s San Joaquin Valley. Like dairy producers across the U.S., he’s upbeat about milk prices, which have hit record highs of $22 per cwt. and higher this year.
Those price levels spurred California’s dairies to increase milk production in March by a whopping 5.3% over year-earlier levels. Output rose to 3.402 billion pounds of milk for the month. That’s nearly 1.3 billion pounds more than second-place Wisconsin produced during the same period. California’s milk per cow grew to 1,910 lb., up from 1,815 lb. a year earlier.
At the same time, Monteiro is also glad to see some softening in input costs. Prices for rolled corn, a major feed ration, have dropped to $210, down from $320 two years ago.
Other feed commodities are inching back up, however. The Monteiros grow their own silages but purchase most of their alfalfa hay for their herd. Prices for that forage have climbed to $330 per ton, up from $280 earlier this year. Alfalfa hay prices are rising on expectations that water shortages will limit crop quality and availability.
Almond hulls, another commodity California dairy producers add to their herd rations, also have risen in price, to $190 per ton, up from $145 last fall. Monteiro says almonds’ price increase is not so much because of the drought as it is the spectacular worldwide demand for the nut and the strong profitability among California’s almond growers. In fact, land values in his area have surged to $18,000 per acre, up from $12,000 two years ago, largely on demand for ground to plant trees.
Despite those commodity increases, Monteiro’s outlook is positive. "The [dairy] recession and the drought have caused us to do a better job," he says. "Our dairies are full of cows, we’re going to harvest our crops, and we’re rolling forward."
But not all California dairies are faring as well. Despite record high milk prices, good weather and increased milk production, many are still reeling from the downturn that’s lingered since 2009.
"A lot of dairymen are still catching up on debt," Monteiro says. "They can’t afford to drill new wells. Dairies will make money, but many are not moving forward."