Dairy Study focuses in on the Midwest - Cowsmo

Dairy Study focuses in on the Midwest

A summary of “A Path Forward: Challenges and Opportunities for the Midwest Dairy Industry,” a study commissioned by Midwest Dairy Association, was provided by University of Minnesota dairy economist Marin Bozic at the recent Dairy Iowa meeting.

The 215-page study by Blimling and Associates looks at opportunities in the Midwest, resource availability and use, producer and processor perspectives and potential solutions.

The study found global opportunities are huge with an expanding population and rising incomes, Bozic said. Developing countries will account for the bulk of this demand growth, especially in Latin America and Asia.

Global milk production needs to grow to keep pace with demand. U.S. growth will continue. The European Union is projected to grow with the removal of quotas, but there will also be contractions. South America will grow but demand will likely absorb extra production. India and China are focused on growing milk supplies, but demand is rising at a faster pace. Growth in New Zealand is expected to slow.

“We have been growing our dairy exports since 2000, particularly since 2007-08,” Bozic said.

The study found that for most commodity products, freight costs and higher milk prices make it too expensive to export from the Midwest, Bozic said. The opportunity for Midwest dairy producers is to backfill domestic demand as the coasts turn international. Specialty products can work from the Midwest, but a value-added approach likely will require just a small volume of milk.

Bozic said MDA’s CEO Mike Kruger talks about a “Back to the Future,” scenario with the Midwest’s growing cow numbers from 834,000 in 2012 to 1,232,000. Milk production today is about the same as 1992 with 30 percent fewer cows. At today’s yields, 1.2 million cows increases output by about 8 billion pounds of milk.

“While the land has supported this many cows before, getting there seems like a daunting task,” Bozic said. “We need to find a profitable business model that allows us to reclaim the future that was our past.”

Producers must continue to talk to policy makers about how additional cows would provide an economic boost to the region, Bozic said. Increased cows would create jobs on farms, in processing and in support industries. It would prompt significant investment in processing capacity and induce spending in communities that support businesses far removed from dairy.

The study found the attractiveness of the Midwest for dairy ebbs and flows with the corn market, Bozic said.

“High land costs curb investment, and crop profitability attracts money away from cows,” Bozic said. “Those dynamics may be fading from view, but those economics also favor other dairy regions as well.”

Continued processing investment is needed to sustain industry viability. A milk market 10 or 20 years from now depends on processing investment made in the next five years.

The Midwest needs more processing capacity to attract more milk, the Blimling study found. Processors desire lower milk premiums to invest in new capacity. There is unfilled capacity in the region today that can accommodate near term growth. Beyond that, a lack of balancing capacity creates challenges for local processors in dealing with surplus milk. High premiums have thus far hindered major new plant investment in the region. But existing entities will continue to capitalize on economies of scale, reinvesting when and where it makes sense.

Specialty or value-added manufacturers appear best suited for the Midwest, the study found. Large commodity plants have bypassed the region. Specialty plants thrive and are growing.

The Midwest will remain at a disadvantage when serving export markets, the study found. Geography benefits Western U.S. processors. Still, the Midwest is well positioned to meet growing domestic demand. To effectively serve the world market, there will need to be a focus on making the right mix of products at the right specification.

The study found that the small producer is the key to the future. Midwest growth may depend most on slowing small farm attrition. Continued investment by existing operations and new operations will be needed. Plant investment is necessary.

Producers need to share what work needs to be done to provide further information that can be used by producers, processors and allied industry to create a path forward, Bozic said.


Source: Agrinews.com


Scroll to Top