Growing pains in Michigan’s dairy industry

Michigan’s dairy producers are producing more milk than the current processing capacity, which has led to lower prices in the state compared to surrounding states.

A culmination of increasing farm efficiencies, ideal climate and access to consumers has transformed the Great Lakes state of Michigan into a burgeoning place for dairy farming, but rapid growth in production has meant farmers are taking the brunt of the industry’s growing pains.

Michigan State University professor of ag economics Chris Wolf says Michigan’s milk production has been rapidly growing over the last decade. “If you look at longer run, since 2000, it’s been an average growth rate of about 4%, which is a little more than twice as much as the average U.S. growth rate over that period,” he says.  At the same time, processing capacity in the state has not been able to keep pace, which Wolf says has been stressing the farm milk price.

According to Wolf, the mailbox milk price for Michigan’s dairy farmers is much lower than surrounding states and its historical average.  “When we have excess milk production, it has to go farther to find a home. That means there’s going to be higher hauling costs or sometimes milk gets sold in distressed sales, which is below order price because you need to get rid of it — it’s perishable,” he says.

In the extreme case during spring flush over the past few years, it has even meant farmers have had to dump their milk.  “When milk gets dumped, the cost of that gets spread across all the members in the co-op,” Wolf says.  Over time, the stress factors have made their way to farmers’ milk checks, which has resulted in prices at least a dollar or more per hundredweight lower than what’s expected when compared to historical averages and surrounding states. 

Wolf says the lower prices have slowed the growth of Michigan’s milk supply. “We had been at 8% growth rate in 2014, 6% for a growth rate in 2015 and early 2016, while October 2017’s growth rate for Michigan was only at 3%.”  However, he adds that it doesn’t look like Michigan’s milk production is going to decline.

Milk, milk and more milk
Michigan’s ideal climate and proximity to resources like feed and water creates an environment for high-producing cows, but Wolf says it’s not the only state struggling with maxed out processing facilities. 

“Wisconsin’s been growing — and New York. So it’s been the Upper Midwest and the Northeast that have been growing in the past five or 10 years much more than they had been in previous decades,” he says. Prior to this rapid growth, Wolf says processing typically has excess capacity at certain times as milk supply and demand swing throughout the year.  “There would be some months, maybe in the late fall or winter, where your processing wasn’t working at full capacity and then in the spring flush, you’d be going gangbusters to keep up,” he says.

At the current time Wolf believes cooperatives and processors in the state have done what they can, increasing shifts and improving efficiencies to handle the increase in supply. But high-producing dairy cows are not just in Michigan. 

“The growth in Wisconsin and New York has also meant that those facilities in those areas, and areas between, have been more full,” Wolf says.

For some farmers in the state, the growing pains experienced by the industry have been fatal for their business.  Wolf says some farms have decided they needed to retire a little earlier than planned to preserve equity, while others have sold out instead of expanding to bring another generation onto farm. “This kind of financial distress usually hastens the exit of farms that are nearing the end of their productive life cycle, and we’ll end up with less farms than we would have if prices were a dollar or more per hundredweight — like what we would have historically expected,” he explains.

Foremost builds new
Foremost Farms is one example of a cooperative that’s footing the bill to increase manufacturing, announcing plans in November to build a new dairy processing facility in Michigan.  President Mike Doyle says the long-term goal for the site in Greenville is to create a dairy campus and partner with value-added dairy companies. 

“The plant will start as a condensing and separating operation, and then mainly it will turn into a dairy campus,” he says.  According to Doyle, they’d like to work with current strategic alliances and different companies to grow Phase 1 on the 96-acre parcel, creating value-added products that utilize several milk components.

Dave Scheevel, Minnesota dairy farmer and chairman of Foremost Farms, says he’s excited to see dairy production growing in the Upper Midwest, and the cooperative’s plans to build a condensing plant in Michigan will improve farmers’ bottom line.  “By getting a facility in Michigan, we will be better able to utilize the milk solids produced over there and bring the solids themselves back without having to transport the whole milk, making all of our producers effectively involved in contributing to our core manufacturing business,” he says.  Foremost is primarily a manufacturing co-op, and the Greenville plant will allow more of member’s milk to be manufactured at their own plants, becoming less dependent on what Scheevel calls fickle raw milk markets.

The first phase of the plant will process up to 6 million pounds of milk per day, which will then be shipped as milk solids across the Great Lakes and Upper Midwest to other Foremost dairy processing facilities. 

Scheevel says most of the cooperative’s manufacturing facilities are located west of the Great Lakes, which means as milk production has increased, so have transportation costs for the co-op.  “With the growth in the Michigan milk supply and decline in fluid milk consumption, less of our milk has been able to be sold as raw milk to bottlers and handlers; we have to utilize more of it ourselves,” he says.  The trucking of milk from Michigan to Wisconsin has resulted in higher transportation costs and lower earnings for all members.  

Doyle says the plant, expected to be operational by the end of 2018, is part of Foremost’s long-term strategy to manage milk solids across their seven-state membership, including Wisconsin, Illinois, Michigan, Minnesota, Iowa, Indiana and Ohio.

More processing coming
According to Wolf, some processing projects like Foremost and others have been announced, but other food manufacturers are “kicking the tires” to see if Michigan is the right fit for a new facility.  “I’ve personally have had phone conversations and meetings in person with multiple processors that have been looking at Michigan that want to know what the cost of production looks like here and what we thought was the long-term projection for growth. They want to be certain there’s a reliable milk supply before they put it in here,” he says. 

In the meantime, Wolf says there’s not a specific light at the end of the tunnel for farmers. “You’re talking about people who have a lot of time and money invested that are working hard and that deserve to earn a fair rate of return,” he adds.
The long-term outlook is positive for global dairy products as the global middle class continues to grow, he says, but that doesn’t help people in the short run when they’re dealing with extremely low prices.  To meet projected demand increases and keep pace with Michigan dairy farms, Wolf says, “Clearly, more investment is needed in processing capacity.” 

Heslip works as the Michigan anchor and reporter for Brownfield Ag News.

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