Area dairies faced with sales decline, rising costs

July 25, 2017

 

By NORA HESTON TARTE
Business Journal Writer
[email protected]

Cows eat their morning meal at Kaehler Dairy in San Joaquin County on a recent Friday.

SAN JOAQUIN COUNTY — Milk sales and prices are down, and that could spell trouble for Central Valley dairy farms.

Between 2010 and 2016, the California Department of Food and Agriculture reported, on average, a 2.5 percent decline in total sales of fluid milk year over year. San Joaquin, Merced and Stanislaus counties together produced nearly 1.1 billion pounds of milk in 2016, while California produced 40.4 billion in the same year.

“Fluid milk sales have been declining for the past few years,” said Josh Eddy, Executive Director for the California State Board of Food and Agriculture.

A reported global dairy surplus is to blame.

Catherine Kaehler, owner of Kaehler Dairy Farms, believes at least part of the surplus is due to diets that exclude or limit milk intake.

“You know I go in the store and I see milk and I see all this other stuff like Coffeemate,” she said. The desire for milk alternative products appears to be more prevalent, a trend Kaehler said she has witnessed with people in her personal life, as well.

For Kaehler Dairy Farms, which sells its milk to a co-op, there is no threat of dairy surplus. All of the milk the farm produces will be purchased because that’s the agreement. However, demand does affect price.

Nationwide, prices were down in 2016, but experts are estimating that prices will see a moderate rise in 2017. The rebound means less for California where prices are usually below the national average.

“We had a good year in 2015. Last year was terrible. Today, I don’t know what the future is going to bring. Hopefully it’ll go up,” Kaehler said. “It hasn’t started out being a good year.”
When the price of milk and production are down, Kaehler holds off on making improvements to her farm.

“Dairymen are frustrated,” she said.

Many farmers offset their production costs by choosing less expensive feed for their cows.

“Half of your price of milk goes to feed costs, basically,” Kaehler said.

Brent Dasilva is the vice president of San Joaquin Dairy Services, a company that sells chemicals and iodine related to milk production and cow farming to area farms. He said that, since the recession, milk sales are coming up, but they are still down from where they once were in California.

“A lot more dairies are going out of business,” Dasilva said. “It does hurt our sales because there are less dairies than there were 20 years ago.”

Dasilva also said that American diets are at least partly to blame.

“I think a lot of people are switching to almond milk [and other] healthy alternatives,” Dasilva said.

However, he also said that increased production per cow is part of what’s leading more farms to go out of business. Because farmers can get more milk out of one cow, they need fewer dairies.
The USDA reported in June 2017 that while 11 of the 23 reporting states had fewer milk cows in November 2016, all but four states had higher production. And according to the CFDA, milk production per cow in California has increased 55.1 percent from 1986 to 2016.

Kaehler agreed that per-cow production is up, and dairy farmers work to ensure that production stays up. However, Kaehler Farm’s per-cow milk production has been down since 2015. Weather and diet can both have an effect.

“Personally, I like production high on the cows,” she said. A specific feed can contribute to less milk or farmers may be using less feed to reduce costs while milk prices are down. It’s a trend that also affects the feed market; several levels of farming are negatively impacted by the change in dairy production and sales.

While the USDA predicts production will rise across the country, price is expected to fall. The cost for milk is often lower for California dairy farmers.

In a state where 19 percent of the nation’s milk is produced – 40.4 billion pounds of milk were produced in 2016, more than one-fifth of the United States’ total production – much of the sales go outside of the U.S. In fact, in 2015, approximately 33 percent of U.S.’ total exports of dairy products came from California.

The Obama Administration developed the Trans-Pacific Partnership, the largest regional trade accord in history, with the goal of raising overall incomes and exports in the U.S. through lowered trade tariffs between the 12 Pacific Rim nations. In January, President Donald Trump nixed the agreement, a promise he made during his campaign in large part due to an independent study that said it would not contribute to jobs in the U.S.

California, which leads the country in agricultural revenue with farmers and ranchers, is twice as dependent on foreign trade compared to the country as a whole, and could have the most at stake. This includes San Joaquin County, where dairy was the second largest agricultural product for both 2014 and 2015.

“Our co-op was for [the TTP]” Kaehler said. However, she felt the way the TPP was structured didn’t give farmers enough say. Kaehler said she would be interested in an agreement that gave the farms more power than in an industry that is “regulated like crazy to produce a good product.”

2 Responses to Area dairies faced with sales decline, rising costs

  1. Leroy Ornellas Reply

    August 2, 2017 at 4:52 pm

    While true that fluid milk sales are decreasing, whole milk sales have seen an increase. While slight it’s a welcome change. Consumers are seeing the benefit of whole milk and using less low fat products. It should also be noted that while fluid milk sales may be down consumption of other dairy products such as cheese, yogurt, whey products, and other dairy foods are making great increases in usage. Which in the end more than makes up for decreased fluid milk sales.

  2. Nicholas Suazo Reply

    August 3, 2017 at 7:33 am

    Great article industry conditions…I would recommend cost saving measures with commercial solar to reduce the impact both financially and environmentally. California is an amazing state for all types of farms to take advantage of the incentives, sun and opportunity to lock in power bills. http://www.solarforcompanies.com

    Would love to answer questions and consult!

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