In June's special session, the Minnesota legislature asked the Commissioner of Agriculture "to identify causes and submit a report of the relative growth or decline of poultry and livestock production in Minnesota, Iowa, North Dakota, South Dakota, Wisconsin, and Nebraska of a certain time period."
Via Ag Web, Dairy Today's editor Jim Dickrell observes in Lack of Dairy Processing is Everyone's Problem:
Just last winter, the Minnesota Milk Producers Association and the Midwest Dairy Association commissioned a study that showed Minnesota was not keeping pace with neighboring states’ milk production. Though milk production was climbing, it wasn’t climbing as fast as neighbors or the country as a whole.
Last summer, the Minnesota Legislature asked the Minnesota Department of Agriculture (MDA) to conduct an all-species assessment of the relative growth or decline of livestock in the state versus its neighbors. The dairy portion of that study was released to me last Friday.
Over the last five years, Minnesota’s dairy processing capacity grew a respectable 1.2 billion lb., or roughly 3.2 million lb./day. That’s nearly a 20% increase in processing capacity. . . .
Read the entire article at Ag Web. Here's the study itself:
Situation in the Dairy Processing Sector in Minnesota DMaP Briefing Paper 15‐02
The verdict? The authors report:
This briefing paper argues that today the most pressing issue the Minnesota dairy sector is facing is no longer the sluggish milk production growth, but bottlenecks in milk processing capacity. Should policy makers seek to boost Minnesota’s dairy sector, they should consider measures to stimulate investments in dairy processing capacity and boost demand for locally produced fluid milk and soft dairy products.
That's a bit different narrative from the alarms we heard in 2014 when the Citizens Board of the Minnesota Pollution Control Board required Morris's Riverview to conduct additional environmental review in order to obtain a required permit.
Some in the legislature and their industry hirelings cried havoc, and let slip rhetoric of a war on agriculture. Refuse one dairy, and the cows would never come home. By the end of the special session, the fate of the board was sealed. At MinnPost, Doug Grow provided a decent overview in How the MPCA’s Citizens’ Board did itself in.
One co-op's proposed expansion--and a bonding request
While the Baker Dairy was ask to conduct more review, other new Riverview dairies that had been permitted earlier were moving forward. In October, the West Central Tribune reported in First cows to be delivered Monday to new dairy near Pennock:
. . . By the end of the week there will be 3,000 animals.
Eventually, the farm will house a total of 8,500 animals, including about 7,000 cows that will be milked twice a day.
The cows will generate eight semi-tankers of milk daily that will be transported to the First District Association processing facility in Litchfield. . . .
Earlier in June, the paper reported in Meadow Star Dairy: Construction of 8,500 cow dairy operation by Willmar nearly half done:
. . . Located just east of the small town of Pennock — and about six miles northwest of Willmar — Meadow Star Dairy will be an 8,500-head dairy farm that will produce 500,000 pounds of milk every day and employ about 50 people when it’s in full swing.
It will be the largest dairy in Kandiyohi County and the eighth such facility owned and operated by Riverview Dairy LLP, which is based in Morris. . . .
Those 500,000 pounds of milk will be part of the increased milk supply that First District Association co-operative hopes to turn into cheese and cheese byproducts as it expands, the Litchfield Independent Review reported at the end of November in First District buys 'entire city block': CEO:
First District Association might break ground on a $125 million expansion project as soon as this spring, Chief Executive Officer Clint Fall said last week.
The project would increase the Litchfield dairy processor’s production capacity from 5 to 7 million pounds of milk each day. . . .
With expansion planning underway, company officials are seeking funds from the state for new electrical generators at the city’s West Third Street power plant, which would provide back-up power for First District in the event of a power outage.
Fall has said the generators are critical because First District’s plant relies heavily on refrigeration, and an extended power outage could cost the company in product loss and supply chain disruption.
Litchfield gets most of its power from outside sources, while it runs generators during peak-demand periods and outages. The city operates five generators able to produce 10 megawatts of power, and First District wants to add four generators capable of generating an additional 8 megawatts. The four new ones would be dedicated to First District’s operation during a power outage, while the other five would power the rest of the city.
A group of state senators, including Sen. Scott Newman, R-Hutchinson, visited Nov. 19 First District’s plant, where Fall discussed the expansion project. The senators belong to the Senate Capital Investment Committee, which will decide whether to allocate funds for the new generators, along with many other projects throughout the state, in a bonding bill next year. Members of the House of Representatives also visited First District this year. . . .
The paper reported in September's First District hoping third time’s a charm:
Like they did two years ago, several legislators visited the dairy processor to listen to First District and City of Litchfield officials explain why they want the state to give Litchfield $5 million for new generators at the city’s power plant.
The request fell short two years ago, and failed again last year, but officials remain persistent in lobbying for funds because of electrical generation’s importance to First District’s expansion plans.
First District is studying whether to increase production at its South Swift Avenue plant from its current 5 million pounds of milk each day to 7 million pounds. The cooperative, whose members include dairy farmers in 45 Minnesota counties, expanded as recently as 2012, but it’s under pressure to grow more, according to First District Chief Executive Officer Clint Fall.
As the new report embedded above notes, with milk production increasing across the region, including Minnesota, there's a perceived need to increase processing capacity.
The request is supported by Governor Mark Dayton, but was removed from the bonding bill, the Independent Review reported:
Next year could be First District’s best chance of getting the funds. While the project never made it into the 2013 bonding bill signed by Gov. Mark Dayton, $250,000 was included for designing the project. This past year, Dayton included $5 million for the generators in his bonding proposal, but the Legislature removed the project from its final bill.
“The governor being supportive of it is certainly helpful,” Rep. Dean Urdahl, R-Acton Township said. “I think we have a decent chance of being included” in the bonding bill next year.
Lawmakers do have some questions about the request, the paper reported:
While legislators have touted First District as one of Minnesota’s leaders in the dairy industry, they have hesitated to include money for new generators in previous bonding bills, in part out of concern for the precedent it might set. Bonding bills, which are typically adopted every other year, pay for infrastructure projects throughout the state, but not historically for electricity generation.
“This does take us in a different direction. We don’t normally build power plants to serve a local city,” Rep. Alice Housman, DFL-St. Paul, noted during last week’s visit at First District. She raised the possibility of First District pursuing another route to obtain funding, such as through Minnesota Department of Employment and Economic Development.
Farmers from 45 counties are co-op members, while many of the 155 employees inside the plant are represented by the Teamsters.
Milk money woes
One factor might sour the dairy industy. Dairy Today's Dickrell reports in Shrinking Milk Price Basis a Rising Concern in Midwest:
With processing plants at capacity across much of the Midwest, a shrinking basis is causing milk checks to contract at a time when every penny counts.
In Minnesota, the milk price basis—the difference between the mailbox price and Class III—has shrunk to about 75¢/cwt. For the past few years, it was nearly $2. But early this year, as milk plants filled up, basis starting declining, says Marin Bozic, a dairy economist with the University of Minnesota.
“I do believe a portion of this basis will be recovered in 2016,” says Bozic. But before it does, a further decrease of 25 to 35¢/cwt could occur in the next few months.
Tim Swenson, a business consultant with AgStar Financial Services, agrees. “We will get a little back, but it will still be 50 to 75¢/cwt less than historical levels,” he predicts. . . .
Bozic also gave his annual milk price prediction for 2016 at $17/cwt. There’s a 20% chance the price could fall below $16 and a 10% chance it could shoot above $18.50, he says. (For comparison, last year Bozic predicted a $17.50 mailbox price for the year. The actual average will be about $17.40.)
Swenson notes that the Class III futures market is offering stronger prices in the second half of 2016. “You need to work with your marketing experts to protect those better prices,” he says. “And they could move even above where they are now, so you need to protect these values and still leave some upside potential.”
Dropping cull cow prices are also a concern. Where cull cows were selling for more than $100/cwt for much of the year, those prices have now fallen to $80, $70 or even $65/cwt. “We will not be able to rely on beef prices next year or even the year after for cash flow,” says Bozic.
We'll keep an eye of the bonding request when the session begins in March.
Photos: One of Riverview Dairy's operating dairy barns (above); First District Association plant manager Doug Anderson gives legislators a tour of the cooperative’s plant in Litchfield; photo by Andrew Broman, Litchfield Review (below) .
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