The Arizona Dairy Industry Returns from the Precipice!
By Julie Murphree, Arizona Farm Bureau
Last fall, USDA’s National Agricultural Statistics Service came out with its 2010 Arizona Agricultural Statistics. Full of a wealth of statistical information on Arizona’s 2010 year in agriculture, it highlights our major agriculture commodities. While cattle took the leader board in 2009, Arizona Dairy is listed at the top of the heap for 2010 with $658 million in cash receipts alone (cattle was $638 million for 2010).
This is quite a feat considering that just a few years ago the dairy industry was in the throes of some very tough economic times. While some of the dairy crisis at the time was connected with the world financial meltdown, much of it was also attributed to lost global market in key areas, for example, dry milk.
While we must wait until next fall for our 2011 ag numbers, it is certainly fair to celebrate the comeback in the Arizona dairy industry.
“The contrast from 2009 to today is night and day,” says Paul Rovey, owner of Arizona’s Rovey Dairy, chair of Dairy Management, Inc. and President of United Dairymen of Arizona (UDA). “2009 was painful, 2010 was our climb out year and 2011 should reflect gains.”
UDA members represent approximately 90 percent of the milk produced in the state.
An Industry Overview
The impact was so painful in 2009 that the National Milk Producers Federation reported a $12 billion loss in sales for U.S. dairy producers that year.
At a time when losses were so heavy, the dairy industry in America was undergoing significant structural change over the past eight years. According to the USDA, for example, total milk cow operations have declined significantly, while the number of large operations has increased. There were 65,000 milk cow operations in 2009 compared to 97,460 in 2001, a 33 percent decline. A testament to modern-day milking operations and efficiencies throughout the industry, despite the drop in operations during this eight-year period milk production rose. Milk production increased 15 percent, from 165,332 million pounds in 2001 to 189,259 million pounds in 2009. Milk cow inventory did grow but only by 1 percent, from 9.10 million head in 2001 to 9.20 million head in 2009.
And speaking of operations, although the overall number of milk cow operations has declined since 2001, the number of operations with 500 or more head of milk cows has increased by 20 percent. The largest size group, places with 2,000 or more head, showed the greatest percentage change from 2001, increasing from 325 operations in 2001 to 740 in 2009, a gain of 128 percent.
A 2,000-head dairy is not unusual in Arizona, and, is in fact typical. The state has fewer than 100 commercially-qualifying dairy farms with most of them 2,000 head or more.
The average number of milk cows maintained by Arizona’s dairy operations in 2012 remained the same from a year ago at 177,000 head, according to the USDA. Milk production per cow during 2010 was a record high 23,441 pounds, up 1.8 percent from last year.
Arizona milk production totaled 4.15 billion pounds in 2010, an increase of 1.8 percent from 2009. Value of milk produced, at $660 million dollars, was up 34 percent from the 2009 value. The average return per 100 pounds of milk in 2010 was $15.90, up $3.80 from 2009.
While the 2011 USDA numbers are not out yet, estimates have U.S. dairy operations coming in at about $20.00 per 100 pounds of milk. But as Dennis Dugan, Casa Grande dairy owner quoted in a Farm Credit Services Southwest Summer 2011 publication says, “But about $18 of our selling price goes toward input costs.”
As we all know, feed prices have increased dramatically in the last two years.
Volatility is the Game Changer
When an industry has endured tough times to come out stronger it means a group of professionals prepared for the ups and downs. “I really don’t know when, or if, the volatility will ever end in the milk industry,” says Rovey. “In this day and age of milk and feed price volatility it becomes a game changer. Dairymen are looking toward any way we can stabilize prices to protect ourselves.”
Maricopa County Farm Bureau President and UDA board member Bill Kerr concurs. “It seems like we’re always working to make sure we don’t make any mistakes. Years past you could make a mistake and learn from it. Now, even small mistakes can be detrimental.”
To manage risk and volatility many dairy farmers are becoming crop farmers too. “A number of dairies are making a closer connection to the crop farming aspect of the business,” says Rovey. “We’re doing this to lessen the volatility in our own feed costs tying our farms to our dairies.
Rovey, who also sees higher hay prices in 2012, is now growing his own feed. As of January 1, much of the land he’d previously leased is now under family management. “The only crops we’ll grow are crops we can feed through our cows,” he explains. “It’s one way to stabilize feed costs, one of our most expensive input costs.”
Rovey shares his concerns with this approach too. “If as a general rule dairies must get deeper rooted into crop farming, it also means potential dairy farmers will have a harder time getting into dairy,” he says. “This structure makes it more difficult for the next generation.”
For some, herd genetics is another way to build strength into their dairy business. “We’re breeding for improved genetics; for example, we’re attempting to breed polled cattle so we don’t have to dehorn in the future,” says Kerr. “We believe we’ll get there in the next four to five years.”
Already well established in the beef industry, polled cattle reduce labor associated with dehorning, avoid infection to and blowfly striking of wound sites, and escape weakened growth rates that sometimes occur in young cattle recovering from dehorning.
While Rovey is clearly aware of the challenges ahead because of his leadership position with UDA, the milk-marketing cooperative owned by 70 farmers with an average of 1,600 head per farm, he describes the dairy industry in Arizona as possessing the best dairymen in country. “To survive in Arizona you have to be really good at what you do in this industry,” he says. “If you can’t stand the heat, get out of the kitchen. Literally our summer heat makes us have to be very careful with managing our cow herd. What we’ve come through is a great credit to all of our dairy farmers. Everyone lost money in 2009. You only survived because you had enough capital and equity to survive.”
Adds Kerr, “I think the next generation of dairymen will be the most proficient yet. You can’t be average in this business above average is our baseline.”
The next generation is already reflecting this. Bill Kerr’s son, Wes, is the driving force behind the herd genetics work on their dairy farm. “I am incredibly passionate about genetics. You get to work on the genetics today and see the fruits of it for generations to come. I absolutely love it,” he says. “I want to make our cows improve with better confirmation, fertility, udder composition; the polled gene has been overlooked in the dairy industry. Because it’s such a dominate gene there is no reason it shouldn’t cover an entire herd. There is real potential here including the image of dairy farming since we will be able to avoid the traditional dehorning.”
When one takes all this in and considers what Arizona dairy professionals have had to do to ensure their cows maintain their status as some of the top producing herds in the country, then you understand the precarious situation the dairy industry was in just two years ago. Rovey and others see the next generation of dairy professionals continuing to work on improving cow care including opportunities to continue making nutrition gains.
“There’s not a generation in this industry that’s going to stand still just because of the opportunities before us,” says Rovey. “I see the next generation discovering new uses for milk, in addition to exploiting the byproducts dairies produce for renewable energy technologies.”
And if you’re not convinced that this segment of agriculture is not volatile, just consider that milk prices appear to be going down again and oversupply is weighing on the minds of leaders in the profession.
