Finally, Some Good News on Processing
The past two weeks have brought some welcome news on dairy processing capacity in the Midwest:
• February 27. Agropur announced it will triple the capacity of its Lake Norden, S.D., cheese plant, going from 3 million pounds of milk per day to 9 million pounds/day. Scheduled completion is early 2019.
• February 27. The Michigan Strategic Fund approved a “private activity bond inducement” of $12 million to help support Foremost Farms new 3 million pounds per day condensing plant in Greenville, Mich. The plant was announced last November. Future expansion could see the plant processing 6 million pounds per day. Phase I should be operational either later this year or in early 2019.
• March 6. Glanbia plc, Dairy Farmers of America and Select Milk Producers, Inc. announced they will jointly build an 8 million pounds/day cheese and whey production facility in Michigan. Scheduled completion is the second half of 2020.
• March 7: Michigan Milk Producers Association (MMPA) and Foremost Farms announced they will be jointly added a cheese barrel line to the Middlebury Cheese Co. facility in Indiana that “will initially process up to an additional 500,000 pounds of milk per day.” MMPA is not saying when that line will be operational, however.
Taken together, this is very good news, though none of these plants will provide immediate processing capacity or price or basis relief. How much relief they ultimately bring will depend on domestic and international demand for the cheese, whey and other products they crank out.
The Michigan/Indiana announcements are especially welcome, since Michigan alone is currently producing 6 million pounds of milk per day more than it has processing capacity. The lack of processing has resulted in a negative $1.50 basis since 2015.
The announcements also come on the heels of the recent Dean Foods announcement it was cancelling milk contracts with more than 100 dairy farms in eight states May 31. (The new processing won’t be on-line in time to soak up that milk, though there is some hope a home will be found for that production.)
The Agropur plant in South Dakota will require an additional 85,000 cows to keep its vats full. Some 25,000 to 35,000 cows have already been permitted by the state of South Dakota, so they could be milking almost at the same the plant expansion is completed. Nevertheless, that leaves a gap of some 50,000 cows that will have to be recruited to the I-29 Corridor that runs parallel along the eastern borders of North and South Dakota.
That deficit can only mean good things for premiums and basis in Minnesota, at least for a while. Both have been shrinking as processing plants in Minnesota, Iowa and South Dakota filled up and the demand for milk disappeared into the ether.
As I said earlier, all of this extra cheese will have to find a home to ensure it simply doesn’t flood an already swamped market and depress prices further. The U.S. Dairy Export Council (USDEC) and Dairy Management, Inc., is hoping to grow exports to 20% of production, up from the current 14%. If that could be achieved, it would mean a new home for some 200,000 metric tons of cheese and 450,000 tons of dairy ingredients, says Tom Vilsack, USDEC CEO. The bad news is that it could take three to five years to get it done.
One thing that won’t help is pulling out of trade agreements or starting trade wars. “There are a lot of moving parts we don’t control,” Vilsack said in October. Boy, was he right.