Milk prices at U.S. farms have jumped to $23 per hundredweight (100 pounds/almost 12 gallons) from $17 a year ago, and will probably rise more this year -- while feed and other costs are falling -- which means dairy farmers are making a lot more money this year, writes Ryan M. Connors, water and ag analyst at Janney Capital Markets, after scouting this year's New York Farm Show in frigid Syracuse.
U.S. dairy farmers are using the welcome cash to consolidate into a few dozen large marketing and service groups -- and ramping up to purchase robot milkers and a lot more high-tech equipment. Here's what else is going on:
- A rapid rise in yogurt demand has attracted multi-million-dollar investments by Chobani in New York and Dannon in Ohio. Thanks to Chobani's "insatiable" demand for milk to make "Greek-style" yogurt, "New York recently toppled California for the #1 spot in yogurt production."
- "The weaker dollar in recent years has helped U.S. cheese makers to make significant inroads in high-end cheeses" against Switzerland and the Scandinavian countries.
- By contrast, Pennsylvania, which hasn't attracted such recent corporate dairy investment, has slipped from third last year to fourth among U.S. dairy producing states, and now trails California, Wisconsin and New York.
- The new federal Farm Bill changes dairy subsidies from the former "straightforward system,' which paid farmers government cash when milk prices fell below a certain level, to a new "margin protection' system with limits on how much low-priced milk farmers can be reimbursed for. This will discourage dairy farmers' "infamous tendency" to worsen dairy price downturns by keeping production high even when prices go down. "Margin protection" thus "removes a significant level of anxiety" for dairy farmers dependent on government payments.
- The 13,000-farmer Dairy Farmers of America cooperative in April will absorb the 1,200-farm, Syracuse-based Dairylea cooperative, and this "will create a massive player in dairy marketing" and encourage more mergers. Dairy farms are supposed to be family businesses, but big coops attract cheaper bank financing, and "the top 50 cooperatives now account for 79% of U.S. milk production," Conners notes.
- The combination of high milk prices and low feed and energy costs "could drive a long overdue round of capital investment," with more farmer sand cooperatives buying "robotic" milking, feeding and breeding equipment. Dairy farms are now "a highly attractive and target rich environment" for dairy and livestock farm equipment sellers like Georgia-based Agco Inc.