As dairy dries up in Missouri, farmers and lawmakers hope to stanch losses

As a part of its “Get Real, Give Back” campaign in June, Prairie Farms Dairy, Inc. donated 11,000 gallons – or 91,000 pounds – of milk ­to 21 Feeding America food banks across the country, including many in Missouri.

That’s more milk than an average cow produces in six years, according to the Midwest Dairy Association.

It’s only a fraction of the cooperative’s milk output, though. Last year, the company generated more than $2.9 billion in revenue, making it the No. 11 dairy processor in North America, according to Dairy Foods Magazine. The dairy cooperative, which includes 700-plus farms and employs 5,700 people nationwide, distributes to more than 20 towns in Missouri.

Though its donations were not related to production, the Carlinville, Ill.-based cooperative’s handouts mirror a national trend of milk production this year.

Lorah Slaton/Missouri Business Alert
Lorah Slaton/Missouri Business Alert

Following one of the best years of sales to date in 2014, a milk production boom has occurred in parts of the country, leading to an oversupply of the raw good. In the first three quarters of 2015, more than 157 billion pounds of milk were produced nationally, setting the pace for record-breaking domestic output for a fifth straight year, according to the U.S. Department of Agriculture.

Despite production booming nationally, the dairy industry in the Show-Me State has been declining for decades. In 1995, Missouri ranked 14th in milk production. Twenty years later, the state has fallen to 25th, according to the Missouri Dairy Industry Revitalization Study.

“There are pockets of (Missouri’s dairy industry) that are growing and vibrant, but we’ve dropped below critical mass in cow numbers and in dairy farmers in a lot of regions,” said Joe Horner, an agricultural economist at the University of Missouri and co-author of the study. “And unless we can pull that back, we are at risk of losing our infrastructure”

Missouri operates at a 60 percent dairy deficit, meaning it only produces 40 percent of its dairy needs, due to fewer dairy farmers milking fewer cows in the state compared with decades ago. With just more than 1,200 dairy farms in operation in Missouri at the end of 2014, the number of dairy farms in the state has decreased by 45 percent since 2000, according to the study. In 1990, there were more than 225,000 milk cows in the state. At the end of 2014, there were 90,000 — a decline of more than 60 percent.

Because the industry is diminishing in Missouri, state legislators passed the Dairy Revitalization Act in March of this year. The bill aims to give dairy farmers insurance against price and weather fluctuations, get more youth involved in dairying and establish funding for academic analysis of the industry. The bill was signed by Gov. Jay Nixon in April and went into effect Aug. 28, with its programs and provisions subject to appropriations.

The bill will cost approximately $2.5 million to $4.7 million in 2016, according to its fiscal notes. But the likelihood that the bill will receive appropriations next year is still unknown, according to Rep. Bill Reiboldt, R-Neosho, the bill’s sponsor. Though Reiboldt said the bill will be included in the senate and house budget, he was not confident the governor would include it in his.

Missing youth, lost infrastructure

Photo Courtesy of Bell Johnson
Missouri ranks 25th nationally in milk production. Twenty years ago, the state was 14th. | Courtesy of Bell Johnson

Rick Scheer has been a dairy farmer all his life, and he still works next to his father and mother every day on a farm in New Haven, about 70 miles west of downtown St. Louis. He’s the fourth generation on Scheer’s Dairy Farm, which is a member of Prairie Farms Dairy, Inc. and has about 150 cows that produce more than 3 million pounds of milk each year.

He said the biggest thing harming Missouri’s dairy industry is a lack of young farmers to take the reins. Scheer has two daughters, and because their future is unpredictable, he said, so is the family farm’s.

In 2012, only 1 percent of principal operators of Missouri dairy farms were under 25 years old, according to the revitalization study. Fewer than 30 percent were younger than 45, while more than 42 percent of operators were older than 55. This is why Horner describes the industry as “sunsetting.”

“Very few dairies over the years that I’ve seen have gone broke,” he said. “It’s more of people getting old.”

To increase the presence of the younger generation in the industry, the Dairy Revitalization Act includes 80 scholarships worth $5,000 each for students in agricultural-related degree programs. Missouri is also the second state to establish a dairy grazing apprenticeship program under the U.S. Department of Agriculture. The program combines farm employment and a mentoring system to train the next generation of dairy farmers.

Alfred Brandt, who is a sixth-generation farmer in Linn, about 20 miles southeast of Jefferson City, said the scholarship component of the legislation is by far the most important.

“It is nearly impossible to find a skilled type of person in the state to come and help on the farm,” Brandt said. “Somebody that has herdsman type of skills, or dairy manager skills, they just really don’t exist (in Missouri).”

Scheer said most children of dairy farmers choose to enter a different profession because they’ve witnessed their parents struggle.

“If everything is gloom and doom at home on the farm, they’re more likely to look off the farm for employment,” Scheer said.

Arthur Brandt bought the family dairy farm from his parents in 1992. | Photo by Bell Johnson
Alfred Brand is the sixth generation of his family to work the Brandt Dairy (above) in Linn, but an increasing number of farmers’ children aren’t following their parents into the family business. | Courtesy of Bell Johnson

As more sons and daughters of dairy farmers get out of the family business, dairies aren’t the only thing disappearing. Essential infrastructure has also diminished as processing facilities that served now-shuttered dairies are also closed. In August 2014, Prairie Farms Dairy, Inc. shut down its Hazelwood plant, laying off 66 employees.

This has caused clusters of dairies surrounding processing facilities to disappear, which negatively impacts communities across the state, Scheer said, because of what he calls a “multiplier effect.”

“We buy our feed locally, we shop locally, we employ local people,” he said. “And so, for every cow, it’s not just the effects on production, but it’s how many times that’s multiplied through the community.”

A single dairy cow had an economic impact of almost $14,500 in Missouri in 2013, according to the revitalization study. Dairy farms contributed a total of $131 million to the state’s gross domestic product in the same year, employing more than 5,300 people and paying total wages of $275 million.

As Missouri loses processing facilities and dairy cows, the impact would continue to be felt in farming communities across the state, said David Drennan, executive director of the Missouri Dairy Association. Since 1993, the state’s number of dairy cows has declined at a 3.8 percent annual compound rate. If that trend continues, by 2024 there will be slightly more than 250 dairies with a total of about 54,000 cows.

Who took the cheese?

Because most of the fluid milk produced in Missouri is bottled, cheese-processing facilities have been the first thing to go, Horner said. This proves problematic in the spring, when fresh grass and feed boost milk production per cow. In the past, the extra milk would be turned in to cheese, which doesn’t spoil nearly as fast.

“We don’t have the cheese plants that we once had that can flex up and down with the milk surges,” Horner said. “There’s been a scramble on trying to figure out where to go with the milk just because we have already lost that infrastructure of processing.”

The lack of cheese processing facilities has caused cheese distributors to look to other states for their product. Hautly Cheese Co., a St. Louis-based distributor that sells 3 to 4 million pounds of cheese each year, imports all of its cheese from 50 companies outside of Missouri, mostly in Wisconsin and Minnesota. Owner Alan Hautly, who is the third generation in the family business, said he would love to do business with Missouri farmers and companies if they had the capacity.

“The consumer is still purchasing dairy products,” Hautly said. “Where it is being sourced from has changed.”

Local heat, national trends

Waves of high heat and humidity that are commonplace during Missouri summers put extra strain on dairy farmers in the state, causing dairying to be less efficient here than it is in other parts of the country, Horner said.

“Missouri has an extra challenge in dairying with our heat and humidity,” he said. “As our dairy cows get higher and higher in production, the heat stress becomes more and more.”

Summer heat reduces milk production per cow by almost 25 pounds each day, according to the revitalization study. During a four-month period of hot weather, nearly 3,000 pounds of milk production per cow can be lost. That adds up to a loss of almost $500 per cow, which equals a hit of about $75,000 for an operation the size of Scheer’s Dairy Farm.

This is why dairying has shrunk in Missouri while growing in other areas, like the dry West, where there is less humidity, and the Great Lakes region, which lacks Missouri’s sweltering summer heat, Horner said. Over time, California became the dairy capital of the country, with one in five of the dairy cows in the U.S. residing there.

Then, in 2014, the Golden State suffered a drought that is still ongoing today. As global dairy prices soared to an all-time high that year, California had to cut back production. This caused output to spike in other states, like Wisconsin and Minnesota.

“On balance, we incrementally grow in milk production in the U.S., but it’s growth that’s not aligned with where the new capacities of processing (are),” Horner said.

This led to a national oversupply of milk in 2015 to the point that some farms in the Northeast dumped raw milk into fields, Bloomberg reports.

Milk prices dropped drastically in 2015. They averaged $24 per hundredweight in 2014, according to data from the Department of Agriculture. The average price in September was $17.50 – a 27 percent decrease. A strong dollar helped a 10 percent drop in U.S. milk exports in the first four months of the year, while imports rose 12 percent in the same time.

“We haven’t been able to see a lot of U.S. milk production move off shore into international markets to help alleviate some of the pressure that we might be seeing from the increased milk production,” said Bill Brooks, a dairy economist at INTL FCStone. “And as a result, our stocks are growing.”

Photo Courtesy of Bell Johnson
The Brandt farm was among the Missouri dairy operations hurt in 2015 by milk oversupply driving down prices. | Courtesy of Bell Johnson

Because dairy prices are determined nationally, farmers in Missouri were still hit hard by low prices this year despite the state’s dairy deficit. Scheer estimated his revenue would be down 25 percent compared to last year’s $800,000. Brandt estimated revenue would drop 30 percent from last year’s $1 million.

This is one reason why Brandt is excited about the Dairy Revitalization Act: It will create the producer insurance premium assistance program, allowing producers who participate in the federal margin protection program to be reimbursed for 70 percent of the federal premium. The funds for the program will be taken from a portion of the sales tax on dairy products sold in the state.

“If I have some insurance that helps mitigate the risk between milk income and feed costs, it’s going to promote a healthier environment for the farms to operate,” Scheer said, “and make it more conducive for young people to get into and stay in the business.”

Emerging growth, new hope

Despite dairies diminishing in number across the state, pockets of emerging growth exist in the industry, Horner said.

Starting in the early 2000s, Missouri, along with Georgia, became a popular destination for rotational grazing dairies. These dairies do not house cow herds the way confinement diaries do, instead allowing the animals to rotate between different pastures. While confinement dairies have herds of 100 to 400, grazing dairies will operate herds from 500 to 4,000 cows, Horner said. Most of the grazing dairies that have been established in the state have come from New Zealand.

While they are more susceptible to drought than confinement dairies, grazing dairies typically have lower costs because their larger herds allow them to maintain lower milk production per cow, which requires less input costs. Grazing dairy managers focus on high production per acre at reduced costs. Profits are roughly equivalent between the two types of dairies, Horner said.

“In low price years, grazers look better because of less fixed costs,” he said. “While in high price years, the confinements look a little better.”

Missouri became a popular destination for grazers because the system allows for production even during high heat and because land in the Show-Me State is cheap. It costs much less to start a grazing dairy than a confinement dairy.

“We’re far enough north that they can raise the cool season grasses. We’re far enough south that you don’t have to have the winter housing,” Horner said. “We’re far enough east that you get natural rainfall, and we’re far enough west that you can get fairly large chunks of ground for reasonable price.”

In 2015, the average value per acre of Missouri farm real estate, a measure of the value of all land and buildings on farms, was about $3,350, according to Department of Agriculture. That price was much lower than surrounding states in the Corn Belt; both Illinois and Iowa had an average value of more than $7,500. However, Missouri’s land value increased more than 8 percent from the previous year, which was the largest increase of any state in the region.

Photo Courtesy of Bell Johnson
Some view rotational grazing dairies, as opposed to confinement dairies, as a way to revitalize the dairy industry in Missouri. | Courtesy of Bell Johnson

Another pocket of emerging growth in the state, as well as the rest of the country, is organic dairy. In 2011, 2.1 billion pounds of organic milk products were sold in America, an increase of more than 14 percent from the previous year, according to the Agricultural Marketing Resource Center. Thirty-eight states had at least one certified organic dairy farm, with more than 1,800 farms nationwide.

In the same year, Missouri ranked 18th in organic dairy farms with more than 600 cows at a total of nine farms with sales of $1.75 billion, according to the revitalization study. California ranked first, with almost 33,000 cows, accounting for more than 16 percent of the U.S. organic milk cow inventory.

The transition of traditional farms to organic dairies is cumbersome, requiring land to be free of pesticides and fertilizers for three years.

“It’s not something that is taken lightly, but we’ve actually had producers move to Missouri for the purpose of buying cheaper land to produce organic,” Horner said. “And I think we’ll see organic production growing in Missouri.”

Hautly Cheese has seen extreme growth in its organic products, such as milk and specialty eggs. Alan Hautly said the decline in regular milk sales has opened the door for niche products like organic and the company has flourished by providing them.

“If you’ve got a product that you can prove is local, it’s a hot button for the grocery business,” he said.

Brandt calls the cost of organic products “a special tax for stupid people.” But he said he is happy as long as people are drinking milk, no matter what form it comes in.

Passing the revitalization act was the first step in a long process to revamp not only Missouri’s dairy industry, but also the nation’s, Drennan said, stressing that there are less than 50,000 dairy farmers in the country.

Despite the industry’s dreary state in Missouri, Brandt said he has never thought about leaving it and the farm he was raised on. During the recession, when his farm was hit hard, his wife asked him what he would do if he weren’t a dairy farmer.

His answer: “I’d probably dream of dairy farming.”

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