In every business and industry there are challenges and opportunities. Dennis Dugan shared what he sees as challenges for today’s dairy industry and also spoke of the opportunities they are trying to conquer in Arizona.
The Dugan family moved its dairy business from Wisconsin to Arizona in 1962 due to the father’s lung condition that required a drier climate. Prior to moving to Arizona, the family milked 65 registered cows near Manitowoc, Wisconsin.
The six boys of the family started with 44 cows in Chandler, Arizona. As each boy graduated from college, his father gave him 100 cows to start his own dairy. Today, five of the brothers still dairy and own a combined 19,000 cows. In addition, a niece and seven nephews are the next generation for managing the dairies.
“When we arrived in Chandler, it was 1962 and the population was 12,000. It’s 265,000 people today,” Dugan said at the Vita Plus Dairy Summit, Dec. 5 in Merrillville, Indiana.
Due to population pressures the Dugan family sold their property in Chandler in the 1990s and moved to Casa Grande, near Tuscan.
“We got quite a bit of money,” Dugan said. “Land there at its peak was sold by the square foot, not by the acre.”
For the past 25 years, Dugan has been a board member of the United Dairymen of Arizona (UDA) cooperative. The co-op started in 1959 with 50,000 cows and 400 dairymen. Today it represents 184,000 cows and 70 dairymen. Thirty percent of its members serve on the board of directors.
According to Dugan, board meetings consist of a discussion on what is happening in Arizona; in other parts of the country, like the Midwest; and all over the world.
UDA has a pricing system that worked well for the producers of Arizona. For the past 30 to 45 years they were receiving $1.50 more per hundredweight of milk than dairy producers in the Midwest. However, in the last year the pendulum has shifted and the Midwest price is now $2.50 to $3 more per hundredweight.
Within its pricing system, UDA enacted a quota to stop large producers from surrounding states from flooding the Arizona market with milk. It also has quality policies with a number of parameters. There is an automatic 8-cent per hundredweight deduction from the milk check, but 10 cents are granted back if all quality polices are met, gaining the producer 2 cents per hundredweight.
In addition, the co-op has an aflatoxin policy and tests all milk for parts per billion (ppb) of aflatoxin. Dugan explained this dates back to 1978 when dairies in Arizona started feeding cottonseed.
“Everybody had aflatoxin in their milk. They dumped the milk and it made headlines,” he said. “It took us six to seven months to gain trust with the consumers to get our milk back in store.”
UDA’s policy states that a producer’s milk found to contain .21 to .30 ppb of aflatoxin will be tested continuously until the level is below .21. At .31 to .40 the producer will lose 40 cents per hundredweight. At .41 to .50 an 80-cent deduction is made, and at .51 or above the milk will not be marketed.
Aflatoxins became a concern again this summer, he said, when producers began feeding more corn silage (about 40 to 45 pounds) because of the high cost of hay.
“We could not get aflatoxins out of the cows’ system for four to five days,” he said.
He cautioned other dairy producers feeding high amounts of corn silage from drought-laden fields. More and more milk companies are testing milk for aflatoxin and insurance companies don’t cover milk lost due to this reason.
UDA is the last full-service cooperative in the country. It’s own supply fleet operates on volume, providing large discounts to its members. For example, Dugan said, dairy producers in the Midwest are paying almost double or triple what dairymen in Arizona are paying for teat dip.
He also mentioned the co-op is moving away from iodine teat dips because it believes the cost will soon skyrocket and more environmental concerns will arise. Therefore, they are trying a new product with a lactic acid base.
UDA is constantly growing to increase its market share for milk and milk products. Contrary to the U.S. average of fluid milk sales, Class I sales in Arizona are up 2 percent because Shamrock Farms is now supplying 100 percent of milk to Subway, Arby’s, Chik-fil-a and Einstein Bagels. It also supplies some milk to west coast KFC’s.
The cooperative has struck deals or purchased plants to ship powdered milk and lactose into Mexico; to partner with a French company to blend specialty powder to export to 16 countries; to partner with Fonterra through its participation in DairyAmerica; to work with a Wisconsin cheese company to produce blue cheese, cheese curds and blocks; to process Class II milk through the Daisy brand; to make baby formula and Ensure; to blend Arizona cheese through Schreiber Cheese in Green Bay, Wisconsin; and to make cream cheese and yogurt at a new plant in Casa Grande, Arizona.
These plant purchases and joint ventures wouldn’t be possible if the members of UDA weren’t keeping their ear to the ground when it comes to hot topics surrounding the dairy industry. Dugan pointed out feed shrinkage, immigration, hay exports and neighbors in the Southwest as key issues to watch.
Feed shrinkage
With today’s high feed prices it was easy for Dugan to justify the cost of installing stationary mixers, a trend he says most large dairies are moving towards. In addition, all commodity barns were merged into one, and the Dugan feed company now delivers feed and sends a bill to each of the family’s dairies.
Dugan said this change eliminated seven mixer wagons, seven tractors, 25 percent of their workforce and 15 percent of the diesel bill. It also reduced feed shrinkage because feed is no longer blowing around at multiple sites, only one central location.
Immigration
In 2010, SB 1070 took effect in Arizona, which puts verification of worker status on the employer. If an employer willingly and knowingly hires an illegal, they will go to jail. Dugan said he has switched to an E-Verify system, but has heard that some workers are finding ways around that too.
I-9 audits have started in Arizona in the last six months. This has resulted in 30 percent of employees found to be illegal on the four dairies that have been audited. The dairies were given 10 days to fire those employees, and their biggest problem was in finding enough legal employees to fill in those spots.
Dugan said immigration issues aren’t going away anytime soon as President Obama just brought in 700 new auditors.
Arizona has developed an International Rescue Committee, which allows them to bring in refugees from Africa to enter their workforce. The refugees are able to obtain a resident card in 12 months.
Hay exports
To date, 38 hay compactors have been put in place in six states – Arizona, California, Utah, Idaho, Oregon and Washington.
The compactors slice hay bales, wrap them in cellophane and stack them in pallets to be shipped around the world. Last year 3.7 million tons of hay were shipped and this year it will be 4 million tons sent to China, Japan and Saudi Arabia. That’s hay that could be used to feed 9.1 million cows here in the U.S.
The difference is it is cheaper to send the containers of hay to from Phoenix to China than from Phoenix to Long Beach, California, because the containers can return full of goods from China, whereas they’d be empty on the return trip from California.
Southwest neighbors
Arizona dairy producers are making $1.50 to $2 more per hundredweight than their neighbors in California and New Mexico. (Producers in the Midwest are about $5 higher.)
Producers in California are not getting paid for whey, which is causing the lower milk price. Coupled with high feed prices, Dugan estimated 150,000 to 200,000 cows will leave California in the next two months, with 50 to 75 percent of them going to slaughter.
“It’s breakeven in Arizona,” he said. “California has never even reached breakeven.”
The story in Texas and New Mexico is a little different. Water is a major concern.
“Clovis and Portales are running out of water,” Dugan said. “Twelve dairies are sitting there empty because they ran out of water.”
He told the room full of Midwest producers that they will be in the driver’s seat for quite awhile, but also cautioned them to not push prices above $22 to $23 per hundredweight. At that point it prices the U.S. out of the world market and exports are key to keeping prices in that range.
While these challenges are very real, by capturing the opportunities in the milk market Dugan is positive there will be a good future for the dairy industry. PD
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Karen Lee
- Midwest Editor
- Progressive Dairyman
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