The March 12, 2018, issue of Progressive Dairyman features our annual regional snapshots of “the state of dairy” around the U.S. Expanded reports for individual regions are highlighted in this online series.
Like their counterparts in the rest of the country, last year’s cautious optimism has turned to pessimism and concern in the Northwest. Short-term economics are the top priority, according to Rick Naerebout, new chief executive officer of the Idaho Dairymen’s Association (IDA).
“You’ve got milk prices that are very unappealing, on top of the market conditions where dairies are told there’s no home for their milk,” he said. “It creates a lot of uncertainty. They’re trying to make it through the first six months [of 2018] to have a chance to milk cows into the future. We’re going to be in negative $2 to $3 margins for the first half of the year, on average, and that’s a scary proposition.”
Even though Idaho’s milk production didn’t change substantially between 2016 and 2017, a change in supply contracts had a dramatic impact on the region’s producers. An oversupplied market came to a head this winter, with some dairies notified that they didn’t have a home for their milk on Jan. 1.
The situation resulted in some dispersal sales, and there are currently some vacant dairies for sale in the state, said Pete Jones, certified public accountant with Frazer LLP.
Naerebout estimated approximately 5,500 cows were removed from production the first go-around: Some of them moved to Canada, some were incorporated into existing herds and poorer-producing animals went to beef.
There was a short reprieve during the production lows of winter, when plant capacity was adequate, but those marketing opportunities will dissipate as the region moves into spring and summer flush. Another 5,500 cows are expected to be liquidated in the next couple of months.
2017: Breakeven
Looking back, Idaho producers were able to overcome one of the worst winters on record in 2016-17, recovering without long-term impacts on production or reproduction thanks in part to a plentiful supply of heifers.
“I’d put 2017 as a break-even year, with a majority of producers slightly above breakeven (about 25 to 50 cents on either side of $16 per hundredweight [cwt]),” Naerebout said. “Guys were able to pay the bills, but not make much headway.”
Naerebout characterizes Idaho milk prices as “negative basis” – averaging about 55 cents below the U.S. all-milk price on a five-year average.
“We’re typically in the bottom four states for a milk pay prices – along with California, New Mexico and Michigan,” he explained. “If you use Class III as the baseline, we’re in a marketplace where we’re going to see prices 35 to 50 cents under Class III on a long-term average. Right now, where we are significantly oversupplied, we’re closer to a negative $1 and will be greater than that going forward, because we’re so long in milk.”
Looking for some positives? Many producers are still living off an outstanding corn silage harvest from two years ago, and corn silage and hay harvests were good last year, so the dairy feed situation remains healthy. Water inventories also remain good.
“Feed costs have been very stable and are as low as we’ve seen in the last 10 years, but there is some upward pressure on hay prices coming from out-of-state buyers,” Jones said.
“Overall, we’re looking at losses for the first half of 2018, with the more efficient producers making up some or all of the losses in the back half,” Jones concluded.
With the more-than-adequate milk supply, there’s a silver lining for any processors who want to expand. “There’s a lot of tire kicking going on,” Naerebout said.
Shortly after this interview, two dairy processors in Jerome, Idaho, announced expansion plans. A $20 million expansion is planned for a dairy processing plant owned by Magic Valley Quality Milk Producers, adding milk receiving bays and processing equipment to process ultrafiltered skim milk, condensed skim milk and cream.
Also, Commercial Creamery, a cheese powder and specialty powder processing facility, will get a $7 million upgrade, expanding production by an estimated 20 to 30 percent.
Pacific Northwest
Although 2017 was better than 2015 and 2016 in terms of milk prices, it left most producers only slightly profitable, according to the latest Northwest Farm Credit Services dairy market snapshot
With milk prices moving into the $13s per cwt, Pacific Northwest dairy farmers are deeply concerned, said Jim Werkhoven, Monroe, Washington. Adding to that concern is the uncertainty over how long the price dip will last. The projected milk prices for the first half of the year will likely be below the cost of production for most producers in the region.
While Idaho is in an oversupply situation, the milk supply-processing capacity situation is more balanced in Oregon and Washington, he said. 2017 milk production in those two states was down about 2 percent compared to 2016, with cow numbers down slightly.
Supply pressure may have been reduced modestly when some processors prohibited the use of recombinant bovine somatotropin (rBST). Agropur producers were rBST-free by the end of the fourth quarter 2017, and Glanbia expected to be rBST-free by the end of the first quarter of 2018, the Northwest Farm Credit Service newsletter noted.
A very wet spring followed by a dry summer– as well as smoke from forest fires – led to some feed quality issues, Werkhoven said. Feed prices in general are reasonable, but homegrown forages in western Washington were hard hit by last summer’s drought
Low feed prices – and stronger demand for dairy products in light of an improving general economy – could limit the severity of losses in the Pacific Northwest. In Washington, cow sales to Canada – at robust prices – and lower feed costs are the bright spots for producers. Canadian support for cow prices could remain intact for the next 18 months until heifer replacements from the growing herd begin entering the milking herd.
Labor, trade concerns
The impact of labor and trade issues remains large. “We don’t have an Idaho dairy industry without foreign-born labor,” Naerebout said.
“Labor is the biggest worry for most of our producers,” Jones said. ”There is a lot of interest in doing things more efficiently to reduce labor needs, from remodeling corrals to installing robotic milking machines.”
Despite its proximity to Canada, Mexico is Idaho’s biggest dairy trade partner, making successful renegotiation of the North American Free Trade Agreement especially important.
“We’d love to gain access to Canada, but for Idaho, the bigger ballgame is in Mexico, and we have to maintain our access there,” he said.
Read also:
Northwest turning to short-term
Two forms of concentration in the Southeast
Texas and New Mexico optimistic 
ILLUSTRATION: Illustration by Kristen Phillips.
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