Milk produced and marketed in the 11 states in the southeastern U.S. is pooled on the Appalachian, Southeast and Florida Federal Milk Marketing Orders (FMMOs). Like sisters in a large family, all 11 states share similar traits but not exactly the same characteristics. Progressive Dairy’s annual “State of Dairy” reports divide the area into two regions: Southeast and Appalachian.
By the numbers
The snapshot of the Southeast includes six states: Alabama, Arkansas, Florida, Georgia, Louisiana and Mississippi. Of those, Florida and Georgia are on the list of 24 “major” dairy states. Based on preliminary data, the two states switched rankings in 2022.
With a 10,000-head growth in average cow numbers, Georgia surpassed Florida as the largest milk producer in the region: Milk output was up nearly 13% from 2021. In contrast, Florida’s average cow numbers dipped by about 11,000 head from 2021, and milk production was down about 11%.
The USDA’s January Cattle report indicated both Georgia and Florida are starting 2023 with about 92,000 cows. Florida holds a slight edge in the number of replacement heifers (greater than 500 pounds) ready to join the herd.
Adding estimates for Alabama, Arkansas, Louisiana and Mississippi, cow numbers in the Southeast total about 204,000, down 8,000 from a year earlier. Replacement heifers are estimated at 62,000, down 6,000 head.
With only Georgia increasing milk production in 2022, output across the entire six-state area was down about 1.4% from a year earlier. And given the relationship between population and milk production, that added to the region’s milk deficit. Struggling to meet fluid milk market needs, 2022 FMMO Class I utilization in the Southeast and Florida market areas was the highest among all 11 FMMOs, at 72% and 83%, respectively.
The continuing decline in fluid milk sales creates challenges for producers and processors alike, says Calvin Covington, a retired dairy cooperative CEO. That’s amplified by higher costs and tight labor supplies, leading to fewer markets and lower production.
“Just as expenses are higher on dairy farms, fluid processing plants experience the same if not more,” Covington says. Competition for milk supplies is strong and expensive, while fluid milk is frequently a “loss leader” for some retail grocers. With a reduction in plant margins, Covington expects to see more plant closures in 2023.
In 2000, there were 44 pool distributing (fluid milk) plants in the Southeast and Florida FMMOs. In 2020, there were only 29 – today only 23. There will most likely be fewer by the end of the year, Covington says.
On the production side, the two FMMOs combined had an average of 354 loads of producer milk per day in 2022. This is down from 389 loads per day in 2021 and 548 loads in 2010.
Outlook: Optimism and concern
Despite a cloudy market picture, Covington says he’s witnessed more optimism entering 2023, even though all signs point to lower milk prices. Thanks to higher milk prices in 2022, producer balance sheets are stronger.
“Today, most dairy farmers understand and accept milk prices go up and down, and plan accordingly,” Covington says.
Ray Egan, director of member services and sustainability with Southeast Milk Inc., identified increasing concern among many of the cooperative’s 120-plus members in six states (Florida, Georgia, Alabama, South Carolina, Mississippi and Louisiana). While high milk prices improved the financial situations entering 2023, enabling many to address debt loads, income margins remained thin due to record high input costs, especially feed costs.
Under FMMO pricing formulas, the high Class I utilization in the region means producers see the highest milk prices in the country. It also means the 2019 change in the “Class I mover” pricing formula has had the biggest negative impact on FMMO uniform prices. The USDA’s Pandemic Market Volatility Assistance Program (PMVAP) helped offset some of those losses for small producers, and a second round of payments has been announced, providing assistance to medium-sized and larger producers who missed out on initial payments.
Moving into the new year, milk price forecasts are weakening while input costs are not declining at the same pace. Like Covington, Egan says shrinking processing options cloud the future. Compounding that are an aging producer base and labor constraints.
FMMO changes needed
That resiliency and growth of all Southeast dairy producers and processors may rely more on FMMO reforms than any other market in the country, Covington says. Both he and Egan identify a critical factor: distance to market.
“Dairy herds can only grow if there is a market for the milk,” Covington says. “Increased freight cost to move milk from farm to market plays a role in future milk production growth. Cost to move milk from farm to market continues to take a larger share of the gross milk price.”
In late 2022, multiple dairy cooperatives and organizations submitted proposals to the USDA’s Ag Marketing Service, calling for an increase in transportation credits and creation of new distributing plant and assembly performance credits, providing financial incentives for milk handlers moving milk within and into the region. Those assessments would add significant dollars to the three FMMO pools and could be used by handlers to offset hauling expenses currently paid by dairy farmers. At Progressive Dairy’s deadline, a public hearing was scheduled for Feb. 23, in Tennessee, to consider those proposals.
Southeast dairy cooperatives are also working with the National Milk Producers Federation (NMPF) to submit a package of FMMO proposals – including a return to the higher of Class I formula and increasing Class I differentials – to help move milk from farm to market.
“Twelve thousand cows have left the state of Florida recently due to the economics. If that’s not a signal the system needs reform, I’m not quite sure what is,” Egan says.
FMMO changes could also fuel a regional growth. “A turnaround in Class I sales and/or new milk markets would create opportunities for increased milk production in the Southeast,” Covington says. “Dairy farmers would quickly respond to new and profitable milk markets.”
Optimistic by nature, Egan warns 2023 could be bumpy. “I think 2023 can bring profits and growth to dairy farmers in the Southeast. However, they will need to weather the storm over the first half of the year. If they come out ahead, they could be in for a very profitable back half,” he says.
“As a deficit market, the Southeast continues to have opportunities for growth – and after last year’s milk prices, we project many will do just that,” Egan continues. “The Southeast U.S. has exactly what many dairy farmers are seeking: a growing population and water.”
One positive Covington sees in the Southeast is the number of relatively younger dairy farmers, especially those with larger operations.
“These younger operators are enthusiastic, smart, excellent managers, passionate and plan to be in the dairy industry for many years to come,” Covington says. “They find a way to meet and overcome obstacles in their way.”
Producers are also getting better at hedging feed costs and working with feed cooperatives to lessen the financial burden, Egan says.
Looking ahead, Covington expects to see a growing dichotomy of the dairy industry: a continuing trend toward fewer but larger commercial dairy farms; and smaller operations adopting on-farm processing, marketing direct to consumers.
Egan sees a similar contrast. “Many ‘small’ farms are finding their niche locally, and we’re excited to watch their journey. The larger farms are working their way through the new push to produce a more sustainable product. They’re finding it takes the right partner – one who shares the same values is a must.”
