Dairy producers in Texas and New Mexico continue to be on different trajectories. Preliminary USDA data indicates Texas milk production grew by more than 925 million pounds (about 6%) in 2022, topping 16.5 billion pounds. The number of cows in Lone Star State herds during the year averaged 646,000, up about 24,000 from 2021. At the other end of the spectrum, 2022 cow numbers averaged about 288,250 in New Mexico, down nearly 30,000, with milk production dropping more than 8%, to 7.1 billion pounds.
The USDA’s January Cattle report estimated Texas is starting 2023 with about 650,000 cows, up 25,000 from a year earlier, and about 240,000 dairy replacement heifers (greater than 500 pounds), unchanged from January 2022. New Mexico’s cow numbers are down 13,000, with 10,000 fewer replacement heifers than a year ago.
Texas: An eye toward the sky
Even though milk production continues to grow and processing capacity is poised to expand, the general mood of Texas producers is “cautious,” linked to the drought and its impact on feed availability and cost, says Darren Turley, executive director of the Texas Association of Dairymen (TAD). Early winter moisture has provided some hope, and producers continue to do a good job getting more milk from cows receiving less-than-perfect rations.
“Texas farmers have had to import forage from several states, and the market cannot continue to sustain that in 2023,” he continues. “The cost of planting the 2023 crop is more expensive as well. These increased forage costs, along with elevated prices of feed and fertilizer, will make 2023 very expensive if we do not see some rainfall this year.”
High milk prices in 2022 helped support financial stability, although equally high feed, fertilizer and other input costs and trucking expenses – all aggravated by the drought – challenged profitability, says Jennifer Spencer, extension dairy specialist for Texas A&M AgriLife located in Stephenville.
Like producers nationwide, labor, environmental regulations and other issues are impacting management and capital investment.
“Texas continues to see producers building robotic facilities instead of remodeling older parlors,” Turley says. “I expect an expansion of these robotic dairies as market conditions and production control programs expire. Anaerobic digesters are coming online, and others are under construction.”
In addition to investing in technology, industry and academia are collaborating on educational programs to raise awareness of opportunities in dairy careers, says Juan Piñeiro, Texas A&M AgriLife Extension dairy specialist located in Amarillo. Researchers and producers are also seeking ways of increasing water use efficiency, especially for forage production.
If needed moisture arrives, the outlook among Texas dairy producers will turn much more positive.
“I think that the Texas dairy industry is very strong and has a very optimistic positive attitude despite some of the challenges that they have faced,” Spencer says. “Producers in Texas are forward thinkers and are always looking on how they can improve and be the best at what they do and provide a nutritious product for consumers. These producers love what they do; that is quite obvious.”
Turley anticipates Texas will continue to grow in milk production for several years to come. The number of farms is not expected to increase, but consolidation will.
Short-term, a tiered pricing system implemented in 2021 continues into 2023, and then will be up for renewal. A new Cacique cheese plant, at Amarillo, is scheduled to come online in 2023, followed in late 2024 or 2025 by a Leprino cheese plant in Lubbock. A new plant under construction in western Kansas will pull northern milk out of the Texas pool, adding internal capacity.
“Continued support of the production control program with sales from these new plants could be hard to maintain,” Turley says. “Milk production is poised to fill the expanded plant capacity relatively quickly. This is especially true if balancing plants reduce the vast number of loads they are taking currently.”
Texas producers and marketers will also be watching Federal Milk Marketing Order (FMMO) discussions, especially as they pertain to transportation credits and other incentives to move milk.
“The growth in Texas milk production means a portion of our milk moves into other milk markets, predominantly the country’s southeast region,” Turley says. “We are monitoring FMMO reform policy discussions to assess its impact on Texas producers and their ability to take advantage of that market.”
New Mexico: The bottom line is stressed
Reviewing financial data, the first six months of 2022 were profitable in New Mexico and across the West, says Robert Hagevoort, associate professor and extension dairy specialist with New Mexico State University – Clovis. However, the end of the year brought a “hard landing” that is yielding net income losses for the foreseeable future. “Milk prices deteriorated about as fast as a deflated Chinese spy balloon while feed and other production costs did the opposite,” he says.
Based on his financial analysis back to 2015, Hagevoort calculates New Mexico dairies have seen average net income levels of -81 cents per hundredweight (cwt) over that period. Looking back even further, he estimates the difference in milk prices received by New Mexico producers has been -1.5 cents per pound less than those in Texas.
“The million-dollar question is to what extent [has] the additional 1.5 penny per pound allowed the financial room to access credit for expansion, modernization and automation required to continue this kind of phenomenal growth (in Texas)?” he asks.
While access to capital may be one difference between New Mexico and its neighbor to the east, a shared challenge is water.
“New Mexico producers have not seen any relief to date, and an already challenging forage situation in both 2021 and 2022 is becoming seriously critical, pressuring forage prices to unbelievable levels,” Hagevoort says. “At the end of the day, water in the form of rainfall in the West is only a temporary and minor player in the overall water picture. With the enormous challenges for agriculture coming from the Colorado River system, the groundwater challenges in both California and the High Plains – including in New Mexico and west Texas – water is and will continue to be a huge driver for both the short and the long term.”
Despite high numbers of legal and illegal immigrants crossing the border, availability and costs for labor add to financial and management challenges. Energy costs are up, and interest rates are headed higher.
“The increased costs of borrowing will definitely hamper access to capital and therefore slow the expansion of robotics and automation needed to offset the labor challenges,” Hagevoort says.
If there is any potential for optimism, it hinges on the continuation of strong exports. Tight heifer inventories will limit rapid production expansion and keep supply in balance. “A good crop and forage year would definitely do miracles,” he adds.
Regionally, any dairy growth is likely to come outside of New Mexico, following increased processing capacity coming online in western Texas and southwest Kansas. He expects the number of dairy producers in New Mexico to fall below 100 in 2023.
“I see little room for growth other than continued improvement in terms of efficiency,” Hagevoort says. “There is still a solid market for dairy production – but given the water limitations, it will not be at numbers we have seen in the past.”
With both the 2023 Farm Bill and potential FMMO reforms, New Mexico producers are interested but cautious about policy changes.
“I think that our producers would be interested to see if there is anything that would improve the current situation,” he says. “Producers are cautious, not to be too hasty to discard a less-than-perfect working system for a perfect non-working system.”
For large dairy operations across the West, the most important adjustment in any federal program would be the abolition of production caps, Hagevoort concludes.
