Given its size, scope and geography, there are a range of issues facing the California dairy community. With attention spread across near-term financial challenges to longer-term environmental regulations, the state’s dairy producers are apprehensive at the start of 2023. For them, adjusting and adapting is a way of life.
“While 2022 was a great year for milk prices, expenses skyrocketed not only for feed, but also for all of the other operating costs as well as interest rates,” says Geoff Vanden Heuvel, California Milk Producers Council (MPC) director of regulatory and economic affairs. “With milk prices retreating and feed remaining stubbornly high and the higher operating costs pretty locked in, margins look tight for 2023. A collapse in milk prices would cause significant distress.”
Milk production in California has been fairly steady in recent years, inching closer to about 42 billion pounds per year. Cow numbers have stabilized at about 1.72 million head, down about 60,000 from early last decade. With all the challenges ahead, any potential growth will be limited.
“I think the California herd is basically done growing except for increased productivity from our cows,” Vanden Heuvel says. “We will do well to not shrink.”
Beyond traditional differences related to herd size, other factors weigh on the economic trajectory of individual producers. Competition for water and acres adds to concerns.
“Things like growing a lot of your own feed compared to purchasing most of your feed makes a big difference today,” Vanden Heuvel says. “Dairies with access to surface water compared to dairies in areas that are exclusively groundwater-dependent has become a big factor in the potential profitability of a dairy operation.”
“2022 saw increased forage costs in California that were much higher than the increased forage costs in other parts of the West,” he continues. “Grains imported from the middle part of the U.S. have significant transportation cost attached to them, and because of the distances higher fuel and labor costs in the transportation sector makes those inputs more expensive for California producers.”
Water availability is probably the biggest factor impacting dairy and cow numbers, according to Kevin Abernathy, MPC general manager. After three very dry years, the wet weather to start off winter is providing some encouragement that there may be some relief in the short term. The impact is twofold.
“Feed availability and affordability are the obvious one, but almost as important is the impact on manure management that restricted water availability will have,” he says.
From a technological standpoint, producers will need to implement new practices and equipment related to nutrient management to achieve whole-farm balance prescribed in new water quality regulations.
“There may be an opportunity to develop new revenue streams from manure; however, significant investment and research in technology are still needed in this area,” Abernathy says.
“For most California dairy producers, 2023 is going to be a year of anticipation on environmental issues,” says Paul Sousa, director of environmental services with Western United Dairies (WUD). Implementation of air and water quality regulations is ongoing, but details remain cloudy. “There are changes coming next year and the years ahead, but exactly what will be required is not yet clear.”
WUD is urging producers to continue preparing their operations for the future. “Changes to a dairy that reduce water quality impacts and manure methane emissions will only help position dairies more favorably for the future, and funding will be available for the next several years at unprecedented levels to help,” Sousa says. He identifies the USDA’s Climate Smart Commodities program and California’s Dairy Digester Research and Development and Alternative Manure Management programs as potential funding sources.
In addition to new water and air regulations on the horizon, producers will also face new heavy-duty truck rules this year, MPC’s Abernathy says. These rules prohibit large trucks (more than 14,000 pounds) made before 2010 from operating in the state. A significant, maybe a majority of the ag fleet, is pre-2010.
In recognition that most policies adopted in California move eastward, state-level efforts to protect dairy interests serve as a precursor for others, says Anja Raudabaugh, chief executive officer of Western United Dairies (WUD).
The ongoing battle at the state capitol will require an even greater education component in the year ahead, with recent elections resulting in a turnover rate of approximately one-third of the state legislature.
“Dairy always has its work cut out in the legislative space, ensuring that fresh and affordable dairy products remain robustly on the school lunch menu,” she says. “We see 2023 as a fresh opportunity to educate new members in the legislature, but also to ensure access to dairy nutrition is a top priority for the state,” she says.
Nationally, California joined the Federal Milk Marketing Order (FMMO) system in 2019. Looking ahead to potential changes, the state’s dairy producers are open to updates to formulas, not radical overhauls.
“The FMMO has modified how the California producer is paid from what they were used to in the state order. Overall, it has put significantly more dollars in producers’ pockets. But where you sell your milk matters. Producers have adjusted and are not looking for big changes to the program,” Vanden Heuvel says.
Whether facing state or national issues, the future of California’s dairy families will again be determined by their history of resiliency.
“The industry recognized a couple of decades ago that changes in the public’s environmental attitudes were going to impact our future,” Abernathy says. “We established the organizations and the expertise, such as the team at Dairy Cares, to meet the coming challenges. That involved developing scientific and academic resources, political and legal, communications experts and regulatory experts and entrepreneurs looking to develop and invest in solutions that could at least minimize costs, if not become revenue generators.”
“It is a remarkable story and it is nowhere near finished,” Vanden Heuvel says. “We’re used to being the most regulated dairy state, and we’re amazed at how and why we do it, but we make it work because of the dairy families that are committed to their land, animals and communities.”
Arizona: Everything is on the table
Steve Faber, a Wisconsin native who helped launch the Professional Dairy Producers of Wisconsin in the early 1990s, moved to Arizona in 1995. Today, he operates Practical Dairy Consulting in Tucson, working with a dozen dairy herds with about 50,000 cows.
Faber characterizes the dairy producer mood entering 2023 as positive with a mix of concern. “Decent” milk prices in 2022 put most producers on healthier footing. Growing capacity and milk demand from a Fairlife LLC plant, at Goodyear, Arizona, is supporting optimism. Chief concerns include feed cost and availability, water, interest rates and urban development.
“Everything is on the table to consider for increased production and cash flow,” Faber says. “Producers are looking at all facets of the business in a different light for a profit opportunity.”
That includes potential diversification into other enterprises, if they can be achieved without involving major expenses. Marketing dairy-beef adds value, while attention is paid to optimizing efficiencies associated with feed, manure, cropping, equipment and labor.
New technology, with activity monitors for reproduction, breeding and health, combined with the use of sort gates and palpation rails, is reducing interference with cows’ daily activities.
Better choices in genetics support increased health, less mastitis and better feed efficiency, with a goal of “a more self-cared cow.” There’s more interest in robot-related technologies, both in feeding and milking systems.
“Unknowns abound and elimination of as many as possible is a must,” Faber says. “That includes contracting inputs and outputs for price protection and staying ‘in the know’ on the changing government regulations. Managing every drop of water is vital.”
