Most milk manufactured in Wisconsin becomes cheese, but it’s also turning into white gold for dairy farmers in America’s Dairyland, because demand has never been higher and prices for it are rising at meteoric rates.
A dramatic increase in dairy exports and limited milk production have combined to create the near-record high prices dairy farmers are receiving for their milk from customers like cheese producers.
Combined with the near-record low prices they’re paying for corn to feed their cows, dairy farmers should see increased profits through this year, a leading dairy economist said.
“This is the dairy farmers’ year to enjoy,” said Mark Stephenson, the director of the UW-Madison’s Center for Dairy Profitability.
It’s also a year in which it pays farmers to squeeze every possible drop of milk out of their cows. Nobody needs it more than the state’s cheese producers, which are also looking to take advantage of increased demand for their products nationally and internationally.
Cheese producers already take everything state dairy farmers can give them, and it’s still not enough. That’s why up to 15 percent of the milk used to make cheese in Wisconsin comes from other states, said John Umhoefer, the executive director of the Wisconsin Cheese Makers Association.
“There simply is more demand than we can supply,” said Doug Wilke, the executive vice president in charge of marketing and technology for Baraboo-based Foremost Farms, USA.
Since July, milk prices have risen steadily to keep pace with the increase of U.S. exports of dairy products like cheese, butterfat, milk powder, whey products and lactose. Dairy exports in 2013 increased 18 percent from 2012 to 1.8 million tons, according to the National Agricultural Statistics Service.
Class III milk (which is used for cheese production) increased $2.20 in one month to $21.15 — an 11.6 percent jump — for 100 pounds, according to statistics from the United States Dairy Association compiled by UW-Madison agricultural and applied economics professor Brian Gould.
The average price for all grades of milk jumped $1.20 to a record $23.20 for 100 pounds. The old record was $22.10 set in November 2012.
The good news for consumers is that the supply of milk sold in grocery stores has remained steady, limiting the increase in the price of whole milk to less than eight cents from September to December, according to the USDA. Liquid milk for retail consumption constitutes a small fraction of all milk produced in Wisconsin, and producers “walk a fine line” between making a profit and risking losing market share to competing products like sports drinks and other beverages, Wilke said.
“We have to make sure we keep the consumer engaged and coming back to buy dairy,” he said.
Big rise in cheese exports
However, some dairy products like cheddar are getting harder to find in stores as production has shifted to hot export commodities like Italian cheeses and skim milk powder, which are in great demand in China and other Asian countries.
Foremost, the state’s largest cheese producer, is joining four other members of Cooperatives Working Together in seeking export assistance to sell 5.8 million pounds of cheddar, Gouda and Monterey Jack cheese and 551,156 pounds of butter to customers in Asia, Central America, the Middle East and North Africa by June.
The company’s fastest-growing exports are whey-based ingredients used in the production of infant formula and nutritional supplements for humans and animals, Wilke said. Whey, a byproduct of the manufacture of cheese, comes from the remains of milk after it’s curdled or strained.
The demand has pushed Foremost’s facilities in seven states to near-capacity.
But the company can only go as far as the milk it buys can take it. “Our best option is to grow the milk supply. Get more cows and get more efficient,” Wilke said.
Wisconsin’s specialty cheese producers played a big role in U.S. cheese exports rising to an estimated record 680 million pounds in 2013, according to the United States Dairy Export Council. That helped the U.S. shoot ahead of New Zealand to become the world’s No. 1 cheese exporter.
State cheese exports grew 23 percent to $128 million for the first nine months of 2013 compared to the same period in 2012, said Jen Pino-Gallagher, co-director of the state Department of Agriculture, Trade and Consumer Protection’s agricultural market development bureau.
Mexico, Canada and Japan remained the top three importers of state cheese, but Panama and South Korea moved into the fourth and fifth spots, Pino-Gallagher said. That reflects DATCP’s efforts to improve exports, said Mark Schleitwiler, the vice president of operations for BelGioioso Cheese of Green Bay.
“It’s important to the (cheese) industry and agriculture in Wisconsin to see (DATCP) paying attention to foreign markets,” Schleitwiler said. “That’s something we hadn’t done in the past and a lot of our overseas competitors were dominating those markets. Now we’re stepping up as well.”
Organic Valley Farms, based in La Farge, increased its export sales of dairy products 140 percent between 2012 and 2013, in part because food scares in other countries have caused more consumers to turn to organic milk, said Kevin Schleicher, the company’s global sales coordinator.
And Wisconsin cheese producers know they are just scratching the surface when it comes to overseas sales.
Multiple market analysts have said China’s demand for milk powder is the biggest reason the United States is setting export records. California and other West Coast dairy processors have been the biggest benefactors because their locations make it cheaper to ship their products.
As part of that, western producers are diverting more of their product toward easy-to-ship powdered milk, opening up opportunities for more domestic sales of Wisconsin cheese, Schleitwiler said.
To spur milk production in Wisconsin, DATCP is offering $200,000 in grants annually to dairy farmers to improve their cows’ milk productivity by helping finance better feed, housing and other factors.
Even more important, say cheese producers like Wilke and Klondike Cheese Company president Ron Buholzer, is increasing the size of the state’s herd. That means being receptive to more industrial-sized dairies in the state, said Pam Ruegg, a professor of dairy science at UW-Madison.
“We need all sizes of our herds here in Wisconsin. They are all interdependent,” she said. “The smaller producers have feed and may raise heifers for the bigger guys. And we need the big ones to maintain the infrastructure to allow the smaller ones to have the veterinarians and the milk processors and the competition for the milk.”
The large dairy farms that have several thousand cows have generated opposition for the large amount of waste they create. But Ruegg said they are an asset to the industry, in part because they provide the feed and conditions that produce the most milk per cow.
Nobody knows that better than Joe Statz, who helps run Statz Brothers Farms in Sun Prairie that will grow from 3,000 to 4,200 milking cows later this year. The site of the 2015 Farm Technology Days, which highlights the latest advances in farming, also is opening a second manure digester this year to handle the added waste and create energy to power and heat its facilities.
“You can make things more comfortable for them and make the environment better, but most farms are very efficient at what they are doing,” Statz said. “So I’d have to agree that right now, the best way to get more milk is to get more cows.”
Every day, 200,000 pounds of milk are trucked out of Statz Brothers’ dairy farm, and none is used to make cheese. It’s all used for liquid milk sold by Dean Foods, Statz said. Like most dairy farmers, Statz said he doesn’t have much to complain about these days. It makes up for the scary drop in prices in 2009 when milk prices dropped to $9 for 100 pounds.
“One year like that and it takes us seven years to recover from it,” Statz said.