Dairy Dives into 2009

A Look Ahead

Volume 133, No. 23 Friday,December 5, 2008

On the western plains of Iowa, a new cheese factory built by Green Meadows Foods, rises above the drying corn, a symbol of belief in a bright future for cheese and dairy products.

Yet as the Midwest’s newest cheese plant is accepting its first loads of milk, the nation’s economy is faltering. What’s the outlook for the Upper Midwest dairy industry in 2009 and beyond?

Milk Production
Milk Production is rising in Wisconsin and the I-29 corridor serving Minnesota and South Dakota. Wisconsin production is up 1.5 percent in 2008, and 3 percent in each of the previous three years. John Pagel, dairy producer president of the Dairy Business Association (DBA), believes producers will have to “weather the storm” of lower milk prices in 2009.

“Producers in Wisconsin invested millions in 2007 and 2008 believing there is a bright future for the dairy industry. Although prices in 2009 will not be favorable, many dairymen will take advantage of contracting tools that provide some protection against low prices,” Mr. Pagel told WCMA.

Farm expansion projects will continue throughout 2009, according to DBA executive director Laurie Fischer, but producer that have not used risk management tools will find 2009 “a bit rough.”

Energy Production
Energy production from whey permeate and wastewater streams will reach the mainstream dairy processing industry in 2009 and beyond. Multiple firms are bringing technology on-line to produce methane from dairy plant waste streams, providing the benefit of in-plant energy use and clean, low-BOD effluent from treatment systems.

Global Dairy Markets
Global dairy markets face opportunity and volatility according to Netherlands-based Rabobank. Global income growth has increased the number of people who are aware of dairy, have access to dairy and want to consume it and can afford to do so, states their report “The Global Dairy Industry-Reshaping in a New Market Era.”

Global recession in 2009 will temporarily trim demand, while higher cost of production and constraints on land and water in traditional low-cost dairy regions will bring high price volatility in 2009. “Global dairy stock levels are low and in the medium-term, it is expected to unleash the latent volatility inherent in dairy product markets,” the report states.

Domestic Food Markets
Domestic food markets are shifting. According to the National Restaurant Association, restaurant operators have reported declining sales throughout 2008 with September representing the worst result in more than five years. Sixty percent of operators reported a same-store sales decline in September, up from 48 percent who reported similarly in August.

An October consumer spending study from Booz & Company found that among those polled, 43 percent of respondents are eating out less, 39 percent are choosing less expensive restaurants, and 35 percent are packing their own lunch for work, compared to six months ago.

Do retail sales hold promise for dairy products? At home meal consumption is up, but shoppers are making more trips to supercenters and dollar stores and cutting back on their supermarket visits, according to the latest Times & Trends report from Information Resources Inc. (IRI).

IRI noted in the report “Tough Times Create a Revival in the Dining Room,” 55 percent of surveyed shoppers state they have scaled back their purchases of higher-priced ultraconvenient meals. Examples of these meals include frozen pizza, shelf-stable dinners and refrigerated prepared lunches. Purchase of staple foods for cooking in-home will increase, and according to IRI, the purchase of little luxuries for consumption at home are up.

Green Meadows Foods in Hull, Iowa also provides a glimpse of the future. The new plant, capable of running 2.4 million pounds of milk per day, is built to expand to 5 million pounds, with whey processing equipment and dryers already in place for this expansion.

The private plant was conceived by dairy producer Shep Ysselstein, who milks about 7,000 cows in northwest Iowa. Mr. Ysselstein timed the market well, finding excellent staff, ample milk and a ready market for aged cheese.

And while mega-plants remain a rare phenomenon, the placement of Green Meadows Foods in Iowa, Hilmar Cheese in Texas and Southwest Cheese in New Mexico in recent years illustrates that dairy processing is flexible enough to seek out supply, and no state can look to tradition to secure its future. r

John Umhoefer has served as executive director of the Wisconsin Cheese Makers Association since 1992. You can phone John at (608) 828-4550; Fax him at (608) 828-4551; or e-mail John Umhoefer at jumhoefer@wischeesemakersassn. org


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