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Jerome Cheese
Adds Flexibility To Production; Targets West Coast, Export Mozzarella Customers
Move May Have Many Repercussions to Both Cheddar and Mozz Markets
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Click here for a pdf version of the Jerome Cheese Story
Jerome, ID—Time and again, Davisco Foods International has afforded its dairy operations the flexibility to make higher-value products as a way to stay more competitive for milk.
Davisco Foods owns cheese plants in Le Sueur, MN, Jerome, ID, and Lake Norden, SD, in addition to food ingredient plants in Le Sueur and Nicollet, MN, Lake Norden, SD, and Jerome, ID.
Recently the company began the production of Mozzarella and Provolone at its Jerome Cheese facility. The plant will continue to make Cheddar there as well.
The move is intended to better serve Davisco’s national and international Mozzarella cheese customers.
“We found that our Midwest customers of our Lake Norden pasta filata Mozzarella factory are multi-regional food companies,” said Jon Davis, president and chief executive officer of Davisco. “Those food companies can only competitively buy our Mozzarella and deliver it in the Midwest or points east. It’s hard for us to put it on a truck and get it out to the West Coast and be competitive with other West Coast producers of Mozzarella.”
Davisco Foods is also a major player on the world marketplace, both with its whey products and its cheese products.
Davis believes that the Far East, people in China, Vietnam, Korea and Thailand, will be diversifying their palates and will start eating more convenient foods like pizzas and sandwiches.
“The same situation exists,” Davis said. “For us to be more competitive, we need this additional supply that is much closer to the ports on the West Coast.”
Possible Ripples of a Mozz Glut
While ripples of Jerome Cheese’s announcement have yet to be felt, one might expect a heated battle in the West as a possible glut of Mozzarella hits the market there.
Davis doesn’t know if that will
happen, but he said the Mozzarella market is growing and growing rapidly.
“It’s over a 3 billion pound market and if it grows at just 1 percent, and we think it will grow more than that, that’s 30 million pounds. And that’s just the domestic market,” Davis noted. “When you include the Far East, you are talking about 60 - 70 million pounds of cheese in short order.”
“With Jerome we’re going to be able to make 225 million pounds of Mozz in a year that we can’t do today. That 225 million pounds is an opportunity for us gain other customers.”
—Jon Davis, Davisco Foods International
USDA figures indicate that 1.8 billion pounds of Mozzarella out of the 3.5 billion pounds manufactured nationally was made in the West region in 2010.
“We hope we’re doing it at a time to supply a market that is growing very rapidly,” Davis said. “We are sold out at Lake Norden.
With Jerome we’re going to be able to make 225 million pounds of Mozz in a year that we can’t do today. That 225 million pounds is an opportunity for us gain other customers.”
The Jerome Cheese operation has the capability of producing 225 million pounds of Mozzarella, but Davis says all of that production won’t go into Mozzarella, at least not immediately.
“We’re not going from zero to 225 million overnight,” Davis said. “If we make 75 million pounds of Mozzarella at Jerome this year, we’ll be happy.”
Lake Norden will continue to
serve the buyers in the Midwest and towards the population centers out east, Davis said.
Davis said the company’s current customers are clamoring for more Mozzarella on the West Coast and knows what more product typically does to the marketplace.
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“We understand that more supply gives the buyer added leverage but that’s the beauty of being flexible,” Davis said. “Jerome has added the flexibility to make either Cheddar or Mozzarella. Therefore we don’t have to buy market share by discounting prices. Instead, we will be able to produce Cheddar or Mozz based on the economic return.”
Davis absolutely wants it to be known, however, that the company relishes its Cheddar customers and will continue serving them.
“We have no desire to not serve them,” Davis said.
Possible Ripples of a Cheddar
Shortage
When a cheese company shifts large production of one cheese to another, a glut may occur. Conversely a shortage may also occur when production ceases or declines significantly.
“In the short term, if we flip a
decent amount of Jerome into Mozzarella, the Cheddar market could be
under-supplied.”
Troy Ammann, director of cheese operations of the three cheese plants owned by Davisco, agrees that Cheddar might get a little short and ultimately affect the markets.
“You see how fast markets can swing,” Ammann said. “Cheddar certainly can be tight at times. Out of the 225 million pounds of cheese we make, if we move 100 million into Mozzarella it could have an impact, but ultimately, price matters and high prices will curb demand of both Cheddar and Mozzarella and when Mozzarella demand is soft our flexibility will allow us to switch to Cheddar.”
Davis noted that 44 million pounds of cheese was traded at the Chicago Mercantile Exchange last year.
He said the company has been relatively active over the last couple of years on the CME, both as a seller as well as a buyer.
While he has no major complaints about the CME, he is anxious to have alternatives with the products manufactured in Jerome.
Taking A Lesson From Whey Operations
Davis said cheese is 85 percent of the company’s revenue stream while the company’s whey operations make 15 percent.
“We’re trying to move that 85 percent up the value chain and try to be more competitive for milk with our producers. We’re very innovative on whey products, but there is only so much we can wring out. Last year, with the six million pounds of milk we brought in, we had to make Cheddar. Now we have options.”
It’s all about being flexible and trying to react to the marketplace, get a higher value for the milk they buy and synergize their export opportunities. All very similar to what the company does with its food ingredients.
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“We can make whey powder to high-end WPI (whey protein isolates) and everything in between,” Davis said. “We modify that production, while honoring our contracts, in order to get the highest return.”
Before 1998, Davisco was running only 500 pound barrel and 640 pound blocks. The company added the capability to make 40 pound blocks.
“We had to over-capitalize to have that flexibility. And it’s paid for itself in spades,” Davis said. “When the block/barrel price spread is significant, we lever our flexibility and produce the highest value product, just as we do with our whey product flexibility.”
That’s the same thing now with the Mozzarella and Cheddar. We’ll know each and every month which market is a better market to be in, Mozz or Cheddar,” Davis continued. “We have had to over-capitalize to have that flexibility.”
Conversion-Friendly Cheese Products
In addition to the stirred-curd Cheddar Jerome Cheese is making, Troy Ammann said the plant will have the same packaging flexibility as Lake Norden with the Mozzarella and Provolone.
“It’s 20 pound blocks in totes, 10 and 20 pound blocks in cases, 6 pound loaves, 8x6 pound loaves per case,” Ammann said.
The company has also incorporated a new 3.5 inch diameter by 34” long round Provolone, specifically designed for cheese cutters.
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| Johnson Industries International Cooker/Stretcher |
“It allows the cutters to become more efficient,” Ammann said. “It’s for the slicing category. It’s a unique product our end-users are excited by.”
“We strive to do things right,” Davis said. “We pride ourselves on quality and convenience, 100 percent natural dairy products, high quality cheese, fantastic service, at a competitive price. We leverage the magic of milk, so it’s natural attributes resonate in the finished product, and we won’t compromise producing all natural cheese.”
An offshoot of Jerome’s convenience and competitive pricing is the ability to offer combined loads.
“Right now we have a lot of customers buying shreds who want a half-load of Cheddar and a half-load of Mozz,” Ammann said.
“We couldn’t supply the Mozz competitively because we have to ship it over the mountain to get it here. Now we can open a lot more doors. Now we can make it all in one plant. Nine pallets of Mozz shred? Nine pallets of Cheddar shred? Blends? Sure. It’s easy.”
Idaho Milk Production
Davis remains optimistic about the milk supply in Idaho, despite the recent announcement that the yogurt manufacturer, Chobani, will be a neighbor relatively soon.
As 2011 progressed, Idaho saw a slowdown in milk cow expansion and only modest increases in milk production.
“The feed economics are the biggest driver of milk production leveling off in Idaho,” Davis said. “If you analyze the economics of an Idaho dairy farm, the variable that is different today, versus 2002, is the price of feed delivered to the dairy farm. Milk prices have trended up over the last 13 years. Idaho has grown so much over the last 15 years but has slowed over the past three. It’s all about the corn and the feedstuff prices and the hay prices, that’s what has tempered the growth and if we don’t get a change there, we’ll continue to see the tempering. If we could get the feedstuffs down to 2004 levels, you’d see 6-8 percent increases.”
Plant Design
The company designed the plant to be able to shift production in order to get the best return. The company won’t run any more milk initially, yet has allowed for the operation to double size.
Davisco converted three cheese coolers and part of its original barrel room into 50,000 square feet of Mozzarella cheese processing area, Ammann explained. The converted space became a cooker/stretcher and molder room, brine room, packaging room, and mechanical utility space.
Jerome added a new 60,000 square foot cheese cooler to replace the cooler space it consumed with Mozzarella processing along with adding some extra cheese storage capacity.
“With the addition of the Mozz line, we’re considerably closer to being able to double the throughput of the facility,” Ammann said. “Within this project we allowed the square footage necessary to add upstream equipment (pasteurizer through cheese belt) that it would take to run the Cheddar line and Mozz line in tandem.”
Davisco Foods International
Davisco Foods is a family-owned international cheese and food ingredient company
headquartered in Le Sueur, MN.
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| GEA Convenience-Food Technologies Line |
It had its beginnings in 1943 when Stanley Davis purchased the St. Peter Creamery. Davisco is managed by Stanley’s son Mark Davis, current chairman of the board, and his four sons, Mitch, Marty, Matt and Jon, who was named president and CEO of the company, this week.
The company processes over 4 billion pounds of milk and makes nearly 400 million pounds of cheese a year.
Being located near a bigger milk shed, as well as efficiencies created by a larger plant, allows Jerome Cheese the flexibility to react to the marketplace and shift production year in and year out.
The Le Sueur operation manufactures 65 million pounds of cheese out of 830 million pounds of milk. Besides Cheddar varities, Le Sueur makes Montery Jack, Parmesan, Romano, Asiago, Muenster, Gouda and Brick in 40 pound blocks.
Le Sueur is the company’s oldest cheese plant but Jon Davis said he is very happy with the production there and believes those products there will continue to grow.
“We’re content with the product mix at Le Sueur with a lot of the hard italian cheeses,” Davis said. “We feel very confident that our strategic partner, Arthur Schuman, is well positioned to continue to grow that category.”
Lake Norden, SD, is the company’s newest cheese plant; ground was broken for the plant in 2002. The plant’s throughput is nearly 1.18 billion pounds of milk. Some 120 million pounds of Mozzarella and Provolone are made there every year in various packaging styles.
With Lake Norden and the flexibility at the Jerome plant, Davisco’s Mozz production could exceed well over 300 million pounds someday.
“We may make more Mozzarella than Cheddar by 2013. But you never know, we might be making more Cheddar than Mozz in 2014.”
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