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Milk production continues to outpace processors

By SHELLY STRAUTZ-SPRINGBORN

NOVI, Mich. — Dairy processors are struggling to keep up with increased milk production.

According to a recent report from CoBank’s Knowledge Exchange Division, every year U.S. dairy farmers produce 3 billion more pounds of milk than the year before, and for the past few years that growth in production has outpaced processing capacity.

As a result, “dairy processors are faced with the challenge of handling an ever-growing milk supply, while anticipating the right product mix to meet consumer demand,” said Ben Laine, senior dairy economist at CoBank. “An additional 27 billion pounds of U.S. milk processing capacity will be needed over the next 10 years if current trends persist.”

Ken Nobis, president of the Michigan Milk Producers Assoc. (MMPA) in Novi, said the gains in production have been “very challenging.

“The processing capacity is stretched very thin right now,” he explained. “We have had production increase very rapidly, especially in Michigan. Our numbers show that Michigan is up about 90 percent on milk production and there are 40 percent more cows since 2000. We haven’t been able to keep up on the processing side.”

Nobis said some expansion in milk processing has occurred in the state, but it isn’t enough to offset the increases in production.

“Select (Milk Producers) has added capacity here on the west side of the state in Coopersville. MMPA, in the last four to five years, has doubled our in-house processing capacity, but still has not kept pace. That has pretty much been the extent of capacity added in the state,” he added.

Nobis said MMPA is considering its options for further expansion. “Part of our expansion in the last five years was to purchase a cheese processing plant in Middlebury, Indiana. That’s a new venture for our co-op to be in cheese. It has given us an opportunity to get our feet wet. We will be expanding it. It won’t be a huge expansion, but there will be more going into that plant in the near future.

“There are other products out there being investigated,” he said. “There still is a need for more processing capacity. But, it takes time, it takes money and it takes partners. You don’t want to build something unless you have the sale for the product coming out the other end. Unfortunately, we can increase milk production faster than we can increase sales.”

Although U.S. consumers’ fluid milk consumption has been slowing, investments are occurring in fluid milk bottling plants to process specialty products like organic milk and extended shelf-life products or to upgrade and replace existing, aging infrastructure, according to the CoBank report.

Recent expansions of cheese-making plants – which have the potential to handle much more substantial amounts of milk than other processing plants – have been completed in the Southwest. And new plans for cheese plant expansions in the upper Midwest are expected to relieve some of the region’s recent capacity constraints once they come online.

Increasingly, cooperatives are setting their sights on cheese plants as opposed to commodity balancing plants, and are looking to joint ventures as a means to do so, the report stated. In addition, many international companies are looking for ways to establish a U.S. manufacturing footprint to gain access to the U.S. milk supply for what is expected to be long-term growth in global demand.

“There have been international partnerships and joint ventures for years in the industry,” Laine said, “but the interest seems to be gaining momentum.”

Regarding new markets, Nobis said, “It’s an open book. We haven’t limited our options. We see the importance of the global marketplace. We export 15 percent of what we produce in this country. If we’re going to continue to grow our industry, it’s going to be heavily dependent on exports.

“All of the information we receive on economic outlook is that consumption is going to grow much faster globally for dairy than it is domestically.”

MMPA markets approximately 5 billion pounds of milk per year, and about 45 percent of it is processed in-house. The rest goes to various customers – fluid, cheese, butter, ice cream, baby formula and others.

It’s a challenge,” Nobis said. “A lot of people in our locale think it’s a regional issue, but really, it’s a global situation. I think the market has stabilized a little, but there is definitely more product than what we need.”

Laine said processors will need to stay focused on the consumers, whether domestic or international, and form partnerships as needed to meet demand.

“At times of surplus milk, the need for added processing capacity in any form seems critical, but for the long-term health of the industry, the focus should be on building the right type of capacity to meet growing global demand,” he said.

10/19/2017