Dairy Processors Expand, But Farmers Are Hesitant

Ever.Ag Broker Analyst Cody Koster joins Farm Director Pam Jahnke with an update on the dairy processing side of the industry. He says there are dairy plants under construction in the northeast, central and southwest corners of the U.S., but they’re not necessarily finding a lot of supportive dairy producers ready to grow with them.

“What we’re hearing through the grapevine is it’s hard to have those companies get producers to build new dairies for these processing plants especially with interest rates at 8 to 8.5 percent,” he says. “It’s just hard to make that dollar back.”

Business models usually call for growth, not contraction. That’s why dairy processors are still thinking about expanding capacity, even in a challenging economic climate. Dairy farmers though, are currently acting much more conservative than their processing partners like. Koster says that’s why processors are rethinking their business models.

“I think they’re taking a different look at the investors,” he says. “We still hear that these plants are being built. Even in the mid-East and Midwest, there’s still a little bit of expansion going like on the butter side.”

Meanwhile, producers are not look at expanding the herd, but rather improving what they already have at home. Even if lower milk prices and high interest rates aren’t deterring dairies, heifer prices might. Replacement heifers come with an escalating cost, Koster says. High beef prices have thinned the dairy/beef selection, and dairies that do have available heifers that could enter your milking herd are asking a pretty penny for the animal.

“One guy was quoting $2,600 for spring heifers, and he had mentioned there might be a little bit of a waiting list on that,” he says. “The heifer is going to be the way to go to rebound the herd, but it’s going to come at a cost.”