BY CRAIG W. ANDERSON

Dairies rebounded somewhat in 2011 and 2012's been a challenge, but 2013 should be better, is the word from dairy experts.

The dairy crash of 2008-2009 hasn't been forgotten by San Joaquin County dairy farmers and today they face the same, if slightly less drastic, challenges as they did then: the cost of production rose 15.3 percent in 2011, according to the CDFA Dairy Marketing Branch's annual Cost of Production report.

The numbers for San Joaquin County's milk production in 2011 aren't out yet but dairy was worth $341.4 million in 2010 according to the agricultural commissioner's annual Crop Report, the most current numbers available.

"The increased cost was largely due to higher feed prices for hay, grain commodities, and by-products, which increased in every quarter compared to the corresponding quarter a year earlier," noted the report.

"It's the cost-price squeeze," said Jack Hamm, SJFB first vice president and dairy farmer near Lodi. "Costs are astronomical and if prices decline even a little and costs stay up, you've got a real problem."

Feed and cows
The cost of feed is the main obstacle and the monthly "Livestock, Dairy and Poultry Outlook" from the USDA says with the big corn crop being planted, prices are expected to go down and "while that is good news for dairy producers dealing with declining milk prices, the milk-to-feed ratio will not be conducive for expansion until late 2013."

The report said cow numbers are supposed to decline in 2012 but adds that "producers are not culling as quickly as anticipated" and that the total dairy herd will be 9.23 million head nationwide with milk production estimated at 201.9 billion pounds in 2012, increasing to 202.6 billion pounds in 2013.

California has about 1.75 million dairy cows and 1.5 million dairy heifers, along with 700,000 beef cows. "Dairy is a very big player in California beef," said Hamm.

Global marketplace
With supply outpacing demand all that extra milk has to go somewhere and Hamm said, "We're in a true global market where what happens in the rest of the world affects our milk prices and production. To compete more effectively we have to encourage more consumption domestically and overseas."

Improving position in global market
Ray Quaresma, dairy farmer and member of the Milk Advisory Board said the organization is "allocating 25 percent more funding toward international incentives, mobilizing more into the international marketplace."

He said the board has played a significant role in moving milk into Mexico, a product that has a long shelf life due to new, higher temperature pasteurizing that kills the spores, fungi and other elements that cause milk to spoil.

Powder
"The world market has had a wild year," Quaresma said. "There is a lot of product out there in the world marketplace and we have to make a product that will compete in it."

He said the key to the USA being a bigger player internationally is to change the way our exported non-fat dry and skim milk powder is made with low heat. "Overseas buyers don't want it because it spoils sooner. So, if we make a better milk powder we'll be able to compete more effectively in the international market."

International market
American exports are already doing pretty well as dairy products exported in March were valued at $484 million, a new monthly record high, a value that exceeded $400 million for the 13th consecutive month. In the year-to-date fiscal year 2012 – October 2011-March 2012 – exports were estimated at $1.626 billion, up 24 percent from the same period a year earlier.

Global milk production is increasing and, said John Kaczor, market analyst with California Milk Producers Council, "The laws of supply and demand seem to have hit the global dairy market as high milk prices around the globe last year helped boost cow numbers and production per cow in most regions."

Correct prediction? Wrong prediction?
The USDA forecast 2012 commercial exports to increase as the global economy improves and milk production increases.

"With all the business with Greece and concerns about China's quarterly growth, I'm not so sure," said Robin Schmahl, hedging and marketing specialist with AgDairy LLC. "We're fighting heavier production in other countries, seeing lackluster demand, and building stocks that will likely limit a price rally later this year."

And the U.S. Dairy Export Council threw cold water on any thought of a milk price uptick when it said, "Excess supplies of milk are leading to price softening in the U.S. and international dairy markets and increasing product inventories will keep downward pressure on those markets."

Competition
That isn't good news when more than half of the U.S. new milk production is exported and must maintain that volume so production won't back up into domestic markets.

"If we're going to be competitive globally, we must think of our industry as a world product with world prices and that we must produce a better product if we want to compete in that world," Quaresma said.

If exports are being juggled and manipulated to keep demand ahead of supply, or at least tied, then what's happening in California?

"Regulations are still an expensive input cost," Hamm said. "Water, air, there are regulations for everything."

Troubling happenings
Everyone is hopeful of better times for the dairy industry but the over-supply situation has caused problems for dairy farmers. Land O' Lakes has taken the disconcerting step implementing a buyout program to reduce its milk supply by at least 6 percent. In the process, 17 dairies in Tulare and King counties stopped shipping to Land O' Lakes and closed their doors, several others sold out, and three filed for bankruptcy.

Hamm said, "Everyone's keeping an eye on the BSE situation. And kudos to the state and federal department's of ag. Farm Bureau kept people informed."

He said the agencies involved did a "fantastic job of checking for BSE and keeping the lid on it. It was investigated thoroughly and handled well."

Promising future
"Obviously, this is a challenging time for dairy because of continue high feed prices," said Karen Ross, CDFA secretary.

The fast-emerging export markets might save the day and boost the state's dairy industry over the next few years. But some dairies don't have a few, or even two, years left.

With feed costs through the roof – $300 a ton for corn – energy arriving at premium prices, supply grappling with demand, dairies closing, the global market shaky, BSE appearing but being resolutely smacked down by local, state, and federal agencies, all that's left is for other states to recruit California dairies. Which is what they're doing.

What does the future hold for San Joaquin County dairies?
Quaresma had this to say about that: "It looks like we'll hang where we are, or a little better, into 2013. We'll get through these tough times. We have in the past and we'll do so again."