CaliforniaDairyIndustrySituationandOutlook
Dr.EricErbaCaliforniaDairies,Inc.
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CaliforniaMonthlyMilkProduction
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2 2,500
2,750
3,000
3,250
3,500
3,750
4,000
CaliforniaMilkPrice
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3 $10.00
$12.00
$14.00
$16.00
$18.00
$20.00
$22.00
$24.00
NumberofCaliforniaDairyFarms
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1,752 1,715 1,6681,563
1,496 1,470 1,438 1,385
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2009 2010 2011 2012 2013 2014 2015 2016
LocationofMilkSupply
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• GeographicfootprintofmilkisgettingsmallerandmoreconcentratedintheCentralValley• Topeightcountiesareallinthemiddleone-thirdofthestate• Eightcountiesproduce90%ofCalifornia’smilk
WherethedairyindustryishotandnotYTD2016MilkProduction
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OutlookforDairy• Intwoshortyears,theCaliforniadairyindustryhascompletelychanged• Fordecades,theindustrystruggledwithbalancingabundantmilksupplieswithprocessingcapacity• Criticaltimesforbalancingmilksupplies:• FebruarythroughMay• ThanksgivingtoNewYear’s
• Startinginlate2015,theoppositeproblememerged,i.e.,Rindingenoughmilktokeepassetsrunning 7
OutlookforDairy• Thefoundationofthedairyindustryisbuiltondairyfarmsandmilk• Threerelatedanddependentsectors:• Farmstoproducefeed(manylocatedoutofstate)• Milkprocessingplantstoproduce(andsell)dairyproducts• AfRiliatedbusinessesthatareeconomicallyviable
• Widespreadandgrowingconcernaboutthealarmingtrendsseenonthedairyfarmside• Dairyfarmsarejustrespondingtoeconomicsignalsandpressures 8
OutlookforDairy• WhathaschangedinthelastRivetotenyears?• Milkpricestabilityhasbeenalteredasgovernmentinvolvementhasdecreased• EmergenceofdiversiRiedoperations–operatedairyfarmbutwithsomeadditionalfarming–reducesrisk• Permanentcropswereproventobeeffectiveagainstdownyearsforthedairyfarm
• Environmentalrestrictionshavebeenbuildingoveraperiodofyears• Dairyfarmsandmilkprocessingplantsdonothavetheexemptionsthattheyusedtohave 9
OutlookforDairy• Whatdotheindicatorssuggestnow?• MilksupplieswillbecomelessavailableinCA• WillhaveastableandRixedassetbaseformilkprocessing• Increasedcompetition–processingplantswillbeforcedtobelockinmilksupplies• Greaterinterestinhavingdirectshippersinsteadofbuyingmilkfromacooperative• Dairycooperativesareexpectedtobecompetitivewithothermilkbuyers
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OutlookforDairy• WhyaredairycoopsimportantinCA?• Historically,about80%ofCAmilkhasbeenmarketedbydairycooperatives• Relevancyofmilkmarketingcooperatives?• Keystoremainingrelevant:• Continuetoperformwithgoodreturnsoncapitalinvestments• Offerservicesthatcannotbefoundelsewhere• ConsolidatetostrengthencooperativeinRluence
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OutlookforDairy• SurvivabilityofdairyfarminginCA• Mustadapttoadifferentmodelthanwhatgrewtheindustryfordecades• ThenextRiveyearswillnotresemblethelastRiveyears
• Internationalmarketshavenotproventobepredictably“good”formilkprocessors
• Increasedregulationsforagingeneral• Dairyindustrywillhaveadditionalregulatoryproblemstosolve
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OutlookforDairy• SurvivabilityofdairyfarminginCA(con’d.)• Morecompetitionforland,waterandlaborfromotherindustries• Workswellfordairiesseekingoptions• Doesnotbodewellfornewdairyconstruction
• On-farmmarginswillimproveascompetitionformilksuppliesheatup• Mustbereceptivetoanincreasinglyinquisitiveconsumerbase–“Howismyfoodproduced?”• Fordairyfarmsthatadapt,thefutureisbright
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