Unveiling a Glimpse into Dairy's Future

 Michael Dykes, CEO of International Dairy Foods Association (IDFA), shared at the Dairy Forum in Phoenix earlier this year that our industry has a growth mindset.

“Our farmers want to grow and so do our processors. If we aren’t growing, if we aren’t looking towards the future, we’re going to get surpassed by others,” he says, sharing that 60% of the processing executives have expressed optimism for 2024 and 73% plan to increase their investments over the next 3 to 5 years.

Phil Plourd, president of Ever.Ag Insights offers a different perspective, saying that his back-of-the-envelope math shows today’s interest costs on building a 6,000-cow dairy are running about 60 cents per hundredweight above 2021 levels. Plourd says, “that could limit producer’s expansionary appetites.”

Still, the trendline illustrates the continual migration of dairy herds from coastal areas coming inland. States like South Dakota are skyrocketing with growth. In January 2024, the United States Department of Agriculture (USDA) announced that the total number of dairy cows in South Dakota totals 208,000, up 70.5% since 2019. To put that into perspective, South Dakota’s dairy herd has added 118,000 cows over the past 12 years.

Evan Grong, sales manager for Valley Queen, says three main factors attract producers to South Dakota.

“We attribute the current and projected growth in the I-29 region primarily to access to feed production, abundant groundwater and dairy processing investments,” he explains.

Other states are not fairing so well mainly because of environmental regulations and rising labor costs. This is one reason dairy producer David Lemstra moved from California’s Central Valley to South Dakota four years ago. Lemstra, who milks 4,000 cows near Sioux Falls, concurs with Grong, saying three things led him to call South Dakota home—feed, permits and processing. Although he adds that California political management played a factor in their decision to move east.

“It’s not one blow that took us out of California,” Lemstra says. “It was death by 1,000 cuts.”

With more than $7 billion in planned processing investments in the pipeline with much of that popping up in the midsection of the country, indeed, major future growth will come to states like South Dakota and Texas. For example, South Dakota processor, Agropur, increased its capacity by 2 million lbs. in 2023 and Valley Queen is adding 3 million lbs. to its daily processing that will be finished later this year. In Texas, Panhandle Products increased its processing capacity by 4 million lbs. in 2023 and Leprino Foods is expected to finish construction to add 8 million lbs. Similar, Hilmar Cheese is expected to finish construction on a green site facility in Dodge City, Kan., for 8 million lbs. later this year. Grocery giant, Walmart announced new milk processing plants to open with one in Valdosta, Ga., expected to open in 2025 and another in Robinson, Texas, with plans to become operational in 2026.

Back on the farm front, lackluster mailbox prices delivered early in 2024 has forcing dairy producers to find a way keep their legs beneath them. Still, many producers across the county have their eyes wide open to the future and are eagerly embracing opportunities to grow any way they can.

The largest dairy cooperative, Dairy Farmers of America (DFA), shared that they conducted a member-survey that illustrates that by 2030 they are anticipating only having 5,100 member farms. Corey Gillins, chief milk marketing officer with DFA, shared that this is a drastic drop from their current membership of nearly 11,000 member-owner farms. Gillins noted at DFA’s annual meeting in Kansas City in mid-March that more than 500 of their member farms exited the industry in 2023. 

Survey Results

Following is our State of the Dairy Industry report where Farm Journal surveyed 210 dairy producers throughout the U.S. who range from 100 to 20,000-cow herd size. Our forward-thinking survey asked participants about challenges that face them, along with opportunities. We asked what growth looks like for their dairies and ultimately what do they envision their operations to look like in the next 5-7 years. We are proud to present to you the 2024 Farm Journal State of the Dairy Industry report that shares several insights of what’s to come in the years ahead.

One clear insight documented is that U.S. producers are feeling the mountain of challenges that face them—from labor issues to regulatory pressures, to the overall economic hurdles of running a dairy farm. Despite all of that, the outlook from dairy producers appears to be promising. More than two-thirds of dairies reported 5-year profitability, and more than half have a growth mindset with plans to grow in one way or another in the next five years. More than a third of the survey respondents shared that they plan to grow by increasing cow numbers or adding new sites, while others will invest in on-farm revenue streams or upgrade their facilities to increase cow comfort and production.

Several Challenges

Respondents also shared that milk’s volatile pay price was a constant headache as it emerged as a top concern for nearly a third of respondents. Additional top concerns for producers included instability, lack of experience and the overall rising cost of inputs.

2024 has caused dairies to face low milk prices and uncertainty, both of which make it hard to meet their farm’s individual goals. When you factor in high inflation and labor challenges, especially when it comes to retention, it challenges those producers who want to grow their business in one way or another. Some dairies who expressed the desire to expand said they are unable to do so because of being landlocked or priced out of the land market. Other dairies, some small, said their size hurts them. One respondent shared, “We are small compared to the bigger dairies and most of the bigger ones are closer to the processing plants and vertically integrated, while we are not.”

Next Five Years 

The next five years will bring significant measured change to the industry. Suppliers and dairy stakeholders can anticipate that dairy operations will continue to disperse. Likely these are the smallest operations by cow count; those that own little acreage and do not produce much of their own feed. Smaller operations that still report a willingness to change, by adding new revenue streams or expanding, are likely to stay in business. Economies of scale are evident in this report— as larger operations, those having multiple sites, owning more land and growing more of their own feed—are more likely to be profitable. And those that are more profitable are also more likely to grow and expand in the coming years.

Top challenges documented by dairies include a lack of succession planning, difficulty accessing permits, and challenges when it comes to accessing needed financing.

When it comes to advancing dairy operations, producers certainly have leaned forward into implementing technology to help drive their operation’s overall efficiencies over the past several years. And as producers look to the future, they remain confident that technology will continue to advance in helping their dairies. Between 24-32% of our surveyors shared that they tend to invest across at least five areas of technological focus in the coming years.

Profitability/Success

While there certainly is no cookie-cutter answer to what equates profitability and general success, our survey indicated that those that were more likely to be profitable were operations with:

· Large cow count, having 5,000+ head of cows.

· More likely to have 5+ sites in the operation.

· More likely to own 1,000 or more acres of land.

Conclusion

Farm Journal respondents not only recognized the mountain of challenges that our industry faces, but also embraced opportunities on the horizon that would help advance their dairies forward. An increasing number of dairies are looking to diversification, whether that be on-farm processing, beef-on-dairy, agritourism, crop production and income from renewable energy, to provide additional revenue streams to help with razor tight financial margins that many are currently experiencing.

Overall, dairies will continue to grow larger, diversify, grow their own feed or have access to purchase feed and lean into technology to not only help advance their business forward, but to provide longevity to push them to the next decade.

Click here to download the full 2024 Farm Journal State of the Dairy Industry Report
State of the Dairy Industry | Dairy Herd