TWIN FALLS, Idaho — An extremely tight milk supply in Idaho led Glanbia Foods, the world’s largest American-style cheese manufacturer, to lay off nearly 50 employees at its Idaho facilities this week.
The company staffed up for its record volume of cheese manufactured in 2013, up 8 percent from 2012. But with its current milk supplies down 10 percent from a year ago, it had to reduce operational and administrative costs and let 48 to 49 people go, said Jeff Williams, Glanbia president and CEO.
The staff reduction represents less than 5 percent of Glanbia’s work force of 1,100 in Idaho and New Mexico. It’s obviously not minor for the people involved, but from a company standpoint, it is a small reduction, he said.
Glanbia saw a milk-supply problem coming in early December, but it didn’t really start impacting cheese production until the first of January, Williams said.
A number of factors resulted in the short supply. Idaho’s milk production was down 1 percent in 2013 compared with 2012, and since Chobani began its Greek yogurt production in December of 2012, the state has an overcapacity of processing, he said.
In December, Chobani announced it had reached a production milestone at its Twin Falls plant. The company, on Friday, wouldn’t reveal what that production is, but company officials had earlier stated the plan was to process 2 million pounds of milk a day in its first phase, eventually reaching full capacity of 10 million pounds a day.
Chobani came to Idaho because company officials were told Idaho has room for 70,000 to 100,000 more dairy cows, but cow numbers actually dropped 15,000 head since Chobani opened, Williams said.
“There’s no doubt we have the room, they (cows) just haven’t come,” he said.
In addition, raw milk flows to the highest value. The highest value is milk going into cartons, which isn’t significant in Idaho due to its relatively small population. Yogurt is the next highest value, followed by cheese and powder, Williams said.
Cheese is the higher value compared with powder three out of four years. However, with a huge world demand for powder, especially from China, those values have flipped, he said.
Even though milk production was down in 2013, Glanbia was able to attract more milk and grow its cheese production because cheese prices were higher than powder prices, he said.
It’s a fairly short-term problem for Glanbia, he said. With powder plants being built all over the world, cheese will regain its competitive position, a correction in markets will take place and milk will flow back into Glanbia’s plants, he said.
In addition, the outlook for dairymen has improved with higher milk prices and lower feed costs. Most dairymen should be making money and hopefully are putting or retaining more cows in the barn. Spring should also bring more milk and milk production could turn around by mid-year, if not sooner, he said.
“We fully anticipate things will rebound. Our goal is to get our factories full of milk by the end of the year,” he said.
The company has been in a growth mode for some time and opened its Cheese Innovation Center last August to focus on product development and expanding its exports. The small reduction in work force in no way clouds Glanbia’s strategic plan for continued growth, he said.
Glanbia’s layoffs are strictly a factor of Idaho’s tight milk supply, said Bob Naerebout, executive director of Idaho Dairymen’s Association.
Feed costs have been extremely high the last four or five years and margins have been very tight for the last four years. But producers historically respond to high prices, and January futures are running $21 per hundredweight for Class III milk for cheese and $21.45 per hundredweight for Class IV for powder, both strong and higher than the 2013 average price, he said.
In addition, the spring “flush” will be starting as production increases in May and carries through a good portion of the summer, he said.
Glanbia’s current situation just reflects vagaries in the market. Ups and downs in commodities markets happen all the time, said Brent Olmstead, executive director of Milk Producers of Idaho.
There’s a little less milk in the market and more competition for that milk. Maybe some of Glanbia’s producer suppliers switched to other companies. Chobani is the newest processor in the area, and its ramped-up production is probably a factor, he said.
“The main thing is we haven’t had any dairy expansion for the past five to six years,” he said.
It’s been a tough environment for dairymen. Dairy margins have been down, banks have tightened credit, and labor issues continue, he said.
While milk prices have been fairly decent, the price of inputs has risen so much it’s like taking two steps forward and two-and-a-quarter steps back. Margins have diminished considerably, he said.
In addition, Congress has been stalling on immigration reform, using it as a political football since killing President George W. Bush’s immigration reform proposal. That leaves dairymen and livestock producers without a program to allow year-round foreign workers, he said.
“We can bring in Justin Bieber, but we can’t get milkers in,” he said.
Warmer weather this spring could increase production, and if bankers would lighten up on credit, Idaho could see some expansion in the next two to three years. Permits to expand have been secured, but producers have been in a bit of the doldrums the last two to three years, he said.
Milk futures prices look good, but the drought continues to be a threat as far as water to irrigate crops and operate dairies, he said.