For many years, U.S. milk production has been on a path of consolidation, but a geographic trend in production has emerged in which dairy farmers are gravitating toward the nation's midsection.
That trend is a result of the growing domestic consumption of cheese, according to a report by Rabobank.
The report, "Milk Cow Migration Spurred by Processing Capacity," by Ben Laine, Rabobank dairy analyst, found that more cows are moving into the country’s middle states.
“Increases in regional milk herds will primarily be driven by the development and expansion of cheese manufacturing in the next few years, mostly occurring in the central band of the U.S. including the Great Plains and Great Lakes states,” he said.
Between 1975 and 2019, U.S. per-capita consumption of American-style cheese nearly doubled and consumption of other cheese, mainly pizza cheese, nearly quadrupled. In response, cheesemakers began to expand, he said.
“Deciding on a location for a large-scale manufacturing operation comes down to striking the right balance between proximity to customers such as retail and foodservice distribution centers, and proximity to their raw input: farm milk,” he said.
Other factors include energy prices, labor availability, regulatory environment and taxes, he said.
A large cheese plant utilizes from 4 million to 14 million pounds of milk per day, requiring 50,000 to more than 150,000 cows to supply the milk.
“These manufacturing expansions cannot rely on the existing availability of milk in a given region but instead rely on vertical coordination along the supply chain,” he said.
In the past, a plant may have moved to an area and worked with multiple cooperatives in the region to source milk. Now it is more common for a smaller group of farms to work directly with the plant or for a cooperative to be a partner in the project, he said.
Two examples of modern large-scale cheese plants are Southwest Cheese in Clovis, N.M., and MWC in St. Johns, Mich. Both are partnerships between Select Milk Producers, Dairy Farmers of America and Glanbia.
Other plants in the Midwest have recently undergone expansions, and new plants on the horizon include Hilmar Cheese in Dodge City, Kan., and Great Lakes Cheese in western New York.
“These plants are generally located in areas where low-cost milk was available and the opportunity existed to expand production in the region,” he said.
New Mexico, Michigan and Kansas have been the top contenders for low-cost milk since 2015, when considering the difference between the mailbox milk price and the Class III milk price in federal orders, he said.
“The landscape of dairy (milk) production and processing in the years ahead will be more concentrated in the country’s center and defined by greater coordination between producers and processors seeking optimal location to meet the evolving consumer demand,” he said.
That’s not to say there isn’t hope for coastal states, where the same economies of scale and rapid expansion might not be occurring or there might be more regulatory burdens, he said.
“Technologies like robotic milking, methane digesters and other scale-appropriate modernizations will help medium-sized farms remain competitive in markets with barriers to scale. And with growing export market participation, proximity to ports will remain valuable,” he said.