Firms focus on dairy profits

Carol Ryan Dumas/Capital Press Brad Kapple, left, of Evans Grain and Feed, discusses feed costs with Alan Stutzman, general manager of Magic Valley Quality Milk Producers co-op, following a panel presentation on milk pricing in Idaho during the Idaho Milk Processors Association's convention in Sun Valley on Aug. 12.

More processors, value-added production needed, businessmen say

By CAROL RYAN DUMAS

Capital Press

Skyrocketing feed costs are taking a toll on Idaho dairymen's profits, and without a federal milk marketing order to boost milk prices, dairymen and processors have to work together to improve the situation, both say.

"We need to raise the value of products we produce so processors get more for products and pay more for milk," said Mike Roth, Idaho Dairymen's Association president and co-owner of Si-Ellen dairy in Jerome.

"We need each other," said Jon Davis, of Davisco Foods.

Idaho needs to attract more processors and make higher-end products and not just commodity cheese, Roth said.

Idaho's bulk cheese captures more value down the line as it is further processed and repackaged.

More processors and production of higher-value products would work toward getting dairymen a higher price and ultimately higher margins, said Rick Onaindia, of Bettencourt Dairies in Wendell.

While selling commodity cheese has allowed Idaho's industry to grow quickly, Davisco recognizes the benefit of selling higher-value product, Davis said. Last year, the processor invested $40 million in its Jerome plant to produce mozzarella for its West Coast and international customers.

If all goes as planned, the addition of mozzarella production could double the amount of milk processed at the Jerome plant, he said in an earlier interview.

But the commodity cheese price, and the cheese-yield pricing formula Idaho processors use is not the problem; it's the feed price, he said.

"We have to get rid of ethanol (subsidies)," Davis said. "It's ridiculous."

Economists have said if ethanol subsidies were taken out of the equation, it would lower corn prices $1.50 to $3 a bushel, he said.

Producers agree ethanol subsidies are a problem, as they raise corn prices and other feeds follow the uptick.

The new cost-of-production norm in Idaho is $17 to $18 per hundredweight, Roth said. That is a $3 to $4 per hundredweight increase over the old norm.

But a solution to dairymen's low margins involves more than feed costs, Onaindia said.

"Ethanol legislation can be part of our discussion of getting better margins. However, at the end of the day, we are in a supply-and-demand commodity business. We need both sides to come into balance in order for dairymen to get the most for their milk," he said.

"Recent milk production growth in Idaho has not pushed processors into paying higher prices, because the hard reality is they simply don't have to in order to get the milk," he said.

"I don't blame the processors ... they are just practicing capitalism at its best," Roth said.

But lately, co-ops have been paying more for milk than what independent dairymen are receiving, and that could lead to more of Idaho's 67 percent independent production joining co-ops, he said.

Producers and processors do need to work together, but the bottom line in higher milk prices is to have more processing capacity and not enough milk to supply the demand, he said.

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