Dry milk plant in Fallon should stabilize dairy industry, boost demand for locally grown alfalfa

The fall opening of a powdered milk plant in Fallon is expected to help stabilize the northern Nevada dairy market in 2013, which has been rocked the past few years by large swings in fluid milk prices and rapidly escalating production costs.

In other agricultural sectors, the threat of another dry winter and rising feed costs have ranchers on edge, while the state's alfalfa growers are enjoying relatively stable pricing for quality hay.

The $84 million dry milk plant currently under construction in Fallon gives northern Nevada dairymen a nearby outlet for their milk and eliminates the need to ship milk to California for processing. It's also expected to create increased demand for alfalfa growers in the state, because northern Nevada dairymen will increase their herd sizes to meet the plant's production capacity of 2 million pounds of milk each day.

In the meantime, fluid milk prices are on the rise, and that's good news for Fallon-area dairymen.

The price per hundredweight for Class I fluid milk (the highest content of butterfat) in June of 2012 was $16.81 a number that makes it hard for northern Nevada dairymen to turn a profit, says Lynn Hettrick, executive director of the Nevada Dairy Commission. The June price was the lowest price dairymen have received for their fluid milk since January of 2011.

However, by December the price per hundredweight (just over 11 gallons of milk) for Class I fluid milk had recovered from its mid-summer swoon and risen to $23.08.

Despite the gains, Hettrick says dairymen still face a profit pinch.

"That price is good, and they should be generating significant profits, but the cost of freight has risen drastically."

Except for the small percentage of milk that goes to Model Dairy in Reno, Nevada milk is sent to central California for processing, a cost that falls upon the shoulders of Fallon dairymen. Compounding the problem, Hettrick says, is the high price of corn and other feeds.

"These guys are getting hammered on margins," he says. "The price is great, but the cost is great as well. The margins still are not as good as they need to be."

The problem isn't limited to Nevada, either; Hettrick estimates nearly 100 dairies in California could fold in the first two quarter of 2013.

Fallon dairymen are expected to sell to the new DFA plant en masse, but they won't receive as much for powdered milk as they would for fluid milk. Shipping makes it a wash, Hettrick says, because their freight costs would drop from more than 100 miles to 10 to 20 miles.

Hettrick says the DFA will work almost exclusively with local dairymen, which should mean a much more secure market. Dairymen outside of northern Nevada won't ship to the new plant, he says, because they will incur added shipping costs and a reduced price for their milk.

Eric Grimes, executive director of the Churchill Economic Development Authority, is excited about the future of the dairy industry in Churchill County.

"It will grow, and it will create jobs and pay taxes," he says.

The dairy plant should cause increased demand and a price hike for alfalfa in 2013, and selling locally also reduces freight costs for hay farmers.

The October 2012 price for alfalfa hay was $202 a ton, a 14-percent decline from January's average price, the Nevada Agricultural Statistics Service reports.

However, the October price is far better than the average of $145 a ton farmers received for alfalfa in January of 2011.

And with the threat of another dry winter, ranchers in northeastern Nevada are slightly apprehensive about the coming year despite profitable beef prices.

Ron Torrell, vice president of Nevada Cattlemen's Association, says beef demand is up at a time when the national cattle herd is at its smallest number since the 1940s. The price for 500-pound calves hovers between $1.50 and $1.60 a pound, a figure that is relatively flat year-over-year but fluctuates with seasonal demand and the availability of rangeland grasses for forage.

A normal winter that irrigates the state's enormous swaths of rangeland could lead to increased profitability because it allows natural grazing rather than use of expensive feeds. It also might send a signal to ranchers to expand their herd sizes, Torrell says.

Ranchers continue to be pressed by high costs of feed corn and other feeds and fuel. A large percentage of the national corn market has been redirected from livestock use to make ethanol, pushing up the price of feed corn and ranchers have been dependent on feed much of the year due to drought.

"We should be experiencing a very good market. If we didn't have this drought and the corn issue we would be trading at even higher levels," Torrell says. "The drought really has taken a toll. We have had to buy hay and feed, and feed prices are just outrageous."


What to watch

What else? The weather. Winter storms with normal, or even above-normal, precipitation would strengthen the bottom of line of ranchers who would be able to graze cattle on rangeland and wouldn't need to purchase expensive feed.


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