Like the dairy farms making up their memberships, dairy cooperatives must embrace consolidation or face attrition, Dairy Farmers of America (DFA) leaders warned during the organization’s annual meeting, March 20-22.
DFA, a national dairy marketing cooperative owned by more than 13,000 members on nearly 8,000 farms in 48 states, held its 19th annual meeting in Kansas City, Missouri. More than 1,500 members and guests participated.
The theme for this year’s meeting was “This Mark Matters,” calling attention to DFA’s logo and business.
“We’re proud of who we are and what we do, and we want to show the world why,” said Randy Mooney, DFA board chairman. We want to show them what’s behind our pride in our name, pride in our family farmer owners, pride in our businesses, pride in our products that deliver everyday simple pleasures to millions of consumers and pride in our role in society reflected in communities across the country.”
Mooney, who operates a dairy farm in Rogersville, Missouri, stressed the importance of the dairy community working together, while providing an overview of the cooperative’s ongoing efforts with trade negotiations and regulatory issues impacting the dairy industry.
“The dairy value chain, like any chain, is only as strong as it’s weakest link,” Mooney said. “Understanding and supporting each other makes us all stronger. But a strong chain by itself is not enough. The dairy community must work to ensure we are pulling in the same direction. When farmers, suppliers, processors, brand marketers and promotion groups pull in different directions, we end up confusing consumers, distracting regulators and policy makers, and generally tie our industry up in knots. Then, we end up spending too much time and resources untying those knots.”
Another record, but challenging year
While DFA reported a record income in 2016, it was a “low-to-average financial year for DFA members,” Mooney admitted. “There will always be areas of the country that struggle with challenges of weather, feed availability or other localized issues. In 2016, those localized issues included surplus milk in several areas of the country, milk surpluses that challenged DFA management to find markets.”
Mooney said co-op staff attempted to minimize the negative financial impact of that surplus milk while sticking to its pledge to collect and market all member milk.
“We can never lose sight of our most important role, to collect all member milk and market it as effectively and efficiently as possible,” Mooney said. “We continue to see dairy producers in parts of the country that have long been milk deficit, that have always had markets for milk, suddenly be informed there was no longer a home for their milk, a situation no dairy farmer wants to experience.”
While 2016 might have appeared “normal” on the surface, it was another year of underlying change and unpredictability, Mooney said. A slowdown in the growth of the global economy and political and social instability slowed the rate of dairy consumption growth. Large global milk supplies, including excess product inventory, kept global prices lower than predicted. Mooney said the size and strength of the U.S. domestic industry provided some financial protection from extreme global price volatility.
Mooney outlined issues impacting the U.S. dairy industry, including trade (Read: U.S. dairy exporters set aggressive growth goal), regulatory and policy issues, and public image. Frequently, he said, those issues run counter to dairy’s needs.
“Regardless of how they start, they flow down to us as farmers, directly impacting how we farm,” Mooney said. “As an industry cooperative, we must be constantly challenging regulations and policies that are only pushing responsibilities, risks and costs back to farmers. We have to incorporate, whenever possible, benefits back to farmers that create more value or reduce risks to offset the end costs.”
Mooney cited the use of the word “milk” by plant-based beverage manufacturers that mislead consumers. He urged DFA members to support the Dairy PRIDE Act in letters to lawmakers.
“We need to own our story of dairy,” Mooney said. “It’s not enough to push back against those who are attempting to steal our name, credibility and story.
“We have to rebuild dairy’s image, to reconnect with a generation of consumers who do not know the whole story of dairy, and rebuild awareness and trust,” Mooney said. “We cannot allow the story to be hijacked by the uninformed or even worse, those actively pushing the anti-animal agriculture agenda. Dairy did not lose our position of trust and respect with consumers overnight, and we will not regain it overnight.”
Consolidation need not be a negative
Mooney said U.S. dairy cooperatives are being forced to consolidate, a word often construed as negative.
“Consolidation can be negative if it unbalances the value chain, if it simply squeezes value from one party to another, if it allows processors to push costs onto farmers with tightened supply requirements, adding compliance conditions or extended credit terms,” Mooney said. “When done properly, consolidation will play a positive role if it creates more value by lowering costs through the efficiency of scale, pooling resources to drive more aggressive growth strategies, or by spreading the risks that result from negative events.”
“Today, U.S. dairy cooperatives are increasingly disadvantaged vs. our consolidated customers and more consolidated global cooperative competitors,” he said. “We’re being squeezed. We are at risk falling further behind our customers and competitors.
“Consolidation does not mean mass mergers,” he continued. “We need to open-minded and creative, finding ways U.S. dairy farmers can work together. We have to move passed the negative emotions often triggered by the word ‘consolidation.’ Instead, focus on the positive business outcomes that can be delivered through the logic of consolidation.”
Rick Smith, DFA president and chief executive officer, echoed Mooney’s remarks regarding dairy cooperative consolidation.
Due to capital investment requirements, many dairy co-ops are at a pivotal point, with many in vulnerable positions. Due to DFA’s credit rating, equity and capital positions, Smith said DFA’s position is strong.
“We are stronger, we are solid, but we can’t relax or we’ll get punched in the nose. We’re in a position to bring more value to members. We have more flexibility today to look at things that 5-10 years ago we probably couldn’t,” Smith said.
Financials and numbers
DFA reported net income of $131.8 million in 2016, compared to $94.1 million in 2015. The increase was attributed to higher sales volumes, overall operating efficiencies and lower commodity input costs. Earnings were also buoyed by the acquisition of the remaining 50 percent equity interest in DairiConcepts, a manufacturer of cheese, dairy ingredients and dairy flavor systems with eight facilities across the United States.
DFA’s 2016 net sales totaled $13.5 billion, compared to $13.8 billion in 2015. This decrease is primarily a result of lower milk prices.
In 2016, DFA directed the marketing of 62.6 billion pounds of milk for both members and others, representing about 29 percent of the total U.S. milk production.
The U.S. annual average all milk price was $16.24 per hundredweight (cwt) in 2016, compared with $17.12 per cwt in 2015. The average 2016 price DFA paid to members was $16.22 per cwt, compared with $17.18 per cwt in 2015.
Cash distributed to members in 2016 totaled $42 million, compared to $35 million in 2015. In 2016, members received $21 million in equity retirements and $21 million of allocated patronage dividends.
From a dairy producer/milk supplier standpoint and broad product portfolio, DFA is “largely hedged” by its diversity, Smith said. The average DFA-member dairy herd has 253 cows. By quartile, about 25 percent of DFA milk supply comes from each of four distinct groups by herd size:
• 116 herds with an average of 4,509 cows
• 230 herds with an average of 2,281 cows
• 600 herds with an average of 873 cows
• 6,959 herds with an average of 75 cows
DFA has 42 wholly-owned plants and ownership interest in a total of 75 facilities.
“While 2016 was a year of challenges for many of our farmers, DFA itself continues to grow, and remains focused on continuing our investments in new and existing plants, as well as progressing on our strategic initiatives,” Smith said.
In 2016, DFA continued to expand its commercial investments with the announced plans to construct a new cheese plant in Michigan with Glanbia PLC, and two other cooperatives, Foremost Farms USA and Michigan Milk Producers Association. DFA also broke ground on a premium cheddar cheese facility in western New York, a joint venture between DFA, several individual members, and Arla Foods of Denmark. Additionally, progress continues on the construction of a new dairy ingredients plant in Garden City, Kansas.
DFA’s two-decade history has included growth pains, Smith said. “It’s not about how big we are, but how good we are,” he said. “We’re trying to clarify our identity, representing stability in an uncertain world. We’re going to grow in a disciplined way.”
DFA reduced it board membership to 49, which had been expanded during the transition of the 2014 DairyLea/DFA merger. Outgoing board directors Bill Beeman of Kingsley, Pennsylvania, Marilyn Calvin of Mount Vernon, Missouri, Willem De Boer of Tulare, California, Jim Eschliman of Ericson, Nebraska, Mike Faulkner of Greeley, Colorado, Don Gurtner of Fremont, Indiana, George Mertens of Sonoma, California, Jerry Peterson of Harbor Beach, Michigan, Ed Schoen of Phelps, New York, and John Woelber of Belen, New Mexico, were recognized for their contributions to DFA.
2017 Members of Distinction
Dairy farm families in each of DFA’s seven regions were recognized as 2017 Members of Distinction. They included:
• Central: Haverkamp Family, Kelly Hills Dairy – Seneca, Kansas
• Mideast: Comp Family, Comp Dairy Farm – Dorset, Ohio
• Mountain: Burnett Family, Burnett Enterprises, Inc. – Carpenter, Wyoming
• Northeast: Learned Family, Valley View Dairy – North Stonington, Connecticut
• Southeast: Flory Family, Hillside Farm – Dublin, Virginia
• Southwest: Vanderlei Family, Five Star Dairy Texas and Milk Harvest Dairy – Amherst, Texas
• Western: Ken DeVries and Dale Ruisch, Hinkley Dairy – Hinkley, California.
Finally, the cooperative named 45 recipients of DFA Cares Foundation Scholarships totaling $53,000. Scholarship selection criteria included a commitment and passion for a career in the dairy industry; extracurricular activities; awards and work experience; and academic achievement.
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