After years of financial stress, members of Dairy Farmers of America (DFA) have arrived at a "sweet spot" thanks to improved milk income margins in 2014, according to Rick Smith, DFA president and CEO.
Addressing approximately 1,400 delegates and guests at the organization's 16th annual meeting in Kansas City, March 18-19, Smith noted some farmers are still suffering from the drought or from balance sheets that might not be fully healed from previous years, but that current milk prices mean “It's nice to be in a sweet spot, and I hope enjoy it a bit. No matter how things are going, we have to work hard to do better; but I hope you can enjoy it, because you deserve it.”
At the same time, the co-op itself may have arrived at a "sweet spot” in 2014 after years of litigation, related costs and other challenges. Litigation charges negatively impacted the co-op's balance sheets, but net income and cash flow are forecast higher in 2014. DFA ended 2013 with strong operating results from its wholly owned commercial investments and increased earnings from affiliates.
DFA reported $12.83 billion in net sales in 2013, up $734 million (6%) from 2012 and just below the 2011 total of $12.97 billion. Adjusted net income was $61 million for 2013, compared to $83 million in 2012.
DFA paid farmers an average milk price of $20.15/cwt. in 2013, up $1.66 from the 2012 average of $18.49/cwt. and above the U.S. average all-milk price of $20.01/cwt. It was about 34¢ below the 2011 record-high of 2011.
DFA member milk marketings, like the U.S. overall, was basically unchanged from 2012, at 39.4 billion lbs. Total milk marketed by DFA and its affiliates totaled 60.6 billion lbs., down slightly from 2012, and represented about 30% of the nation's total. Payments to members for milk marketed were $7.9 billion in 2013, compared to $7.3 billion in 2012.
Returns to members in 2013 totaled $41.9 million, with $23.3 million distributed from the cooperative’s allocated patronage, and $18.6 million through DFA’s various capital retirement programs.
Earnings of affiliates were $72.8 million in 2013, compared to $57.6 million in 2012. Cash distributions from DFA affiliates totaled $38 million in 2013, compared to $36.4 million in 2012.
Smith characterized 2013 as a year of culminating stressors on a number of topics impacting dairy farmers, including weather, costs, balance sheets, and lack of confidence and certainty. Future dairy farmer income margins, he said, will be influenced by volatility regarding climate, global political instability, financial and economic conditions, and dairy product demand, requiring additional attention on risk management.
DFA: By the numbers
Smith provided his annual summary of milk sourced by DFA membership, by quartile:
• 25% of the milk comes from just 119 farms averaging 4,123 cows
• 25% of the milk comes from 249 farms averaging 1,980 cows
• 25% of the milk comes from 727 farms averaging 677 cows
• 25% of the milk comes from 7,822 farms averaging 63 cows
Among the year's other highlights, Smith singled out the merger with longtime dairy co-op partner DairyLea in the Northeast, which takes effect April 1. He characterized the Northeast as being in the best position to meet the co-op’s milk production needs.
Milk powder plant
DFA’s growth path is occurring in both domestic and global markets. Construction is nearing completion on a new whole milk powder (WMP) plant at Fallon, Nev. The plant will be the first U.S. "greenfield" plant built for the sole purpose of processing WMP for the global market. Once finished, the plant will convert about 2 million lbs. of milk per day into WMP – and all of the product has already been committed to three companies in Asia, including two in China.
DFA is still seeking to meet the daily milk needs of the plant, and Smith estimated current locally produced supplies will fill about 50% of the plant's capacity. Additional milk will be sourced from California, he said, with efforts ongoing to increase milk production in the Fallon area.
DFA has also moved its first shipment of extra-long shelf life "California Gold” fluid milk to China, to be marketed through WalMart. The shipment included 59 containers with approximately 950,000 litres/250,000 gallons of 3.5%, 1.5% and skim milk in various container sizes.
The California Milk Advisory Board (CMAB) assisted in creating promotion materials for the “California Gold” product, which utilizes DFA member milk but was co-packed by another company.
Moving forward, Smith said DFA did not expect to be investing in any "brick and mortar" plants in Asia, but will be investing in business relationships.
DFA’s Ingredients Division also continued to expand, with a focus on export opportunities with global customers in strategic markets. DFA exported 222 million lbs. of product in 2013, for a fourth consecutive year of record export sales.
DFA continued to grow its U.S. commercial investments in 2013. The Fluid Milk and Ice Cream Division acquired Dairy Maid Dairy, a processor of milk, juice and fruit drinks located in Frederick, Md. Dairy Maid’s customers include major grocery chains, schools and governmental entities, such as military installations.
In 2013, DFA broke ground on two new plants:
• a new cold process milk separation plant in Linwood, N.Y. The plant, which is scheduled to be completed later in 2014, will produce cream and skim milk for a range of regional customers, utilizing about 1 million lbs. of milk per day, with capacity to grow to 2 million lbs. per day.
• a dairy ingredient plant is currently under construction in Cass City, Mich., which will produce high-quality condensed whole and skim milk and cream. At completion plant will process up to 3 million lbs. of milk per day, supplied by DFA members in Michigan’s “Thumb” area.
Despite a national trend of declining fluid milk sales, Smith said DFA would continue to seek opportunities in value-added fluid milk processing, citing financial stress among a couple of large U.S. fluid milk processors who may be reducing their presence in the market.
“As a national milk marketing cooperative that is owned by dairy farmers across the nation, DFA is committed to bringing value to our members,” Smith said. “That means we are committed to innovation and success by operating first-rate commercial businesses and investing in elite dairy companies. We also want to provide on-farm services that make it easier and more profitable for our members to farm.”
Smith said the co-op is increasingly being questioned by retailers and customers regarding such issues as animal care, workers rights, sustainability, traceability and environmental issues, and are serving as educators and advocates for farmer members to bring reality to those discussions.
This year’s annual meeting theme — “Dedicated to Dairy” — addressed those questions, recognizing DFA’s members and their commitment to their cows, their operations, their communities and their families.
“One thing you learn very quickly in our business is that dairy farmers and their families are passionate about what they do. That they are indeed dedicated to dairy,” said Randy Mooney, chair of DFA’s board of directors and a Missouri dairy farmer. “As owners of our cooperative, (DFA member-owners) control our own destiny. We have choices. Together, we can move proactively to invest in our shared future, in new milk processing factories, in expanded dairy product lines, in exciting consumer brands, in growing overseas markets — all driven by our mission to deliver value to members.”