Market Analysis: Dairy

The most recent statistical data, to date, indicates that the state of California accounts for approximately 17.5% of the milk produced in the United States, totaling about 27.6 million pounds of milk produced by the end of 1998, up 0.8% from 1997. The State of California ranks in the top three states for production of milk per cow, total milk production, andtotal cash receipts from the marketing of milk and cream. Wisconsin still had more cows.

Estimates of the number of milk cows and heifers that have calved on farms totals 1.44 million head in California as of January 1, 1998. Of this figure, approximately 79.5% were in the Northern California, and 20.5% in Southern California. The five leading counties were Tulare, San Bernardino, Merced, Stanislaus, and Riverside. Collectively, these counties accounted for about 65% of all the milk cows in the state.

The following statistical data illustrates the historical data for the California Dairy industry in relation to number of milk cows on farms, average production per milk cow, total production, and total cash receipts:

• Dairy Statistics: Table 1

The following table reveals the overall general trend in the California Dairy industry over the last 16 years:

• California Dairy Statistics

Annual increases in the number of milk cows on farms, and average production per cow, have contributed to the staggering increases in total milk production for the state. Although increasing over the long term, total cash receipts from marketing of dairy products on farms has fluctuated due to lower prices received by producers, as in the case of the 1988 season. Within the last four to five years, the overall increase in total herd size, as well as an increase in milk production per cow, and strong market prices, has contributed a general increasing trend in total cash receipts for the California Dairy Industry.

The following chart describes the average prices paid to producers in California for all whole milk from January, 1981, through December, 1998.

• Dairy Statistics: Average Prices Paid to Producers

Average prices paid to producers for all whole milk for 1998 year indicate a significant increase in prices, as compared to average prices paid during the 1997 and 1996 years. Over the long term, average prices paid to producers have declined from 1981 to 1987, with a slow but steady increasing trend to date, most recently to a level greater than the last 15 years.

Preliminary data for the 1999 season show continued strength in milk prices with a corresponding positive effect on overall grower returns for dairy operations.As such, market demand for dairy facilities remains strong, especially for those facilities consisting of larger, modern, facilities with milking capacities near or in excess 1,000 milk cows.Market sales of dairy facilities in the Central San Joaquin Valley indicate a stable, to strengthening market for larger, modern facilities with functional layouts and a declining trend for smaller, older, less functional facilities.

This is primarily due to the economies of scale involved with large scale dairy production and the overall trend in the industry to larger thousand plus head milking facilities.Current sales of dairy facilities in the Central San Joaquin Valley indicate a range of unit values from $400 per milking head to $850 per milking head for small, older, less functional facilities, and from $800 to $1,500+ per milking head for medium to large facilities with modern, functional layouts. Strong milk prices during 1998 and 1999 continue to stimulate optimism in the industry, as demonstrated by sales activity in the market place. As the California Economy continues to improve, southern California Dairymen continue to relocate to the central and northern parts of the state, thus, creating movement in the market place, especially for larger blocks of irrigated open land with the potential of obtaining dairy permits.Many of the sales of smaller facilities are still dominated by local dairymen expanding their existing operations, while the larger sales are dominated by relocators or by very solvent producers who wish to consolidate their smaller operations into one single larger economic unit. The appraisers discovered and analyzed twenty sales of dairy facilities, in Fresno, Tulare, Kings, Stanislaus and Merced Counties.These sales ranged in value from $400 per milking head to $1,500+ per milking head, with the majority of sales indicating unit values for larger 1,000 head facilities near $1,000 to $1,200 per milking head.

The general trend in the California Dairy industry is to larger 1,000+ head milking facilities improved with freestall barns for the milking string. This greatly enhances the overall economic productivity of the facility due to economy of scale. In today’s market place a slight premium is indicated for those facilities improved with freestall barns. This premium is due to the significant capital investment involved in building a dairy facility with freestall barns, as well as the benefit to the livestock herd in the form of increased milk production through the reduction of stress to the dairy cattle.

Recently however, the demand for large dairy facilities has increased to a level which has narrowed the gap between those facilities with or without freestall barns, as the motivating factor appears to be the size of the facility and ability to milk a large number of milk cows.