Story by Eric Brown
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December 3, 2013
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Leprino brings opportunity for Colorado dairy industry, but small producers still struggling to survive

The cattle at Gege Ellzey’s family dairy on the high plains of Colorado are said to be part of a bloodline that can be traced back to the livestock that hauled her ancestors West in covered wagons.

Those are things she tries not to think about as she sees the animals leave the property to go to other milking operations, which she’s had to do in recent weeks after the family decided to stop fighting the many challenges of running a small dairy and closed it.

The general claim that there’s limited opportunity for small producers in agriculture has been proved wrong in many ways in Weld County, Colo., but it certainly holds water — or milk — when it comes to one of the largest contributors to the local ag economy.

Because of the unique challenges of the dairy business, the landscape of the industry as a whole has changed dramatically over the years, with fewer and fewer operations handling more and more of the milk production.

And many of the smaller players — like Ellzey and others — have lost their place along the way.

When the most recent comprehensive U.S. Census of Agriculture was released in 2007, it showed that from 1987 to 2007 the number of farms and beef-cattle operations in Weld County had actually increased, and the average size of the operations had shrunk.

But dairies in Weld County — a top-20 milk producer nationally, and the state’s leader — had fallen in numbers from 278 to 97, while the average size of the dairy during that time increased more than four-fold, going from 136.9 cows per operation to 719.4.

Nationwide and statewide, numbers reflected similar trends.

Up-to-date numbers are limited. The 2013 Colorado Agricultural Statistics publication doesn’t include a breakdown by county of the number of dairies or average herd size, and the next U.S. Census of Agriculture — based on 2012 figures — won’t be released until next year.

But local milk producers aren’t expecting new numbers to reflect any reversal of dairy consolidation.

Locally, an exacerbation of the trend is more likely, many say, with population growth in northern Colorado straining resources — increasing the demand and price for land and water.

Also, new 2,000-plus-head dairies are moving into the area from out of state and larger existing dairies are expanding to meet the needs of a growing Leprino Foods cheese-processing plant in nearby Greeley, Colo. That ongoing dairy growth is a major factor in Leprino’s anticipated economic impact, which over 20 years is expected to be about $15 billion.

But that increased competition for water, land, feed and workers has made it more expensive for all dairies to operate, and the narrow profit margins are especially tough on small producers.

“In the dairy business, you have so many inputs ... labor, a lot of water, a lot of feed, a lot of electricity, which is all getting more expensive ... while you have so little control over the price you get for the milk you produce,” said Ellzey, whose 200-milking cow dairy had been operating near Galeton, Colo., for decades. “Those dynamics have pushed a lot of smaller producers out of business. And it’s not getting any better.

“With such narrow profit margins per cow, if you don’t have thousands of cows, it’s so tough to make it anymore.”

Milk Prices Not Keeping Up With Inputs

Typically, livestock feed accounts for about 40 to 50 percent of a dairy’s operating expenses and, from 2007 to about 2012, the price of corn — a major component of livestock feed rations — doubled because of increased demand and drought. The price of hay also doubled in recent years, thanks to the widespread dry spells of 2011 and 2012.

During that time, though, the price dairymen received for their milk didn’t see such increases.

The average price dairymen received for their milk in Colorado in 2007 was $19.30 per hundredweight, according to the National Agricultural Statistics Service’s Colorado office.

In 2012, the average price Colorado dairymen received for milk was actually lower, at $18.60 per hundredweight.

Charles Tucker, who operates a dairy near Pierce, Colo., with about 400 milking cows, said that with such challenges in place, if the right buyer offers him the right price, he’s selling the dairy.

“We keep being told, ‘You need to be more efficient.’ But we’re already doing everything we can,” said Tucker, whose family started the dairy in 1966. “And efficiency can only go so far when your feed costs double and the price of water doubles, and the price you get for your milk doesn’t change.”

However, larger dairies, Tucker and Ellzey explained, are much better equipped to take on the uphill battle.

Larger dairies have the resources to advance purchase large supplies of feed, helping them lock in lower prices, which makes a big difference.

Larger dairies often have the land, machinery and other resources to grow a sizeable portion of their own feed.

Larger dairies also get more production out of their facilities and can take better advantage of other fixed costs in place, such as getting more cows through the milking parlor each day, they added.

“That’s how it has to be done now,” Ellzey said.

Many smaller dairies are faced with the choice of either expanding to become more efficient — which, with the increasing costs for everything needed to grow, requires a huge capital investment, possibly hundreds of thousands of dollars — or closing up shop.

No One to Blame ... No Hard Feelings

Ellzey, a past Weld County Farm Bureau president, and Tucker, a former Weld County Council member, said there isn’t any single, specific thing to blame for the trouble small dairies have faced over the years and continue to endure today.

And they stress that no one is really at fault.

Among other things, they and most milk producers would like milk prices to be set more so by the free market — rather than the Federal Milk Marketing Order — because they believe they could get a better price for their commodity that way.

Other policy changes, too, would help, they say, such as a federal support system for milk producers that factors in feed prices and profit margins, rather than just going into effect when milk prices fall. Many in the industry are pushing for that in the ongoing farm bill talks.

“But really ... it’s just so many things that have piled up over so much time,” Ellzey said.

Ellzey also noted that she isn’t expecting Weld County and its dairy industry to crumble over the loss of her family’s 200 milking cows or the closing of other small dairies — especially considering that Weld’s overall milk production is on the rise, thanks to the ongoing dairy growth sparked by the Leprino cheese plant that began operating in 2011.

And she has no bitter feelings toward the large dairies that are moving in. With the new technology and methods they bring, they’ve helped the industry as a whole become more efficient. Colorado — which, each year, is already among the top 3 nationally for its milk-production efficiency — has seen its milk production per cow increase by about 12 percent from where it was a decade earlier. Such efficiencies reduce the number of animals needed, which saves on resources.

But Ellzey added that she’s certainly struggled with the family’s recent decision to close, when she remembers things like her family’s Lucky Quarter Dairy being named after a special piece of family farmground.

And she knows others along the way have struggled, too.

“As far as emotion goes, it’s been really, really tough for us,” said Ellzey, who had operated the dairy with her brother, John Erickson, and her father, Bill Erickson, who’s a well-known figure in Weld County, having been honored multiple times this year for his 60 years of service as a local and state 4-H leader. “But we’ll be fine ... and just move on.

“No hard feelings.”

Unique Challenges for the Dairy Industry

While the dairy industry in Weld County, and elsewhere, has seen extreme consolidation, the same can’t be said for some other sectors of agriculture.

From 1987 (a major down time for ag) to 2007, Weld’s total number of farms recovered, increasing by about 1,000, while the average size of the farm decreased from 708 acres to 533, according to the U.S. Census of Agriculture.

The number of beef-cattle producers in Weld also increased during that time, by about 150, and the average herd size dropped.

As was explained by local milk producers and ag experts, dairymen face unique challenges that have pushed many smaller dairymen out of the game more so than in other sectors of ag.

And those challenges have been amplified for smaller dairies during the ongoing Leprino-expansion era in Weld County, some say.

The dairy business is one that requires extensive input costs, which — in addition to rising feed, land and water prices — includes the electricity needed to operate a milking parlor every day of the year.

For a certain size of dairy, there’s the need for abundant manual labor to handle and care for animals year-round — not seasonal labor, like at harvest time, when some farmers have to hire additional help.

While all sectors of ag face fluctuating input costs and other respective challenges, milk producers have less control over the price they get for their milk, dairymen and industry experts say, with the Federal Milk Marketing Order — not the free market — playing the key role in setting milk prices.

And while local grain farmers in many cases sell their corn and other crops to competing feedlots and dairies, most local milk producers have just one customer — the Dairy Farmers of America cooperative.

Also, if the price of corn or other commodities happens to be low, farmers can often store their crop and wait to sell it once prices recover. But dairymen, because their milk is only usable for a short period of time, have to move their product off the dairy more quickly, and take whatever the price is at that time.

“It takes a very, very sharp businessman to be in the dairy industry today and make a profit,” said Bill Wailes, a dairy specialist at Colorado State University, and also a former head of the Animal Sciences Department at CSU, and inductee in the Colorado Agriculture Hall of Fame. “I don’t believe it’s impossible for small dairy producers to survive today. And I don’t believe we’re too short on land, water and other resources around here for our dairy industry to grow.

“But make no mistake ... it is tough out there, especially for the smaller guys.”

Limited Resources ‘Certainly a Concern’ for Small Dairies

For Charles Tucker, there’s a constant reminder near his Pierce, Colo., dairy of the difficulty ahead for his operation and others.

In all directions of his dairy are the 21,000 acres of ground the city of Thornton, Colo., purchased in 1986 — an acquisition made by the municipality to obtain the thousands of acre-feet of water tied to that farmland.

Other cities since then, Tucker says, have bought more ground in his neck of the woods for the same reason: To meet their increased water needs down the road.

With the increased demand for water, the Colorado-Big Thompson Project — the largest water-supply project in the region, much of which is either owned or leased by agricultural users — saw its price per unit double within months earlier this year.

In 2012, the North Weld County Water District in Lucerne, Colo., which provides water to a number of dairies in the area, sharply increased its surcharges for water users. Dairymen said that adds thousands of dollars to their input costs annually, since many dairies need millions of gallons each year to operate. North Weld Water officials stressed at the time, though, that the increased surcharge was necessary for the district to purchase more water for customers, since supplies in the region are tightening.

Then add to that, Tucker said, limited feed and increasing costs, limited land and increasing prices, etc.

“The price we’re getting for our milk isn’t at all keeping up with how much we’re spending to feed our cows ... or what we’re paying for our land and water,” Tucker said. “It’s certainly a concern for us. And with how tight everything is around here, it’s not getting any better.”

Still Plenty of Good Going on

The atmosphere overall in northern Colorado’s dairy industry certainly isn’t all gloomy.

Leprino’s arrival in Greeley has given much opportunity to dairy producers at a time when opportunity is limited in the industry elsewhere.

Leprino, which is the largest mozzarella cheese-processer in the world, agreed to come here on the promise that the region’s dairy industry would add about 60,000 more dairy cows — a huge increase, considering it was about half the total of all milk cows in Colorado at the time, and nearly matched the number of milk cows already in Weld County.

The local industry has been on pace to meet that demand so far.

Compared to 2010, when construction of the Leprino plant began, the number of milk cows in northern Colorado could be up as much 25,000 to 30,000 by end of this year, pending the completion of projects in the works, according to local dairy experts and the developers of the new dairies.

In all, there are about 10 large-scale dairy construction projects that have been completed this year or are being built. About half of them are brand-new facilities, while the other half are dairies going up on former feedlots or former turkey farms that went out of operation when Butterball began exiting Longmont, Colo.

Building those new facilities are dairy families from California, Michigan and New York, and some milk producers already with operations locally.

Moving or expanding here, for those who can afford it, gives those milk producers a closer buyer of their milk — Leprino — which cuts down greatly on their fuel costs.

The nation’s dairy industry has struggled in recent years — particularly during what was dubbed as “the Great Dairy Recession” of 2009 — and dairymen have been willing to move where they can to get any advantage.

If there’s opportunity anywhere in the dairy industry, it’s in northern Colorado, as was stated earlier this year by A.J. DeJager, who came here from California to set up his new dairy near Ault, which will eventually milk about 2,800 head.

But a small dairyman still struggles to find a place in the industry, even in Weld, where there’s opportunity.

Tucker, like Wailes, doesn’t believe it’s completely impossible for small dairies to exist.

He said he’ll find a way to keep his dairy afloat until he can sell it.

Tucker said he sees opportunities for smaller dairies who become more of “a one-stop shop” — those who do the milk processing and marketing themselves, rather than the small guys who produce milk for co-ops.

Morning Fresh Dairy, with operations across northern Colorado, is an example of that.

“But, if you’re not already doing it, that, too, would take a major investment to get there ... to build the facilities needed, and buy all of the equipment,” he said. “And really, what small dairy has any money to spend these days?” ❖


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The Fence Post Updated Dec 5, 2013 03:41PM Published Dec 20, 2013 12:29PM Copyright 2013 The Fence Post. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.