Panelists Share Agricultural Lending Landscape And Outlook At Global Dairy Outlook 2024
Domestic and global dairy market updates, a dairy producer panel, a weather outlook and ag lending panel all were part of the agenda Wednesday, June 19th at HighGround Dairy’s annual Global Dairy Outlook Conference, held June 18-20 at the Union League Club in Chicago. This year’s event set a record of nearly 110 attendees.
In a panel discussion on agricultural lending, Jim Moriarty, vice president of ag lending at Compeer Financial, and Amanda Durow, vice president of CoBank’s Corporate Agribusiness Banking Group, shared their insights on the lending landscape for dairy producers and processors.
Current Views And Financial Positions Of U.S. Dairy Farms
Sharing insights on the producer environment for ag lending, Moriarty says current views on U.S. farms reflect optimism with a sense of caution and uncertainty. Dairy producers’ financial position generally is solid today, he notes. Farms largely were profitable from 2019-2022, while a bit uneven in 2023. Results vary by region depending on feed cost differences, spot basis swings and Class III and Class IV milk prices.
Challenges And Incentives In Dairy Production
The cost to produce also remains elevated, Moriarty says, noting producing more milk, through expansion, can help to spread out higher costs. Some of the other key challenges facing producers today when it comes to expansion include:
• Facility construction costs, which have experienced a 30%-40% increase since 2019;
• High interest rates;
• Labor costs and availability;
• Milk processing capacity and availability; and
• Regulatory pressures.
However, there also are incentives for producers to invest and expand, including a continuous improvement mindset that can lead to innovation. Capital improvements also can aid with labor-saving productivity as older facilities are updated with new equipment, including advances in automation.
Investing In Sustainability And Efficiency
Many farms also are increasingly investing in sustainability to gain efficiency in operations while also lowering their environmental footprint, Moriarty notes.
In addition to sustainability, some key on-farm topics of discussion when it comes to lending, expansion and investment include:
• Margin management — how to sell or hedge milk as well as manage feed costs;
• Lowering cost of production;
• Developing and retaining middle management labor;
• Cattle prices and replacements; and
• Expansion and second site exploration — more producers today have interest in multi-site operations but also must consider the cost of new construction and labor availability.
Dairy Market Updates: Processing And Future Investments
Meanwhile, Durow shared lending insights from a dairy processing perspective.
First and foremost, the U.S. dairy industry is investing for the future, with $7 billion in new dairy processing plants coming online in the next couple of years, Durow notes. Through 2026, U.S. cheese production is projected to grow by 520,000 metric tons, with 2023-2026 growth in Cheddar-style cheeses set to more than double the growth seen from 2019-2022, according to data from the U.S. Dairy Export Council, National Milk Producers Federation and CoBank.
U.S. Dairy Consumption And Export Trends
Durow notes U.S. consumers are eating more dairy than they are drinking, with U.S. per capita consumption of dairy rising 0.07% per year over the last decade.
Cheese exports on a volume basis also continue to grow, she says.
Scaling Up: Challenges And Opportunities For Dairy Processing Plants
Dairy processing plants today are increasing in scale, size, complexity and cost, Durow notes.
Diversification is a key consideration for the sector to aid in expanding markets, penetrating different channels, shifting product mix based on seasonal demand and optimizing all milk solids, she says.
Working capital is necessary to manage through market volatility, she adds, noting processors can manage accounts receivable financing, inventory and non-milk payables to optimize working capital.
Regulatory Pressures And Future Outlooks
Regulatory and environmental pressures also are impacting processors, Durow notes, and some pricing challenges persist.
Panelists note the industry eagerly awaits the outcome of the federal milk marketing order reform hearings held earlier this year, with a recommended decision by USDA expected in the coming weeks.
Keep Up To Date On Cheese Industry News
Find all of HART Design & Manufacturing’s current industry news here.
Source: Cheese Market News