Bart Pfankuch, South Dakota News Watch
South Dakota dairy producers have undergone a rapid expansion over the past few years to meet the milk needs of the state’s growing cheesemaking industry, bringing a burst of economic prosperity to farm families and farming communities throughout the eastern half of the state.
Milk production in South Dakota rose by 12% from December 2019 to December 2020, and farmers added about 14,000 new dairy cows during that one-year period, according to the USDA National Agricultural Statistic Service. The recent jump in dairy cows and milk production continues a trend of expansion that has evolved over the past decade.
The dairy industry expansion has come in response to South Dakota’s emergence as a major player in the burgeoning American cheesemaking industry, which has seen new plants come online and major expansions of existing plants in the state.
Industry experts say the increase in milking cows has come from expansion of longstanding dairies, the launch of milking operations at existing farms that have diversified, and also from the relocation of dairy operations to South Dakota from states such as California.
South Dakota officials have sought for years to strengthen the state’s presence in the American dairy industry, and those efforts have dovetailed with the recent expansion of milk-processing capacity at cheese plants and a welcoming regulatory environment to spur the ongoing rise in milk cows in the state.
“We’ve got a tremendous amount of interest in dairy in South Dakota right now and we’re growing to meet the need,” said Marv Post, a Volga dairy operator who is chairman of the South Dakota Dairy Producers Association.
The overall economic impact of the dairy industry in South Dakota is difficult to pinpoint, but it remains a relatively small portion of the state’s overall $32.5 billion annual agricultural industry.
An analysis by a professor at South Dakota State University using 2012 data pegged the direct revenue generation of the state dairy industry at $427 million a year, with about 2,000 full-time jobs, and estimated the total direct and indirect economic impact at about $650 million a year. Most dairy operators employ a mix of local residents and immigrant workers on visas.
That report put the value of each dairy cow in the state at about $7,100 a year, though other reports have estimated the overall economic impact of each dairy cow in South Dakota as high as $26,000 a year. The industry has grown by nearly a third since the SDSU figures were released.
Even as the number of dairy cows continues to rise in the state, the number of dairy farms is on a steady decline. As in other agricultural industries, dairy farmers are increasingly using genetics, data monitoring, technology and robotics to boost the production of each individual animal while implementing an economies-of-scale approach to the size of their farms, raising the efficiency and profitability of their operations.
In 2013, South Dakota had 272 milking operations with about 92,000 cows, compared with 171 farms with 127,000 cows in 2020, representing a 37% reduction in farms and a 38% increase in number of animals. The amount of milk produced rose from 2.0 billion pounds in 2013 to 3.1 billion in 2020, a jump of 55% during that eight-year period.
The amount of milk produced by each dairy cow in the U.S. has risen by 11% over the past decade to almost 24,000 pounds per year, an increase attributed to improvements in breeding, milking technology and animal treatment.
Three major cheese producers in eastern South Dakota have created much of the capacity for the expansion of the dairy industry. The launch of Bel Brands in Brookings in 2014 and major expansions completed in 2019 at the Agropur cheese plant in Lake Norden and at the Valley Queen Cheese plant in Milbank created the need for roughly 115,000 more milking cows to meet the expanded production-capacity needs.
Some farms have sought new or expanded state waste-control permits that allow them to house and milk more animals. The KC Dairies farm operated by Edward Kavanaugh in Elkton, for example, has a concentrated animal-feeding operation expansion permit pending with the state to raise the farm’s animal limit to a maximum of 2,250 milking cows and 800 head of dairy calves.
The dairy industry supported a bill this legislative session to double the time period for renewal of concentrated animal-feeding permits from five to 10 years; the bill passed and was signed into law in February.
The dairy industry’s efficient response to the expansion of cheesemaking operations is close to fully satisfying the current milk-processing capacity at the state’s largest cheese plants. But the ability of dairy operators to provide increasing levels of milk presents even greater opportunities for future expansion or diversification of cheese plants that are seeing no slowdown in the demand for cheese and other dairy products among consumers in America and in other countries around the world.
“The milk growth has certainly got our attention, and I can tell you that we’re not done growing yet,” said Doug Wilke, CEO of Valley Queen Cheese.
Demand for cheese driving dairy growth
Even though consumer consumption of liquid milk has been on a steady decline in the U.S., falling by 28% from 2000 to 2019, America’s appetite for dairy products overall has been on a rapid rise and reached record levels in 2019, according to data from the USDA Economic Research Service.
Per-capita consumption of all dairy products in the U.S. rose by 16% over the past 30 years, from about 560 pounds per year in 1989 to about 650 pounds per year in 2019, according to the USDA. In the past decade alone, per-capita consumption of butter is up 24%, yogurt consumption has risen by 7% and, most important to South Dakota and its cheesemaking industry, per-capita cheese consumption in the U.S. has risen by 19% in the past 10 years.
South Dakota has worked on several fronts to strengthen its dairy industry, which peaked at about 250,000 dairy cows on thousands of mostly small farms in the 1960s, but fell to only about 80,000 cows on a few hundred farms two decades later. The industry began a steady rebound in the early 2000s.
State governors, agricultural commissioners and economic development officials have worked with strong support from educators at SDSU to lure new dairies and producers of dairy products to the state and also to train future farmers to run them.
The recent expansion has been boosted significantly by expansion of milk-processing capacity by several cheesemaking plants in the eastern part of the state.
A big boost to the South Dakota cheesemaking industry came in 2014 when Bel Brands opened its $140 million, 170,000-square-foot plant in Brookings that can produce 22 million pounds of Mini Babybel cheese rounds each year. The plant requires milk from about 15,000 cows.
The need for milk rose again when two existing cheese plants underwent significant expansions.
Valley Queen spent about $53 million to expand its capacity by about 25% in 2019, and Agropur underwent a $252 million expansion that nearly tripled its capacity.
The South Dakota Dairy Drive has been part of the industry stimulation effort and has seized on opportunities to draw the interest of farmers to speed growth of existing dairies or lure new producers to the state.
The program has provided opportunities for South Dakota milk producers to attend events such as the World Dairy Expo and World Ag Expo and participate in regional educational forums sponsored by the American Dairy Association. Visits to South Dakota were also arranged for farmers considering relocation to the state.
Dairy farmer Rodney Elliott of Lake Norden said such state programs gave him information about the South Dakota dairy industry and local opportunities for development when he was considering a move from Northern Ireland to the United States. Elliott said he went on a state-sponsored trip to South Dakota in 2004 and moved here to buy land and farm in 2006.
Elliott said the state did not give him financial incentives to relocate to South Dakota, but did offer information and technical assistance.
Since then, Elliott has continued to expand his operation, called Drumgoon Dairy, growing from 1,400 milking cows initially to about 6,000 now. His farm produces about 360,000 pounds of milk each day.
Elliott underwent a significant expansion recently, including the addition of robotic milking machines, to produce more milk to accommodate the increases in capacity at both Agropur and Valley Queen.
Elliott said he sees greater opportunities for growth in the South Dakota dairy industry in the future.
“It’s a young, vibrant dairy industry that is populated by good, passionate people,” he said. “We look at the dairy industry and we can see a bright future here because many of the dairies are new and using the latest technology and very efficient and built for where we live.”
Tom Peterson, executive director of the South Dakota Dairy Producers Association, said his group has helped several farmers start new or dairies move their operations to South Dakota, including from California, now the nation’s leading state in milk production.
“We’ve had several that have relocated from that California market, which has been prevalent of late,” Peterson said. “We’ve had a lot of growth as far as new dairies but many of our existing farmers are adding on, too.”
Peterson said farmers who relocated to South Dakota from other states were reluctant to be interviewed because they did not want to discuss their relocation efforts so soon.
The recent growth in the South Dakota dairy industry has also been spurred in part by streamlining of permitting processes for farms and what is seen as a friendly regulatory environment for agricultural operations, Peterson said. Furthermore, the state’s strong row-cropping industry provides a ready source of feed for milking cows, he added.
“In South Dakota, we have had a good balance of milk-processor expansion and farmers coming in for a lot of reasons, for regulatory climate and also a close proximity to feed inputs such as soybean meal or corn silage,” Peterson said. “A lot of those things they need for animal care are close by in adjacent farms, so it’s been kind of a win-win all the way around.”
When any agricultural industry or operation expands, the agricultural industry and businesses that support it all benefit in some way, from farmers who grow corn and soybeans as feed for cows to implement-sales centers to trucking companies.
But beyond the direct impact on farmers and the agricultural industry, Peterson said growth in the dairy industry has a wider tangential boost for communities across the state.
“That money rolls around in communities; it helps local restaurants on Main Street, it helps strengthen schools that would be seeing decreasing populations,” Peterson said. “It’s just a big overall community benefit.”
Cheesemaker sees opportunity ahead
Valley Queen Cheese in Milbank has significantly ramped up production and its need for milk over the past few years.
The cheesemaker completed the $52 million expansion in 2019 that increased milk-processing capacity by about 25%, or roughly by 1 million pounds per day, said Wilke, the CEO. The plant now produces about 200 million pounds of cheese each year.
The plant added about 40 jobs during the expansion and now employs about 315 people with an annual payroll of about $20 million, Wilke said.
The expansion created a significant need for more milk, and the dairy industry in South Dakota has responded by rapidly increasing production, Wilke said. Most of the increased milk production by producers who serve Valley Queen took place through expansion of existing dairies, Wilke said, though the plant has also had inquiries from farmers outside South Dakota who are considering relocation.
Valley Queen has been in operation for more than 90 years, and for much of the 2000s, the company saw steady production with little significant growth, Wilke said. Demand for cheese was strong and rising, but production growth was held back by limited local supplies of milk.
Valley Queen began its expansion at roughly the same time as the Argopur cheese plant in Lake Norden embarked on a major expansion that tripled the milk-processing capacity at its plant from 3.3 million to 9.3 million pounds per day.
The Agropur expansion was estimated to require milk from about 85,000 more cows within its service area; Valley Queen added capacity for about 15,000 more area cows during its expansion, raising the total need to about 90,000 cows, according to the companies. Valley Queen now processes about 1.8 billion pounds of milk each year from dairy farmers in South Dakota and Minnesota.
Wilke said he was curious and a bit concerned to see if the dairy industry in South Dakota could respond adequately for the increased need for milk for the three large plants and other smaller producers, such as Dimock Dairy.
In the three years since, he said he has been pleasantly surprised by the rate of expansion of dairies and the increase in the number of milking cows in the state.
“Valley Queen historically has had limited growth as a result of the milk supply being limited in South Dakota, but now we’ve got an abundant supply of milk and it is growing in our region,” he said.
The company thought it would take South Dakota dairies until 2023 to ramp up production to meet the full need for milk at Valley Queen, but now the capacity requirement appears likely to be reached in 2022, Wilke said.
“Milk production is running ahead of our forecast,” he said.
With a consistent, strong supply of milk, and growing consumer demand for cheese and cheese byproducts such as whey and lactose, Valley Queen may soon see options for future expansion, Wilke said. Whey is used in protein bars and drinks, and lactose is an ingredient in candies and infant formulas, he said.
“What that next growth cycle looks like depends on how milk production continues to grow in the region and what our customers desire in terms of products,” he said.
South Dakota dairy farmers are taking steps to support their industry in the long run, said Post, the Volga dairy farmer who recently accepted a leadership position in the national dairy industry.
Post said many dairy producers in South Dakota participate in the American Dairy Association checkoff program in which farmers donate 10 cents for every 100 pounds of milk produced to be set aside and used for marketing and promotion. That program has generated about $3.2 million in marketing funds in the past year that can be used to promote dairy operations and products to consumers and potential entrants into the market, Post said.
Post said he was unable to provide details but said another expansion of milk-processing capacity is likely to occur soon in South Dakota that will require milk from another 30,000 to 40,000 cows.
Post said he expects South Dakota milk producers will be able to fill that need for more milk if it arises.
“We’ve proven that every time there’s been an expansion in processing, that we will produce the milk to fill that need,” he said.
