Outside states to California dairy farmers: We have water

With California facing its fourth year of a devastating drought, and dairy operators struggling with the high cost of hay, other states are swooping in to try to lure them away. And they're not pitching generous tax incentives, but the promise of water, a stable feed supply and abundant land.

"We just feel that we're a natural fit for dairy in Nebraska, because we have the land, we have the water and the feed, and we have low electricity rates," said Willow Holoubek, executive director of the Alliance for the Future of Agriculture in Nebraska. "We have a couple of California dairymen building in Nebraska now. One is building and one has moved most of his herd already, and we've got several more that are thinking about it."

At the World Ag Expo in Tulare, California, more than a half dozen states—Nebraska, Iowa, Kansas, North Dakota, South Dakota, Texas, and Nevada—have booths to recruit milk producers.

Dairy Cows California
Sam Hodgson | Bloomberg | Getty Images

"Increasingly every year, there are more states showing up at the World Ag Expo to entice California dairies to move to their states, and they're finding a receptive audience," said Joel Karlin, a commodity manager and market analyst for Western Milling, a large agricultural livestock feed manufacturer exhibiting at the show. "California has been losing cows to other states such as Idaho, Texas and New Mexico—and now a lot of operators are looking at the Midwest more favorably since feed is cheaper, labor is cheaper and water is more plentiful."

Mark Watte, a diversified row crop and dairy farmer in Tulare, said he's considered moving his 1,000-cow operation out of California due to water shortages and burdensome regulations, but his family obligations keep him here. "In the absence of some of the personal issues, I would move in a heartbeat, because this just is not a fun place to do business anymore."

Added Watte, "All of the California dairymen that want to expand are moving into other states. There has not been a new dairy built in California in probably in 10 years, and I don't think there ever will be another one built."

Iowa's dairy recruitment team is sharing a booth at the expo with the state's corn trade group. "If we're not at the table then they will be looking at other states," said Sue Ann Claudon, executive director of the Iowa State Dairy Association. "There's a lot of options for dairy farmers, and it's good for our economy in Iowa if we grow the industry."

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The Dairy Iowa banner here at the expo touts the state's "abundant land, water, feed and forage supply." It also cites a "positive business climate," among other things.

Some governors have been known to get personally involved in pitching their states to California dairy farmers.

Last year, South Dakota Gov. Dennis Daugaard attended his third-consecutive World Ag Expo and spent time in the state's booth to promote South Dakota's agribusiness opportunities.

Daugaard, who grew up on his family's dairy farm, isn't planning to come this year but his state has a booth around the corner from the Iowa dairy recruitment space.

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"We're growing and we're going to continue to grow," said David Skaggs, a dairy development specialist at the South Dakota Department of Agriculture. "We've got a young family up in Merced (California) that just purchased a farm in South Dakota, and they will be moving."

California is the leading dairy state and home to approximately 1,500 dairies that house some 1.77 million milk cows, and it accounts for about 20 percent of the nation's milk production.

The state's dairy industry is seen as among the most heavily regulated in the country and it operates under statewide milk-pricing plans.

Last Friday, California's three largest dairy cooperatives petitioned the USDA to join the Federal Milk Marketing Order (FMMO), a system used by the majority of dairy farmers in other states.

In the petition, the groups said the statewide milk-pricing system "has cost California dairy farmers more than $1.5 billion since 2010." The groups maintain the FMMO would give them "more equitable, market-based milk prices"

Meanwhile, California has lost approximately 500 dairies since 2008, and the severe water crisis has brought new challenges because many lack water to plant alfalfa hay and need to truck in feed for their animals. Some of the feed is coming from out of state.

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"California's drought the last three to four years has made it tough for dairy producers there," said Roger Hoskin, an agricultural economist with the USDA who specializes in the dairy industry. "But in the country as a whole, it's been OK for producers, although milk prices are coming down from record highs or near-record highs."

Last year, dairy farmers saw the average milk price reach a record high of $23.97 per hundredweight, or roughly the size of a 10-gallon tank. That represented a nearly 20 percent increase over the 2013 price of $20.05 per hundredweight.

The price was recently sitting around $15 per hundredweight, or down 37 percent from the record high. Robust commercial exports during 2014 played a major role in elevating dairy prices.

The USDA economist said it's not just the drought and high cost of feed that has been hurting California dairy producers but a decline in the dry milk market that's been "a big export market for them. They've taken a disproportionate hit on that market. Strong dollar is contributing and China has retreated from the market."