BriefingPaperSeries

SituationintheDairyProcessingSectorinMinnesota
DMaPBriefingPaper1502
December11,2015

MarinBozic
JordanClark

Marin Bozic is an Assistant Professor in the Department of Applied Economics at the University of
MinnesotaandAssociateDirectorofMidwestDairyFoodsResearchCenter.JordanClarkisagraduate
studentintheDepartmentofAppliedEconomicsattheUniversityofMinnesota.Authorsgratefully
acknowledgefundingsupportfromMinnesotaDepartmentofAgricultureundergrant83435.

Introduction
Insummerof2015,MinnesotaDepartmentofAgriculturehasbeenaskedbyMinnesota
legislaturetoconductaLivestockIndustryStudytoidentifycausesoftherelativegrowthor
declineinthenumberofheadofpoultryandlivestockproducedinMinnesota,Iowa,North
Dakota,SouthDakota,WisconsinandNebraskaoverthelasttenyears.TheCommissionerof
theMinnesotaDepartmentofAgriculturemustreportfindingsandproviderecommendations
onhowtostrengthenandexpandMinnesotaanimalagriculture.Thispapercontributesto
the understanding of current situation and mediumterm outlook for Minnesotas dairy
sector.
Between1992and2014,Minnesotamilkproductiondeclinedby7.4%,from9.85billion
poundsto9.13billionpounds.Overthesameperiodoftime,milkproductioninneighboring
states of Wisconsin, Iowa and South Dakota increased by 16%, 16.5% and 27%, respectively.
Pennsylvania and Vermont, two northeast states characterized by small average herd size
similartoMinnesota,alsogrewby3.2%and6.1%respectively.Thefastestgrowingstateinthe
Midwest/NortheastbeltwasMichigan,with77%growthbetween1992and2014.
Between1992and2014,thenumberofdairyfarmsinMinnesotadecreasedby76%,from
14,000to3,500,whileaverageherdsizenearlytripledfrom47to129cowsperfarm.In1993,
annual milk production per cow in Minnesota was 15,255 lbs or 345 lbs higher than cow
productivityinWisconsin,and135lbshigherthanIowayieldpercow.With2014annualyield
at 19,845 lbs, Minnesota was trailing Wisconsin by 2,030 lbs and Iowa by 2,640 lbs. The
differencebetweenMichiganandMinnesotaannualyieldpercowincreasedfrom1,120lbsin
1992to4,785lbsin2014.
Whilethedatapresentedabovepaintsthepictureofdairydecline,inrealitythedairy
productiontrendschangedinmid2000sandMinnesotamilkproductionincreasedbyclose
to1.5billionpoundsbetween2004and2015.Longstandingexcessdairyprocessingcapacity
renderedtheUpperMidwestformanyyearsasellersmarketformilk,characterizedwith
smallproductiongrowth,underutilizedprocessingcapacityandhighmilkpricepremiums.
However, that situation was not a stable equilibrium. A combination of attrition of dairy
processingcapacity,strongregionalincreasesinmilkproductionsince2013,andadecreasein
demandforbeveragemilk,havejointlyalteredthelandscapeinthelastyearandahalf.
Economicfactorsrelevantfordairyproduction,suchaswateravailability,qualityfeed,
dairyrelated infrastructure, and availability of labor are not substantially different across
UpperMidwesternstates.Thedifferenceintherelativegrowthofdairysectorsamongthese
statesdespitesimilareconomicfactorssuggeststhatpublicpolicydecisionsmatter,andcan
meaningfullyimpactthetrajectoryofdairysectordevelopment.Thisbriefingpaperargues
that today the most pressing issue the Minnesota dairy sector is facing is no longer the
sluggishmilkproductiongrowth,butbottlenecksinmilkprocessingcapacity.Shouldpolicy
makersseektoboostMinnesotasdairysector,theyshouldconsidermeasurestostimulate
investmentsindairyprocessingcapacityandboostdemandforlocallyproducedfluidmilkand
softdairyproducts.

RecenttrendsinMinnesotamilkpricebasis
TheClassIIImilkpriceisthestandardpriceformilkusedincheesemanufacturing,and
ispublishedmonthlybytheUSDA.ThefundamentalprincipleusedindeterminingtheClassIII
milkpriceisthatthevalueofmilkoriginatesfromitscomponents:protein,milkfatandother
solidssuchaswheyproteins,lactoseandminerals.Thevalueofcomponentsisinferredfrom
thepricesofcommoditydairyproducts:cheddarcheese,drywheyandbutter.Themilkprice
thatdairyproducersactuallyreceivereflectsthevalueoftheirmilkcomponents,aswellas
thelocalprocessingdemandformilk.Forexample,whenmilkisscarce,milkprocessorsmay
increasepremiumsforbutterfatorprotein,ormayrewardmoregenerouslymilkwithlower
somaticcellcount.Othermethodsmilkprocessorsusetocompeteformilkistosubsidizemilk
haulingcosts,ortooffervolumebasedpremiums.Thestatelevelmailboxmilkpriceisthe
pricepublishedmonthlybytheUSDAAgriculturalMarketingServiceDairyProgramsthat
captures the average price actually received by dairy producers, once all premiums and
deductionshavebeenaccountedfor.Thedifferencebetweenmailboxmilkpriceandstandard
ClassIIImilkpriceisdenotedasmilkpricebasis.Ifaveragemilkcomponentsinanareaare
higherthanthestandardforClassIIImilk,thanbasiswillcapturetheadditionalvalueofthose
components. Consequently, when cheese, butter and whey prices decline, basis will also
decline. More importantly, by measuring basis over time, we can also begin to uncover
dynamicsinthecompetitivenessofmilkdemandinacertainarea.
Figure1presentstheMinnesotamilkpricebasis,definedasthedifferencebetweenthe
mailboxmilkpriceasreportedbytheUSDAAgriculturalMarketingServiceDairyPrograms,
andtheClassIIImilkprice.Thebasisaveragedcloseto$2.00/cwtin2012,2013and2014,but
hassincedeclinedtounder$0.75/cwt.

$2.10

$1.90

Figure1.MinnesotaMailboxMilkPrice ClassIIIMilkPrice
1.90

1.94

1.95

1.94
1.85

1.76

$1.70

$1.50

1.55
1.36

$1.30

$1.10

$0.90

0.89
0.73

$0.70

$0.50
2012

2013

2014

Jan15 Feb15 Mar15 Apr15 May15 Jun15

Jul15


DevelopmentsinMilkProcessingCapacityinMinnesota
To evaluate the current situation in the dairy processing sector in Minnesota we have
contacted all major processors in the state, requesting plantlevel data on capacity and
capacityutilization.ProcessorswereofferedConfidentialityAgreementsthatguaranteeonly
aggregatemeasuresofcapacitywillbereportedpublicly.Withonlyafewexceptions,most
Minnesota dairy processors extended strong support for this research and shared all
requestedsensitiveproductionandcapacitydata.Forprocessorsforwhichwewereunable
to obtain data directly, we used interviews with dairy industry participants that work with
those plants to obtain necessary data indirectly. As a result, we are able to present
comprehensiveandpreciseaggregatemeasuresondairycapacityandutilizationinthestate
ofMinnesota.Map1chartsalldairyplantsinMinnesotaandintheneighboringstates.

Map1.DairyPlantsintheUpperMidwest

MNDairyPlantTypes:Artisan/Farmstead MajorDairyPlantsSecondaryProcessors

WeclassifiedalldairyplantsinMinnesotaintothreecategories:

Majordairyplantsarethosedairyplantsthatintakerawmilkorcream

Artisanal and farmstead operations are either very small independent dairy foods
makersordairyproducersthathaveaddeddairymanufacturingcapacitytotheirdairy
operation.Forthesakeofcompleteness,inthiscategoryweincludedairyplantsthat
utilizesheepandgoatmilk.

Secondaryprocessingplantsareallplantsthattakedairyingredientssuchasliquidor
drywhey,cheese,milkpowders,etc.asinputintheirproduction.Productssuchplants
makeareverydiverseandvaryfrombutteroiltocheesepowderstoanimalnutrition
products,etc.

Table1.DairyPlantsintheUpperMidwestbyCategory
State
WI
MN
IA
NE
SD
ND
Total

TotalPlants Artisanal/Farmstead MajorDairyPlants

228
80
57
71
18
19
34
15
10
17
10
3
12
2
7
5
2
2
367
127
98

SecondaryProcessors
60
23
3
0
2
0
88

The alternative classification in Table 2 counts dairy plants by the product they make,
irrespectiveoftheirsize.Ifadairyplantmakesmorethanonetypeofproduct,itiscounted
undereachcolumnseparately.

Table2.DairyPlantsintheUpperMidwestbyProduct

State
WI
MN
IA
NE
SD
ND
Total

Goat/
Sheep
Cow
Cheese Cheese
63
17
15
7
10
5
5
3
7
0
1
0
101
32

NFDM
1
4
1
0
1
0
7

Butter
7
6
3
1
2
0
19

Fluid
21
17
9
6
2
3
58

DairySofts
25
11
9
7
1
4
57

DairyIngredient
Processors
45
22
3
0
4
0
74

Map2andTable3providefurtherdetailthemajordairyprocessingplantsinMinnesota.

Map2.MajorDairyPlantsinMinnesota

CheeseButter Fluid/BottlerNFDM

Table3.MajorDairyProcessingPlantsinMinnesota
NameOfBusiness
CityinMN
ProductsManufactured
AssociatedMilk
Producers,Inc.
AssociatedMilk
Producers,Inc.
AssociatedMilk
Producers,Inc.
Bongards'Creamery

NewUlm

Butter,Buttermilk,AMF,CondensedButtermilk

Paynesville

AmericanCheese,Cheddar(Barrels),WPC34,WPC80,
WheyPermeate
AmericanCheese,Cheddar,Blocks,WPC,Lactose

DairyFarmersOf
America
DeanFoodsThief
RiverFalls
DeanFoods
Woodbury

Zumbrota

Rochester
Perham

ThiefRiver
Falls
Woodbury

BarrelCheese,ProcessedCheese,WPC80,WPC80,
WPI,Procream,WheyPermeate
AmericanCheese,HardItalian,Barrel,SprayDried
Cheese,Whey
BeverageMilk
BeverageMilk

Table3.MajorDairyProcessingPlantsinMinnesota(continued)
NameOfBusiness
CityinMN
ProductsManufactured
FaribaultDairy
Faribault
BlueCheese,Gorgonzola
Company,Inc.
FirstDistrict
Litchfield
Cheddar,MontereyJack,SwissCurd,Barrel,
Lactose,WPC34
ForemostFarms
Preston
WPC34,PowderBlends,DriedButtermilk,Cultured
USA
&OrganicProducts,Whey,Demineralizedwhey,
CondensedSkim,NFDM
HastingsCoop
Hastings
BeverageMilk,HeavyWhippingCream,Half&Half,
Creamery
Buttermilk,EggNog,SourCream&Dips,Cottage
Cheese,Yogurt,Butter,IceCream&Shakes,
Creamers
KempsFarmington Farmington Yogurt,SourCream,CottageCheese
KempsMinneapolis Minneapolis BeverageMilk
KempsRochester
Rochester
BeverageMilk,IceCream
LandO'Lakes,Inc.
Melrose
AlternateMakeCheddar,AmericanCheese,
Cheddar,HardItalian,WPC34,WheyPermeate
LeSueurCheese
LeSueur
Cheddar,Barrel,WPC80,WPI,Procream
Company
PlainviewMilk
Plainview
Butter,CondensedMilk,CondensedSkim,NFDM,
ProductsCoop
DriedButtermilk,WMP
Schroeder
Maplewood BeverageMilk

Detailedmapsandtablesofartisanal/farmsteadandsecondaryprocessingmapsareincluded
in the appendix to this briefing paper. Minnesota has 18 large dairy plants of which are 8
cheeseplants,6fluidmilkplants,1butterplant,1softdairyproductsplantand2milkpowder
plants.
From2010to2015,MNcheeseplantcapacityutilizationwentupfrom93.1%to96.2%even
thoughannualaggregatemilkintakecapacitywentupfrom6.1to7.3billionpounds(18.8%
increase) over this period due to expansions. Over the same period, noncheese plant
utilization(fluid,soft,anddryingplants)decreasedbelow65%duetodecliningdemandfor
fluidmilkandanincreaseinmilkcondensingcapacitythatisstillnotbeingutilized.AsSouth
DakotaandWisconsinincreasedtheirownproduction,theproportionofMinnesota'smilk
productionprocessedoutsideMinnesotabordersshrunkfrom16.2%in2010downto7.5%in
2015.
Thesestatisticssuggestthefollowing:
Neighboring states have grown their own milk production faster than processing
capacity,andtheydonotneedtoimportasmuchmilkfromMinnesotaasbefore.
Duetodecliningdemand,Minnesotafluidmilkplantsaregettinglessutilized.

Cheeseplantshaveundergonesubstantialincreasesoverthepastfiveyears,through
acombinationofmajorplantupgrades,aswellasincrementalexpansionsachieved
through optimizing product mix or resolving production bottlenecks. At over 96%
utilization,itisfairtosaythatcheeseplantsinMinnesotaareessentiallyfull.Some
increase in milk intake may come from running longer production shifts, but that
opportunityisfairlylimited.
Underutilized capacity still exists in the Class IV milk market, as Plainview Milk
ProductsCooperativerecentlyincreaseditsspraydryercapacity.

Theconfluenceofthesefourfactorssuggestthatwhilecapacitystillexiststoaccommodate
seasonalmilkproductionsurges,therecentdeclineinmilkpricebasisisatleastpartiallygoing
tobepersistentoverthenextseveralyears.Stimulatinginvestmentsincheeseprocessing
capacityandboostingdemandforfluid/softdairyproductsfromlocalprocessorswouldseem
to be policy initiatives that can help to address the forthcoming oversupply of milk in
Minnesota.


Appendix1.MinnesotaArtisanalandFarmsteadDairyProcessors

Map3.MinnesotaArtisanalandFarmsteadDairyProcessors

Cheese Fluid/BottlerButter
Table4.MinnesotaArtisanalandFarmsteadDairyProcessors
Dairy
NameOfBusiness CityinMN Animal BriefDescription
AlemarCheese

Mankato

Cow

AutumnwoodDairy ForestLake

Cow

BuffaloCreek
Creamery

Plato

Sheep

ThisMankatofacilityaddsthe"BlueEarthBrie"to
theAlemarbrandofspecialtycheeses.
Awardwinningqualitybeveragemilkproducedand
processed by 3rd & 4th generation, farmers who
valueenvironmentalstewardship
BuffaloCreekFarmisacenturyoldfarmandhome
toBuffaloCreekCreamery,whichmakesfarmstead
sheep'smilkcheese.

Table4.MinnesotaArtisanalandFarmsteadDairyProcessors(continued)
Dairy
NameOfBusiness CityinMN Animal BriefDescription
CrazyCow
BlueEarth
Creamery
Dahl'sSunriseDairy Babbitt

Cow
Cow

DonnayDairy

Kimball

Goat

Eichten'sCheese&
Bison

CenterCity

Cow

FruitfulSeasons
Dairy

Alexandria

Cow

HopeCreameryInc. Hope
KappersBigRed
Chatfield
Barn
PoplarHillDairy
Scandia

Cow
Cow

PrairieHollowFarm Dover

Cow

RedheadCreamery

Brooten

Cow

Shepherd'sWay
Farm

Nerstrand

Sheep

SingingHillsDairy

Nerstrand

Goat

Goat

A nonGMO dairy that makes a variety of flavored

cheeses.
Processes milk and bottles it into halfgallon glass
bottlesanddeliversto25communitiesinnorthern
Minnesota.Foundedin1994.
Fourthgeneration family farm producing organic
goat cheese. Currently produces two award
winning, certified organic goat cheeses: bulk
Chvre,andGranite.Themilkandcheeseiscertified
organicandcomesfrom150goats.
Specialty farmstead cheese maker powered by a 1
megawatt solar farm covering 4 acres. Cheese
varietiesincludecheddarandlimburger.
Small producer/handler with a herd of grazing
Jerseys,andacheesefacilityforgouda,Colby,and
caerphilly
Verysmall,handcraftedbutterfacility.
GradeAfarmsteadmilkbottlingplantlocatedright
onthefarm,alsoproducingcheeseandicecream.
The oldest Grade A dairy goat farm in Minnesota,
according to the business website. In addition to
cheese,andmilk,thefarmsellsgoatmilksoap.
Cheese produced by its own organic milk
production, producing a wide variety of cheeses
including cheddar, feta, gouda, ricotta, and
mozzarella.
Thisfarmhas180cowsandflowthemilkdirectlyto
theircheeseplantandhasanonsitestore.Varieties
includecheddar,curds,andbrie.
Shepherd'sWayFarmsmakesawardwinning,hand
craftedsheepcheese.Varietiesinclude,fresh,blue,
semiaged,bloomyrinds,andricotta.
This 25acre farm of grassfed goats has a small
cheese plant to process the milk. Varieties include
ChevreandFeta


Table4.MinnesotaArtisanalandFarmsteadDairyProcessors(continued)
Dairy
NameOfBusiness CityinMN Animal BriefDescription
StarThrowerFarm

Glencoe

Sheep

StickneyHillDairy

Kimball

Goat

StonyCreekDairy

Melrose

Cow

This 600 sheep farm seasonally produces sheep

cheese, available for purchase online. Varieties
include ricotta and camembert. Other products
include handmade soap and knitted woolens and
fleeces.
Partnered with Midwest goat milk producers for
commercial, food service, and retail market
segmentsofgoat'smilkproducts.
Stony Creek Dairy is a five generation farm with a
smallbottlingfacility,supplyingtheirpremiumlabel
bottledmilk.

Appendix2.SecondaryProcessingDairyPlantsinMinnesota

Map4.SecondaryProcessingDairyPlantsinMinnesota

Table5.SecondaryProcessingDairyPlantsinMinnesota
BusinessName City
RawMaterials
Output
Agropur
Ingredients
AllAmerican
Foods,Inc.

Preston

NFDM/WheyPowders

SpecialtyPowderBlends

Waseca

CustomPowders

AllAmerican
Foods,Inc.

Mankato

LiquidDairyComponents,
DryDairyProducts,NFDM,
Whey,WPC
NFDM/WheyPowders

Amtech

AlbertLea

LiquidFoods

CheesePowder,Dried
Buttermilk,DriedCream,NFDM,
CustomPowders
WheyProteinFatEncapsulated
Ingredients,CustomDrying,
SpecialtyPowders

Table5.SecondaryProcessingDairyPlantsinMinnesota(continued)
BusinessName City
RawMaterials
Output
Anderson
LittleFalls
LiquidFoods
CustomPowders
Custom
Processing
BluegrassDairy

Dawson

Whey,CondensedWhey

WPC34,DriedWhey,Whey
Permeate

Cut&WrapCheese

Bongards'
Norwood
Creamery
Dairiconcepts
Dalbo
DairyFarmersOf Winthrop
America

Cheese

KraftAlbany
KraftNewUlm
LandOLakes
PineIsland
LeSueurFood
Ingredient
Company
MapleIsland

Albany
NewUlm
PineIsland

Cheese
Cheese
Cheese,Barrels

DriedCheese
AMF,FatBlends,NFDM,
Buttermilk,Sweetened
CondensedMilk
DriedCheese
ProcessedCheese
CheesePowder

LeSueur

LiquidWhey,Condensed
Whey

CustomPowders,Cut&Wrap
Cheese

Wanamingo

NFDM,WMP,ButterMilk,
LiquidFoods

Meadow
IngredientsUSA
Merricks,Inc.

Byron
AlbertLea

MPC,Cheese,Rennet
Casein,FoodStarch
LiquidWhey

InstantNFDM,InstantWhole
Milk,InstantMaltodextrin,Dried
Buttermilk,FunctionalDairy
Blends
Processedcheese

MilkSpecialties
Company

Mountain
Lake

CondensedWhey,
NFDM/Whey,MPC

NicolletFood
Ingredient
Company
NorthStar
ProcessingLLC
Proliant
Melrose
Quality
Ingredients,Inc.

Nicollet

LiquidWhey,LiquidFoods

Litchfield

LiquidFoods

Melrose

Permeate

CheesePowder,Custom
Powders
WheyPermeate(dried)

Burnsville

Liquidfoods

CustomPowders

Cheese
Cream,CondensedSkim

WheyProtein,FatEncapsulated
Ingredients
ProteinHydrolysates,
Agglomeration,Granulation,
HighlyFunctionalIngredients,
WPI,WPC80,Procream
WPC,SpecialtyWhey

Table5.SecondaryProcessingDairyPlantsinMinnesota(continued)
BusinessName City
RawMaterials
Output
Rochester
Cheese
SaputoDairy
FoodsUSALLC

SpringValley

Cheese

ProcessedCheese

WhiteBear
Lake

Milk,Whey,Condensed
Skim

Creamers,Half&Half,Specialty
Products