Tornado leveled organic feed mill; dairymen in a bind
Posted on Sunday, July 20, 2008
URL: http://www.nwanews.com/adg/Business_Matters/231933/
Nearly three months after a tornado smashed the state’s only organic feed mill, dairymen say the added cost of importing feed has pushed margins to a breaking point.
On May 2, a line of spring storms roared through the state, producing as many as 10 tornadoes that sowed destruction in 11 counties. About 400 homes were damaged and seven people died statewide. Near Damascus, a town 20 miles north of Conway, the Caldwell Milling Co. Inc. organic feed mill was toppled.
Mike Fisher, a farmer who converted his dairy to organic two years ago, is now paying about $ 545 a ton for organic feed. Add to that $ 56 a ton to import the grain from Kansas, and his feed cost has roughly doubled in the last year.
“It’s just basically a breakeven proposition right now. What we are hoping is that the prices will come down some,” Fisher said.
Henry Caldwell, the owner of Caldwell Milling, said he won’t rebuild. At the time of the storm, Caldwell was serving nine organic dairies, he said. Today, he is helping import some organic grain, but without the storage capacity at Damascus, he has to ship it directly to the dairies.
“There’s not enough volume of the organic feed to justify rebuilding it as a stand-alone operation,” Caldwell said.
He said he may try to convert an existing line at his Rose Bud facility, about 35 miles northeast of Conway, to produce the organic feed. To do so, he would have to move production of other feeds to a larger line, but current volume doesn’t justify the operational change.
Fisher and other dairymen signed multiyear contracts with organic milk distributors out of state. So the higher costs they are seeing now can’t be made up from higher sales prices, at least while the contracts are in effect.
Jim McCartney, an organic dairyman in Franklin County, about 25 miles east of Fort Smith, teamed with Fisher to buy a truckload of feed from Sek See Clean Inc. in Thayer, Kan. But with diesel prices approaching $ 5 a gallon, trucking feed into the state is getting expensive.
“This fuel situation is getting to the point where trucking it in is not only costly to us, but costly to the conventional [dairy ] people too,” McCartney said.
The number of dairies in Arkansas has plummeted in recent years, largely because of a rise in feed costs and depressed wholesale milk prices.
The price of milk increased sharply last year, but the cost of diesel fuel and corn also went substantially higher.
Still, the cost of fuel pales compared to that of feed. Fisher estimates he will spend nearly $ 200, 000 this year on cattle feed, but just $ 4, 000 on fuel. Though organic corn sells for more than conventional corn, changes in its price trend closely with the cheaper commodity corn, buyers said.
“The organic dairy business and the organic chicken business are in a real tight squeeze right now because the cost of organic feed is so high,” said Britton White, manager of Sek See Clean. “If we can get through this, I think we will be in pretty good shape.”
Contracts for conventional corn on the Chicago Board of Trade have come down off their recent highs reached after last month’s floods in the Midwest. Still, a bushel of corn was selling for about $ 6. 70 in recent days, up from about $ 3 two years ago.
White said he is trying to hold back some of the rise in corn costs, since his customers are being harmed by the increases in commodity costs.
However, it’s difficult for feed mills to absorb much of the increase, said Joel Newman, president of the American Feed Industry Association, an Arlington, Va.-based group that represents feed mills nationwide.
Margins in the organic and conventional feed industry are so tight that feed mill operators usually have to pass the rising commodity costs directly to their customers, he said.
“There’s no question that everyone is feeling the stress of this, and everyone is working closely with their customers to try to get through this transition period, which could be as much as two years for some parts of the industry,” Newman said.
Feed mills are working on new formulations to try to bring down the cost of grains, he said.
Efforts include using dried distiller grains — a byproduct of ethanol production — to replace other rations, and bacterial origin phytase to replace phosphates, an additive in some kinds of feed that is also rising in cost.
Those approaches don’t make a large impact, however. The cost of commodity corn and soybean meal still determines a large portion of the feed’s cost.
There are about 6, 000 feed manufacturing facilities in the United States, some on farm sites, according to the American Feed Industry Association. As of July 1, about 37 feed mills in Arkansas were registered with the U. S. Food and Drug Administration, which means they can manufacture medicated feeds.
Newman points out that there are many reasons for the rise in the cost of commodity corn, including demand in Asia and rising fuel costs. Still, his group, along with food processors like Springdale-based Tyson Foods Inc., believes the subsidized domestic ethanol industry puts extra demand on corn stocks and drives up the price.