Lexington, KY - Forgive the bad pun, but here's an "udder" mystery: How does a mostly rural and agriculturally capable place like Kentucky reach the point that it imports about $250 million worth of cows' milk each year?
Kentucky has lots of fertile land for growing the grass, alfalfa, corn and soybean forages dairy cows like. The state has lots of water for thirsty cows too, except perhaps during the occasional drought. And the Commonwealth boasts a mostly cow-friendly climate.
Moreover, there are sufficient dairy processing plants already up and running. The Kentucky Dairy Development Council, which monitors every aspect of the dairy business including imports, says the 13 private dairy processing plants inside our borders churn out roughly 1.3 billion pounds of milk annually and are capable of handling nearly twice that amount.
It's a market begging to be served and the potential is right outside our windows - or at least that's the way local businessman Pearse Lyons sees it from his.
You've read about Lyons in these pages before; he's owner and president of Alltech, the animal nutrition company headquartered in Nicholasville, Ky., that's sponsoring next year's FEI World Equestrian Games at Lexington's Horse Park.
Alltech's sales have reached $500 million annually, and the company is still privately held. That means Lyons is one very busy man. Presumably, he's got no need to be thinking about starting a dairy herd to beef up his income, or to occupy his free time. Plus, as explored in an earlier BizLex article, he's got other fish to fry (See "Alltech: Gone fishing," from the July 10 edition of Business Lexington).
Yet Lyons can't seem to help talking about the opportunities Kentucky's milk deficit presents. He explores the subject in public forums his company has been staging to promote the Equestrian Games. He's even spent as much as 250,000 Alltech dollars to stage a day-long event last year, along with the Governor's Office of Agricultural Policy, to promote a renewed interest in dairy among the state's farmers, as well as to recruit dairy operators from other parts of the country and the world.
Lyons suggested in a recent sit-down interview his interest in Kentucky's dairy farming potential is driven more by his entrepreneurial spirit than anything else. He just can't stand, he says, to live and work in a state so obviously suited to milk production and not see a vigorous homegrown response to that market.
Others share the feeling. The development council, for example, is a non-profit organization created by farmers and related businesses to encourage more dairy farming in Kentucky. In a phone interview, Executive Director Maury Cox said, "We've got the capacity and the resources, and Kentucky should be producing a lot more milk than it does."
State government appears to be on board, too. The Governor's Office for Agricultural Policy is now headed by retired Warren County dairy farmer Roger Thomas, who said by phone recently he's doing everything he can to promote dairying as a promising agricultural venture, "Kentucky's got the geography and the processors to be supplying a lot more of its own milk."
To be clear, no one is saying there isn't enough milk in Kentucky. It's just that Lyons and others are convinced it's possible to put more Kentucky in our milk.
They feel the state has almost everything it needs to not only close that $250 million milk gap, but to become a major exporter to nearby states as well - especially the states south of us that lack Kentucky's full array of cow-friendly attributes.
All that's missing is enough dairy cows, and enough dairy farmers to manage them, said Lyons.
That viewpoint glosses over some significant roil and froth in the dairy business nationwide, though. The fact is, there's a national dairy glut, thanks to decades-old federal milk market regulations and a concurrent drive toward "efficiencies" in dairy farming that has resulted in fewer farms with dramatically larger herds, and fewer cows that produce dramatically more milk per cow.
Now the nation's got more milk than it can consume, and even though it's not necessarily reflected in lower milk prices for consumers at the grocery store, the farmers are feeling it.
Cox said he's got a copy of an article published in the Louisville Courier-Journal in the 1970s about his farm in Shelby County that reports he was receiving $11 per hundred-weight for his milk back then. The current national average price per hundred-weight' Still just at $11.
Long-time dairy farmers are going out of business, saying they can't afford to operate in a market where their feed and fuel costs are rising, credit is constricting, and the price of their product isn't keeping up. Some are even calling for a government bail-out, much like many banks and the big American auto companies received last year.
And Kentucky dairy farming has not been immune. The cost efficiencies that have seemed achievable only to the largest dairy operations left many small Kentucky farmers with a choice that has become all too common: Get big or get out. Most got out, even before the price collapse that began last year. From a high of 286,000 in 1992, Kentucky is now home to only about 85,000 dairy cows, said Cox. And the number of dairy farms has dropped from more than 3,000 at that time to just below 1,000.
So who would want to sink a hoof into such uncertain territory' That's what Pearse Lyons wants to find out. He's not unaware of the difficulties, but claims they're not all that intimidating, either.
For one thing, Lyons shares the view of University of Kentucky dairy sciences professor Jeff Bewley, who contends, "The milk price market has always been cyclical. It'll recover, and the dairy farmers who can tough it out will make money again."
For another, he believes the price of a different kind of liquid commodity - gasoline - will spike again, and then keep rising, making the current practice of transporting milk hundreds or thousands of miles from where it is produced too costly.
Finally, Lyons' vision of a bright future for Kentucky dairying fully embraces the "get big or get out" challenge. Where the typical dairy farm in the state once contained 80 to 90 milkers, Lyons sees a need for operations with at least 600 to 700. And he speculates it'll take, "about $10,000 per cow" to start a properly equipped farm capable of supporting that many dairy cows. He adds that "now" would be a good time to do it, too, since cattle prices are low.
That's an investment of $6 million to $7 million in a single dairy farm. Who'd be willing to sink that much into a market so uncertain at the moment? Someone who is as impatient with that $250 million milk gap as he is, Lyons said. "We've got to learn how to take things and run with them."
He'll be looking for people willing to do just that in October, when Alltech will host its second day-long symposium on Kentucky's dairy potential.
Got $7 million? You may want to attend.