Finding Solutions to Market Challenges

The U.S. dairy industry is going through tough times: Demand for fluid milk from consumers has softened even as the nation’s dairy farmers continue to churn out lots of supply.

As a farmer-owned dairy cooperative, California Dairies, Inc. is committed to finding solutions to these marketplace challenges. In 2019, CDI worked with CoBank to acquire the assets of a state-of-the-art nutritional milk powder manufacturing plant in Turlock, California. The new plant integrates advanced processing technology to produce a wide range of high quality milk powders, mainly for the export market.

“When we looked at the next year to five years down the road, we wanted to find ways to improve our aging infrastructure and increase processing capacity for our members,” says Phil Girard, CDI’s chief financial officer. “The new plant in Turlock accomplishes both of those goals and will be a great asset for us well into the future.”

CDI is the largest milk marketing cooperative in California and the second largest in the U.S., manufacturing butter, milk powder, nutritional milk powder and fluid milk products. It operates seven plants throughout California, all strategically placed within 100 miles of its nearly 400 member farms. The plants generate $4 billion in annual product sales.

To finance the Turlock plant acquisition, CDI turned to CoBank, its longtime primary lender. “When we were approached with this opportunity, we required a very tight turnaround and asked CoBank to help us close the deal within 45 days, which is unheard of for a deal of this magnitude,” says Girard. “We can now garner a premium return for our members from a very high specification of nutritional milk powder, and CoBank’s help was instrumental in helping us accomplish this goal. If we had tried to build a plant like this, it would have taken three to four years. This deal would not have gotten done without CoBank’s partnership.”

CDI has also incorporated cash management and interest rate risk management into its relationship with CoBank in 2019.

“Having CoBank as our primary lender, our provider of interest rate management and cash management has brought value back to our members,” says Girard. “The flexibility of CoBank to help us with our financing needs has allowed us to realign some of our priorities and opportunities.

“CDI is squarely focused on their membership, which is healthy and growing,” says Michael Tousignant, managing director of CoBank’s Corporate Finance division. “The deal in Turlock is an example of their management team always looking for ways to profitably market their membership’s milk, and we are proud to partner with CDI.”