SOURCE: Rabobank, N.A.

Rabobank, N.A.

October 29, 2015 14:00 ET

Profitable Crops Offer California Dairies Options for Diversification

Rabobank Report Examines the Risk/Reward of Moving From Operating a Dairy to Growing Tree Nuts

FRESNO, CA--(Marketwired - October 29, 2015) - Milk production has enjoyed the top spot in terms of commodity value in California for many years. Recently, strong demand and pricing for tree nut commodities in key dairying regions has driven many to diversify or sell out to competitive crops completely. This trend and its long term profitability implications are examined in Rabobank's most recent Food & Agribusiness Research and Advisory note titled "California Dairies - Milking Cows or Going Nuts?"

With the global demand for dairy products expected to continue to rise, and exports along with it, California dairies are faced with a critical decision on how they utilize their ground to maximize their operation's potential profit. Vernon Crowder, SVP/ Senior Analyst with Rabobank and the report's author, says that understanding the underlying costs associated with all the potential options is critical to making the best decision for each operation. "On one hand, the current price for almonds is extremely strong," said Crowder. "What is critical to the analysis of whether to plant tree nuts or not is the amount of time that land will be not producing revenue or off-setting feed costs." The research compares the profitability differences between maintaining the dairy as is, converting some of the feed land into nuts, or selling the dairy and planting nuts on the remaining feed ground -- the latter being the least profitable option over a ten year period.

The key to the dairies' success is that the operation is cash-flow positive from day one where the orchard is negative for the first two years and doesn't break-even until year five. "The most profitable dairies in California will continue to drive modest growth in production over the foreseeable future," concluded Crowder. "That said, some dairies are just not as profitable because of their individual situations. We expect that they may be inclined to quit milking cows and switch to other crops all together. Recognizing the regulatory constraints in opening new dairies in California we also expect to see consolidation continue in this sector." Clear in the report is that acknowledgment that there is demand on the part of those operating profitable dairies to purchase more cows and existing permits from those who may retire from the industry.

The report concludes by examining the ways that California dairies could improve profitability. One of those examined was how processors in California can work to improve the returns to the dairy. Investment and reconfiguration of capacity that is needed to enable California to produce the products that customers want, while building closer relationships with buyers. The report notes that this will require dairies to support their processors efforts to expand such activities.

The full report is available exclusively to clients of Rabobank and to media upon request.

About Rabobank, N.A.

Rabobank, N.A. is a California community bank and a leading provider of agricultural financing and full-service banking products to California consumers, businesses and the agriculture industry. With more than 100 retail branches, we serve the needs of communities from Redding to the Imperial Valley through a regional structure that promotes local decision-making and active community involvement by our employees.

Rabobank, N.A. is a division of the Rabobank Group, the premier lender to the global food and agricultural industry and a financial services leader providing commercial, retail and agricultural finance solutions in 48 countries around the world. From its century-old roots in the Netherlands, Rabobank has grown into one of the world's largest and safest banks. Rabobank, N.A. is a Member FDIC and Equal Housing Lender.

About Rabo AgriFinance

As a leading financial services provider for agricultural producers and agribusinesses in the United States, Rabo AgriFinance adds value using industry expertise, client-focused solutions, and by creating long-term business relationships. Rabo AgriFinance offers a comprehensive portfolio of services that give producers the right products to prepare for, and take advantage of, market opportunities. Rabo AgriFinance representatives offer a wide array of financial services and knowledge to help customers realize their ambitions. This comprehensive suite of services includes loans, insurance, middle market agribusiness, input finance and sophisticated risk management products. Rabo AgriFinance is a division of Rabobank, the premier bank to the global agriculture industry and one of the world's largest and safest banks.

About Rabobank Food & Agribusiness Research and Advisory (FAR)

The Rabobank Food & Agribusiness Research and Advisory (FAR) group is a global team of more than 80 analysts who monitor and evaluate global market events that affect agriculture worldwide. This international team works to collect key insights into commodity markets; conduct in-depth analysis of the factors that drive sector success (or failure); and examine the megatrends that ultimately influence clients' business strategy. These analysts are internationally respected experts in sectors from protein to produce, inputs to oilseeds, and their knowledge is shared with Rabobank customers.

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