Got milk? Maybe too much
March 16, 2018
Got milk? Yes, and probably too much of it.
Dairy producers are on edge right now with word that more than two dozen farmers across the country have lost their milk contracts.
In early March, Dean Foods, who provides liquid milk for Walmart's Great Life brand, informed at least 24 producers who ship milk to Dean Foods in Pennsylvania, Indiana, Kentucky, Tennessee, North Carolina and Ohio, that their milk contracts would end effective May 31, 208. This decision coincides with Walmart's announcement that it would be building its own bottling facility.
A Dean Foods spokeswoman told the Pennsylvania Real-Time News that the decision was due in part to, "a surplus of raw milk at a time when the public already is consuming less fluid milk and companies assertively entering or expanding their presence in the milk processing business, have exacerbated an already tenuous situation in a highly competitive market."
Meanwhile, AtlantaFresh, the Georgia-based grass-fed dairy brand who provided 30,000 gallons of product to Whole Foods each week, has closed its doors and laid off 32 employees following Whole Foods' decision to drop AtlantaFresh following underperforming milk and cream sales at the retail stores.
These announcements just happen to coincide with the one-year anniversary of Grassland Dairy Products dropping 58 Wisconsin dairy contracts, due to the lost sales of ultra-filtered milk to Canada.
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The loss of a contract can be devastating to a dairy producer. After all, their products are highly perishable, and most manufacturers and plants are already running at full capacity, leaving little to no wiggle room for facilities to pick up new contracts.
Combine these announcements with the reality in the U.S. today, milk demand is declining, efficiencies in the industry have created an oversupply of milk, and retail prices have remained stagnant, and you've got a perfect economic storm brewing that has many dairy producers desperately looking for answers.
According to Mark Steil for MPR News, "Milk prices hit an all-time record high of over 24 cents a pound to farmers in 2014 — but they have fallen by more than 40 percent since then. That hit for farmers is giving consumers a break at the grocery store. A gallon of milk four years ago cost about $3.85, and now the price is hovering at about $3.15, down by about a fifth."
Additionally, the Wisconsin Farmers Union's 2016 Dairy Producer Survey indicated that producers were losing nearly a dollar per hundredweight.
Dealing with this prolonged period of low milk prices, many dairy producers across the country are being forced out of business or are struggling to make ends meet. And according to Marcus Wolf and Jessica Dillon for the Johnson News Service, "The situation has prompted officials from the Northeast dairy cooperative Agri-Mark to send a letter to member farmers that lists the contacts for the National Suicide Prevention Lifeline and other support programs.
"The letter, dated Feb. 1, was delivered with milk checks and describes how some members 'may want to take advantage of' programs and experts who deal with fiscal stress, anxiety, depression, grief counseling, substance abuse and family relationship issues."
To contact the National Suicide Prevention Lifeline, dial 1-800-273-8255 or check out suicidepreventionlifeline.org.
The current Margin Protection Program for dairy producers is simply not providing the safety net needed, and many are calling for Congress to fix it in the next Farm Bill.
"I think it is likely that we will see significant changes to the Margin Protection Program in the next Farm Bill to try to create a program that is more responsive to the needs of dairy producers across the country," said South Dakota Department of Agriculture Secretary Mike Jaspers.
To address this, last week, Senator Kirsten Gillibrand (D-NY) introduced the Dairy Premium Reform Act of 2018. The bill would refund leftover premiums to farmers who had paid to cover their losses under the federal Margin Protection Program. At present, leftover premiums go to the Treasury, but Gillibrand's bill would return millions of dollars in a one-time payment to farmers.
Despite the volatility of the dairy industry right now, in South Dakota, producers are optimistic even in the face of lost contracts.
"Could Dean Foods do a similar thing to producers in South Dakota? It's just hard to tell as Walmart hasn't said much," said Allen Merrill, a dairy farmer from Parker, S.D. and chairman for the Midwest Dairy Association (MDA). "They are one of the few local bottlers in the Midwest, supplying to lots of schools, so if their business model were to change, the fluid milk side of the dairy business could change here in South Dakota."
He added, "Dairy producers have been tasked to make more milk with fewer expenses, and we've been very efficient at doing this. We are out of balance right now, but I believe we'll get through this cycle just as we have done in previous ones. The industry is changing and evolving, and I believe there is a place for small and large dairies to work alongside each other. Things may look different going forward than they have in the past, and how we transition to this next phase is going to be a challenge. We need strong leadership to help develop policies, marketing plans and procurement strategies to move forward."
Merrill milks 150 cows on his family's dairy, making him one of the smaller producers left in the state. According to the South Dakota Governors Office of Economic Development, "In the last 10 years, South Dakota's cow population has increased 35.8 percent making it the leader in the Northern Great Plains. Major processors continue to make new and continued investments in South Dakota, and as a result, total milk production has increased by 64.2 percent in the last decade."
As of January 2018, the South Dakota Department of Agriculture reports that South Dakota is home to 212 dairy farmers producing 6,738,260 gallons of milk. The state has two Grade "A" fluid plants, eight grade cheese manufacturers, five grade drying manufacturers, seven receiving and transfer stations, one single service fabricator, four cheese cutting and wrapping businesses, one ice cream plant and one power blending facility, with plenty of room to grow according to Secretary Jaspers.
"Although many farmers across the country are being affected by the loss of contracts from Dean Foods, I have yet to hear of any South Dakota farms being cut," said Jaspers. "The recent announcements of expansion of processing facilities in the state are certainly promising. South Dakota's dairy producers, like producers across the nation, are watching their pocketbooks closely in the current economic climate. My office will continue to explore opportunities that could lead to further stability in the industry."
Jaspers is referring to Agropur's plans to expand its cheese plant facility in Lake Norden, S.D. On Feb. 27, AgroPur announced a substantial expansion of its cheese manufacturing facility. The project will increase the plant's daily milk processing capacity from 3 million pounds to more than 9 million pounds, equal to the output of an additional 85,000 cows.
"Agropur has built a truly remarkable relationship with the Lake Norden community," said Gov. Dennis Daugaard, in a press release. "The company's decision to reinvest in South Dakota – a decision that will have an estimated $1 billion annual economic impact in our state – is a prime example of how our dairy industry supports economic development from farmer to small town to processor and beyond."
"One thing South Dakota has always done right is investing in research and product development at South Dakota State University (SDSU)," said Merrill. "As a result, SDSU has created new opportunities to export products like powders, whey protein and other ingredients that make up thousands of different foods on grocery store shelves."
Additionally, Merrill is optimistic thanks to Pizza Hut's recent announcement to add 25 percent more cheese to its pizzas, as well as MDA's strategic use of the dairy checkoff to find new marketing avenues that will meet consumers evolving needs.
"We're having tough discussions right now as dairy producers try to tighten their belts and weather through this storm of low prices, and the checkoff is working hard to deliver what the consumer wants and trying to adapt to meet their needs. As an industry, we're trying to do the best with the resources we have, and as producers, we're trying to keep our costs in line and continue operate in the face of these challenges."
While all of the dairy producers impacted by Grasslands were able to find new contracts with other processors, the issue is ongoing a year later with heated NAFTA discussions between the U.S. and Canada. In a recent tweet, President Trump said, "Canada must treat our farmers much better. Highly restrictive."
The Washington Post said the tweet more than likely refers to the "Canadian practice known as supply management, which protects domestic dairy, egg and poultry producers through a system of controlled production and high tariffs."
Currently, Canada practices supply management to protect domestic dairy, poultry and egg producers by limiting domestic production and imposing excess tariffs as high as 313 percent on foreign dairy products.
Currently, Canada exports 6.4 million gallons of milk and 136.9 million gallons of dairy products (including cheese, yogurt, butter, etc.) to the United States, according to the Canadian Dairy Information Centre.
And according to the CDC, Mexico, Southeast Asia, Canada, China and Japan account for almost two-thirds of U.S. dairy exports. U.S. export volumes were an all-time high in 2017. On a value-basis, exports were the most in three years. Export volume was 4 billion pounds of total milk solids, up 5 percent from the prior year. Export value finished at $5.48 billion, up 14 percent.