Dairy food chain becomes nightmare in mere days

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By Craig W. Anderson


Lodi dairyman Hank Van Exel reminisced about the beginning of 2020: “It started out to be the best year ever with a 100 cwt of milk at $20 and then, literally overnight when the COVID-19 hit, the price of milk dropped to $11 or $9. It was miserable.”

March and April had been, he said, “dark and bad. I’ve never seen anything like this previously. It seemed everything went downhill at the same time. The bad meat market hurt cull cows and falling prices for all milk products just added to the mess.”

Van Exel said many dairy producers didn’t purchase an appropriate level of coverage under the Dairy Margin Coverage (DMC) program because of the anticipated excellent year. The DMC was authorized by the 2018 Farm Bill; it is a voluntary risk management program that offers protection to dairy producers when the difference between the all-milk price and the average feed price – the margin – falls below a certain dollar amount selected by the producer.

The U.S. Department of Agriculture’s Farm Service Agency (FSA) announced the March income over feed cost margin was $9.15 per cwt which triggered the DMC program.

The FSA said that while DMC enrollment for 2020 has closed, dairy producers should look for the FSA to open 2021 coverage in July. The contrast between July 2019 and 2020 is striking: in 2019, market forecasts predicted no program payments for 18 months; and 2020: a DMC payment is expected to be triggered every month for the remainder of the year.

“Dairies have been seriously challenged for quite some time and some have gone out of business,” said San Joaquin County Agricultural Commissioner Tim Pelican. “The arrival of COVID-19 certainly hasn’t helped the dairy industry.”

Letter describes industry plight

Three major players in California’s dairy industry put the situation plainly in a letter to Secretary of Agriculture Sonny Perdue. Western United Dairies, Milk Producers Council and the California Dairy Campaign told Perdue that, first and foremost, “the decline in milk prices will hit dairy farmers’ bottom line hard… [The] current imbalance between milk supply and demand for milk products is problematic for the whole supply chain.”

The organizations said a strong incentive to reduce production should help the balance recover faster, diminish milk dumping and prevent further price declines due to oversupply. “Without this intervention, we are deeply concerned prices will remain depressed and more dairy farm families will be forced out of business.”

The triumvirate also supports the re-opening of DMC enrollment for 2020.

Brighter horizon

Relief may be on the way, according to Clay Detlefsen, senior vice president of regulatory and environmental affairs for National Milk Producers Federation (NMPF) said that shortages of consumer staples in grocery stores should begin easing which is good news for dairies.

“There is plenty of food in this country. There is no food shortage,” he said. “Our…distribution problem is caused largely by consumers over-consuming.”

The good news, Detlefsen said, is that private-sector and government coordination is “light years better than in past crises.”

Phase 2

“We’re now in phase two of re-opening the country and as restaurants expand their services, it will create more demand for dairy,” SJFB President David Strecker said. “However, schools may still be at distant learning in the fall and therefore no help to dairy’s recovery.”

He said feed shouldn’t be a problem as herd adjustments can change feed needs.

Dairy products are still at risk; according to Mary Ledman, Rabobank Research Food & Agribusiness, California – a large producer of nonfat dry milk – will continue to deal with China’s 20% downturn in milk powder imports in 2020.

The impact of COVID-19 has pushed China into converting more of its milk production to powder. “We’ve seen…the nonfat dry milk market suffer because of the coronavirus and the disruption to global trade because of it,” Ledman said.

More letter writing

The California Farm Bureau Federation is part of a coalition of agricultural organizations asking the state to suspend regulatory processes during the COVID-19 pandemic. The letter said, “Our priorities have shifted toward the care and availability of our workforce and the tightening logistics around getting food to kitchen tables throughout the United States.” Dairies continue to play a vital role in producing products American consumers need and keeping the supply chain moving.

California Department of Food and Agriculture Secretary Karen Ross said the state is very aware of the different distribution channels in the food supply system. “We have to…keep the system as whole as possible, so that as business comes back…we haven’t lost a foundational part of the infrastructure.”

Many contributions

“I think President Trump’s doing everything he can; the PPP (Paycheck Protection Program) has really helped and this month and next month will hopefully be better,” said Van Exel. “Last month was really brutal for dairy farmers.”

He said milk dumping was rare in California; the state’s feed situation was good – “the late rains really helped get winter forages going”; “everyone’s on base programs now”; and the industry’s reduced production via “beefing cows and dry cows.”

“It was the swiftness of the virus that hurt us and many other industries,” Van Exel said. “As an industry and individually we’ve learned a lot and we’re on the road to recovery.”

The California Farm Bureau Federation contributed to this story