Covering Ag since 1981. The faces, places, markets and issues of dairy and livestock production. Hard-hitting topics, market updates and inspirational stories from the notebook of a veteran ag journalist. Contributing reporter for Farmshine since 1987; Editor of former Livestock Reporter 1981-1998; Before that I milked cows. @Agmoos on Twitter, @AgmoosInsight on FB #MilkMarketMoos
We read about and see the growing number of choices in the dairy aisle that make a simple trip to the store for milk, one that can be quite confusing. There’s the thing about fat (all those different percentages) and the thing about fraud (all those plant, nut, and bean drink products calling themselves ‘milk.’)
First, the different “percentage milks” we know as skim, 1 percent, 2 percent and whole milk. The latter is confusing, is it 100 percent milk? Do some people think it is 100% fat?
Well, all dairy milk is 100 percent milk, no mater what the fat percentage… But, No: Whole milk is not 100 percent fat. It is not even 10 percent fat. It is standardized to 3.25 percent fat, and if you drank it straight from the cow it would be anywhere from 3 to 5 percent fat depending on breed of cow, time of year, and type of roughage fed.
And then there is protein. Did you know dairy milk provides a little over 8 grams of protein per 8 oz. serving? It packs quite a bit more protein-punch than almond ‘milk’ at a little over 1 gram of protein per 8 oz. serving.
Made like coffee, the crushed almonds are filtered with water. In fact, an 8 oz. serving of almond milk may be more like eating an almond and drinking a glass of water with sugar and thickeners added and a handful of other ingredients.
A common almondmilk brand label lists these ingredients the first being almondmilk defined as almond-filtered water: Almondmilk (Filtered Water, Almonds), Cane Sugar, Sea Salt, Natural Flavor, Locust Bean Gum, Sunflower Lecithin, Gellan Gum, Calcium Carbonate, Vitamine E Acetate, Zinc Gloconate, Vitamin A Palmitate, Riboflavin (B2), Vitamin B12, Vitamin D2.
A typical dairy milk label lists these ingredients: Milk, Vitamin D3. Pretty simple to see that the calcium and vitamins on the milk label are already in the milk and that zero sugar is added and zero thickeners.
The freshness of REAL dairy milk can’t be beat going from farm to table in 24 to 48 hours. It comes naturally from the cow providing the natural proteins and calcium and small amounts of healthy fat that our bodies readily absorb and utilize.
In fact, the carb-to-protein ratio of chocolate milk is now shown to be one of the best sports-recovery drinks on the market today. Yes, plain ‘ole chocolate milk. Maybe if farmers call it by another name, consumers will take notice to what has been in front of them all along.
Still, for many consumers, the perception persists that whole milk is a high-fat beverage, when in reality it is practically 97 percent fat free!
At the bottling plant, milk is pasteurized and standardized. Cream is skimmed to package whole milk at 3.25 precent fat. The skimmed cream—along with additional cream skimmed to bottle the 1% and 2% and non-fat milks—is then used to make other products like butter, ice cream, yogurt, cream cheese, sour cream and dips.
The “standard of identity” for yogurt states it also contain a minimum of 3.25% fat—just like whole milk.
Even ice cream is not 100 percent fat. The FDA standard of identity is that it contain a minimum of 10 percent fat. Some of the richer, higher-end ice creams contain up to 14 percent fat. But along with that fat, comes some nutritional benefits. These are not empty calories.
Butter is high in fat because it is, after all, a fat. Even it ranges 82 to 84 percent fat. A tablespoon of butter in the pan or on your veggies is a smaller quantity serving than an 8 oz. glass of milk; so even though the fat content is much more concentrated at a higher percentage, no one sits down and eats a cup of butter (2 sticks)!
Furthermore, we have learned that the saturated fat in milk and meat are not bad for us and that when part of a healthy integrated diet may actually provide heart healthy ‘good’ cholesterol.
The fears ingrained over 50 years of low-fat dogma are being abandoned as a nutritional experiment that has failed miserably, even though the federal government continues to hang on to the failed lowfat experiment in the recent 202-25 Dietary Guidelines.
What a growing number of scientists have found is that we need not have blamed whole milk, butter—or beef for that matter—all of these years. In fact, the recent rise in obesity and diabetes is linked more to overconsumption of carbohydrates that have filled the energy-void after we collectively sucked healthy fat out of our diets.
Saturated fats are not the enemy, the “new” science shows. However, the science is really not new. Long-time observers, investigative reporters, and scientists note that the very science supporting the health benefits of saturated fats found in milk and meat has been around for decades, but was ignored — even buried.
Meanwhile, U.S. consumer demand for butter has been expanding, and worldwide demand for U.S.-produced ice cream and yogurt has grown as well. Dairy foods and snacks that offer an energy boost with a healthy protein-to-energy ratio—such as yogurt, whole milk, and even ice cream—will be particularly in demand in nations where busy, on-the-go consumers look for reviving options.
Healthy, natural fat and protein from milk and meat keep food cravings at bay to prevent binge-eating on empty-carb snacks. Enjoyed as part of a healthy integrated diet, dairy products—even ice cream—are satisfying, nutrient-dense, carb-moderating foods that can even be the dieter’s best friend.
Go real, go natural. There’s no reason to fear real milk, dairy and beef products from cattle. Contrary to what the activists say and contrary to government ‘guidelines’ that refused again to consider all the science, nutrient-dense full-fat dairy foods and meat are good for us, and yes, good for the planet.
China, fake meat and dairy, propaganda seeking to eliminate the dairy cow, and much more concern him. But Dr. Kohl encourages farmers to seek opportunities, be flexible, innovative and adaptive, and to follow a process for their business and sharpen their business focus.Be sure to check out the navigation points on Dr. Kohl’s compass at the end of this article.
HARRISBURG, Pa. – The disruptions and challenges of the past year also create opportunities, said Dr. David Kohl, Virginia Tech professor emeritus and co-owner of Homestead Creamery for the past 20 years.
He was the keynote speaker kicking off the 2021 Pennsylvania Dairy Summit held virtually this week through an online convention format that had much of the signature Summit feel.
In his characteristic style, Dr. Kohl stepped the virtual audience through a broad global and domestic view of events and evolution down to the impacts at the dairy farm level with motivational thoughts on how to navigate.
He urged farmers to navigate rocky roads of change by adopting two key management elements. First, be flexible, innovative and adaptable. Second, follow a process for the business with a business focus.
Kohl also encouraged producers to manage around the things they can’t control like election results, pandemics and the strategies of China’s Xi Jinping.
“A good marketing and risk management plan is critical. In this environment, we have to separate the controllables and uncontrollables… and look for the opportunities,” he said.
As he has in past seminars since the pandemic, Kohl highlighted the ‘buy local’ movement is picking up steam post-Covid. “Many of you are in that footprint. One-third of the U.S. population is in your area, so this movement might be sustainable,” he said.
That’s good news. The bad news is the acceleration of economic divide, said Kohl. He sees this affecting agriculture, other businesses and households, which will add to the economic volatility and extremes in the big three: milk prices, feed costs and interest rates.
“We are in another supercycle that is really impacting the grain sector,” said Kohl. He cited the stimulus checks as “dangerous one-off income” leading to printing more money, which devalues the dollar. This fuels more exports, especially when coupled with the ‘China-effect’ as they rebuild their protein sector and livestock industry.
This, along with weather concerns in South America and investor speculation have “shot those grain prices higher, especially on corn, beans, and we see it in cotton, all up.”
He sees this grain market supercycle abating through 2021 and 2022. The grain price rally is not sustainable, in his view, unless weather problems in South America persist and unless weather affects North American crops this coming season.
Kohl noted that globalization started six decades ago, and he marked 1995 through 2015 as the period of “hyper-globalization, but in recent years, we’ve moved away from this. Dairy is right in the crosshairs of this shift because exports have become a much bigger share of milk production,” he said. “If de-globalization continues, this will impact agriculture in the U.S.”
He warned that the dairy industry would be well advised to not shape itself with China’s market in mind.
“Don’t bet your dairy expansion on trade with China,” said Kohl. He gave the example that 300 million people in China were without power a month ago because China would not allow Australian coal in to fuel plants.
Kohl observes that while the U.S. and Europe are bickering about everything, China has been pursuing world power. China has invested a trillion dollars in 68 countries – the agriculture ‘hot-spots’ around the world.
“Their initiatives will impact our competitiveness,” said Kohl, noting that China is also moving ahead on building a world supply chain for vaccines made at sites they have cultivated in developing countries.
“China could be the leading power by 2040, even 2027. They are going to move forward very fast if we don’t get our act together,” he said, explaining the recent “regional” trade pact China made that makes China the central focus in Asia.
The flipside of globalization is the domestic U.S. food supply and marketing chain.
“That’s our Achilles heel,” said Kohl. “We have too much concentration with too few firms, and I’m being very blunt about this. We saw what happened when plants shut down. Now we see more nations saying they want to become more self-reliant. This is something to watch closely over the next five years.”
Kohl said the industries that are linked to dairy are in 50 to 75% recovery while at the same time Amazon, Walmart, Target are operating at 125%.
“They are getting too much power here in the U.S. and around the world,” he said, noting that on one hand the buy-local movement is accelerating, but on the other hand, the pandemic environment has moved even more market power to these large global entities.
Expressing agricultural ‘serfdom’ concerns, Kohl responded to a question about China purchasing agricultural land and assets in the U.S. This also hit upon the recent news in business journals that Microsoft founder Bill Gates has been buying up farmland and is now the single largest owner of U.S. farmland (not total land but good arable farmland).
“I am worried about this one,” said Kohl. “Some of this big investment money creates serfdom. We need to do some due diligence, and we don’t have enough political forces looking at this. Canada put the kabash on China buying their land.” He noted that his research shows the land purchased by Gates through Cascade Investments is fertile land next to rivers and near international ports, as well as land with mineral rights.
’They want to eliminate the dairy cow’
Kohl’s Summit keynote discussion came the morning after the Super Bowl. And yes, he noticed the Oatly (oat beverage) ad that ran before halftime.
“Did you see the guy last night singing in the field talking about eliminating the dairy cow?” he asked, quoting other CEOs of brands like Beyond Meat also stating their goals to replace cows entirely.
On fake dairy and meat alternatives, Kohl was emphatic about how closely this needs to be watched.
“They’ve got the money. They’ve got the power. And they think they are saving the environment,” he said, explaining that these products are going to become more competitive with real dairy and meat as large investors and large companies in the traditional dairy and meat supply chain ecosystem get involved to drive the alternative product prices down and change the packaging. He gave the example that Beyond Meat is already closing that gap at $6.79 to $6.99 per pound compared with ground beef at $5.49 per pound.
“They are coming after traditional agriculture. That much is loud and clear,” said Kohl. “Big Ag has to look themselves in the face — that they allowed this to happen — with too much market power. This is me speaking, and I’m being blunt.”
During the chat session that followed, Kohl noted that even their Homestead Creamery based in Blacksburg, Virginia is seeing competition from non-dairy alternatives where they sell their fresh local dairy products.
“It is interesting that we are getting more questions on the non-meat and non-dairy products out there. Our customers are asking our sales team,” said Kohl. “We try to go into it with more education, and we are going A2A2 as a differentiator for our milk and ice cream.”
Minimum wage impact
Current legislation being considered in Congress includes a four-year phase-in to raise the minimum wage to $15 per hour. That’s more than double the current federal minimum wage.
“This will be bad for small business. The big guys can handle it,” Kohl observes. “This creates more business consolidation. We’re seeing a little push back on this now, but there needs to be a lot of push back. America was built on small business and entrepreneurs. We don’t want to create a serfdom where we just work for big business.”
Stimulus, taxes, regulation
With $2 billion a day in stimulus checks being written by governments worldwide, Kohl said this ‘black swan (pandemic event) can turn into an angry bird.
When government writes check, what comes next is encroachment, said Kohl. He sees federal, state and local taxes increasing and “regulators are going to have more swagger. This makes it imperative, to surround the farm business with your best advisors and have a good tax accountant who understands agriculture.”
Regulations in the environmental, labor, banking and financial service sectors are likely to increase, said Kohl. “Regulators have a lot of pent up energy from the past four to five years, and they’ll likely be coming out with a full-court press.”
Noting that the U.S. had its longest economic expansion until February of last year (pandemic), Kohl said a key reason is that the U.S. became the number-one energy-supplier in the world.
The effort to become energy independent began after the tragic attack of 9-11 in 2001. Today, the U.S. is number one energy producer, Canada is number four and Mexico is number eight. This means three of the top 10 energy producers are in North America.
“Now we are seeing a rollback of this playing right into the hands of Opec,” said Kohl, noting that the advertising and policy points about moving to electric vehicles can all sound good. “But we’re not thinking of the unintended consequences, where 74% of the components (for EV vehicles) are produced in China.”
How energy plays out policy-wise is important for agriculture, according to Kohl, because “$8 out of every $10 we spend is linked to energy.”
Kohl sees a “fine balance” to be had on sustainability and climate action.
“Some things we are doing for water, air and soil health are important, but there are contributors other than fossil fuels. I see a need to think about unintended consequences. If components for new sources come all out of China, and we get locked down, that creates a problem. Also, a lot of people seem to forget: when gas goes to $5 to $7 per gallon, it shuts a consumer and a farm down very quickly.”
Navigation points on Dr. Kohl’s compass:
— Surround yourself with good advisors and a good tax accountant.
— Be careful with one-off income from government support. Are you using that money to build efficiencies or pay down debt? Don’t make long-term expansion decisions based on this one-off income.
— Watch the value of the U.S. dollar relative to other currencies, but land value should hold.
— Expect to see acceleration of ‘carbon payments’ replacing direct farm program payments.
— Keep the non-dairy and meat alternatives on the radar screen, especially if you are involved in dairy leadership.
— Healthy soil, water and air quality are important focuses as agriculture deals with weather extremes.
— See the positives that have come out of the pandemic: farms labeled essential, local food movement acceleration, time with family, time to re-evaluate priorities.
— Be flexible, innovative and adaptive.
— Have a risk management plan and realize you are going to leave money on the table when you follow a plan that works for you 8 out of 10 years.
— Keep working capital available as your shock absorber and so you will be ready for emergent circumstances and unexpected opportunities. The recommended ‘war chest’ is to have greater than 25% of the farm’s expenses (not including interest and depreciation) as working capital reserve.
— Have a written farm budget and compare periodically (monthly) to actual expenses.
— Have a separate family living budget and compare periodically to actual expenses.
— Use advisory teams. They are the fastest growing trend, and they work.
— Be proactive on a plan to transition the business and to merge older and younger views of the future.
— Evaluate your business management IQ with 15 questions to ask yourself about your business and have each member of the family in management fill it out separately. This is a great way to measure business management progress, “and it gets you to think,” said Kohl. (See chart.)
— Do your baseline cash flow projections for the farm business, but also do financial sensitivity analysis. Work through the numbers in a best-case scenario to the aspiring goals of the business, but also run worst case scenarios. Look at the analysis if interest rates go up 1 to 2% — or with changes in the input and output values — to see how those changes affect the bottom line. “This gives you the parameters to keep you out of the ditches as you move forward,” said Kohl. “If those values experience extreme change, you can fall back on that working capital reserve.”
— Monitor those cash flows monthly against projections.
— Work with ag lenders to lock in interest rates where you can.
— Re-examine your vision and your goals and make sure expansion or investments line up with these goals; keep your working capital cushion.
— Look for your “three’s” – 3 things you want to continue, 3 things you want to improve. When isolating goals and actions, limit to three to intensify your focus.
LITITZ, Pa. — Whole milk sales are rising. Consumers are returning to fat, and they are looking for healthy, local foods. These trends were underway well before Covid-19 and have only accelerated since. At the same time, dairy farms look for growth in diversification or getting closer to the consumer, rather than expanding cow numbers.
For Oregon Dairy, Lititz, Pennsylvania, those paths intersected. They downsized the dairy herd from milking 500 cows to 60 in July 2019, which was the first step to becoming first in the nation (likely first in the world) to produce and market milk with “mooore omega 3” – naturally. The marketing began recently in November 2020.
“We are very proud of our milk. We have always been tied to the story of our milk from the farm to the store. But we are also looking to go to the next level in differentiating it,” says Jon Hurst, center store manager. “Now we have a story to tell about our Naturally Better Omega 3 Oregon Dairy Milk.”
In fact, shoppers at the family-owned grocery store can scan a QR code on the cap of the milk jug that takes them directly to a video about how the cows are fed to naturally produce milk with more omega 3.
The video talks about healthy omega-3 fat found in dairy foods (and fatty fish).
Therefore (as noted on the dairy case signs below), the higher omega-3 levels pertain to the whole milk (57 mg), whole chocolate milk (53 mg), 2% milk (28 mg) and cream.
While there are other milk brands that increase omega-3 by adding fish oil or algae derivatives directly to the milk in the form of additives, what Oregon Dairy has done is to feed the cows a supplement that balances the ratio between omega 3 and 6, so the cows naturally produce milk with consistently higher levels of omega-3 – and do it within a conventional dairy setting.
The distinct businesses of Oregon Dairy near Lititz, Pennsylvania include the farm, bottling at the grocery store, restaurant, ice cream shoppe and agri-tainment with four brothers, George, Willie, Curvin and Vic, owning different segments. As they partner with the next generation of siblings and cousins, communication has grown closer on a farm-to-table vision that has always had the dairy cow front and center.
Like any grocery store, other big-name brands are sold, but the focus is to continue highlighting local through what they do at the farm and other enterprises under the Oregon Dairy umbrella, as well as partnering with other local farms and businesses in the community.
Before downsizing, the farm — co-owned by George Hurst and his son Chad and daughter Maria and her husband Tim Forry — sold 90% of their milk through a cooperative in the commodity market and just 10% was purchased by the store and restaurant as needed.
Now, the various branches of the Hurst family and sector managers must communicate more directly about milk supply and marketing — putting them in the position to tailor what they do at the farm level to differentiate the milk at the store level.
With 18,000 followers on Oregon Dairy’s social media platforms, Jon has become a promotion powerhouse with the “farm fresh family fun” tagline, producing videos and contests and in-store partnerships that began before the Coronavirus disruptions and have given shoppers something to look forward to — with humor and sincerity — during this Covid-19 era.
For generations, they’ve been just bottling milk at the store and having their cream turned into ice cream by another manufacturer. But Jon and his cousin Maria, see a future of possibilities.
The Naturally Better Omega 3 (NBO3) Oregon Dairy Milk opens opportunities, but it really starts at the basic cow level, where the total mixed ration is balanced for omegas by feeding greatOPlus, an omega-3 nutrient supplement in the TMR mineral pack from Sporting Valley Feeds.
Their longtime nutritionist and veterinarian Dr. Robert Stoltzfus of Lancaster Vet Associates suggested the product last fall — a few months after the cow herd was downsized.
Across species, feeding flaxseed is nothing new, but it is the supplement’s algae derivatives that add additional properties for animal performance and transfer a more optimal omega balance to the meat, milk and eggs the animals produce.
“The benefits are on two levels,” says Paul Rosenberger, a consultant with NBO3, maker of greatOPlus and the largest algae producer in the country. We spoke with him by phone this week to understand the process.
“By balancing the ratios of omega 3 and 6, we get the benefit of omega-3, and in bypassing the rumen, we improve the conversion of that balance to the milk,” he explains about the natural feed nutrient.
Omega-3 has attracted attention as a healthy fat in the human diet, including reducing stress and inflammation, as well as heart health and other benefits the long chain fatty acids provide.
Oregon Dairy is one of a couple dairies Rosenberger is working with to introduce the product and acquire data.
Through Kansas State University, the Manhattan, Kansas-based NBO3 company has already received over 8000 data points from beef herds, poultry (eggs), swine, and now milk from dairy cows.
“In beef cattle, our data show improved marbling and color of the meat. In dairy cattle, there are performance benefits, but what we’re looking at with Oregon Dairy are the ratios of omega 3 and 6 in the milk,” he explains. “They are a natural for us with their retail connection providing so many attractive possibilities.”
Jon and Maria confirm the milk looks and tastes the same. (We took some home and agree, the milk is delicious as always with no difference in taste.) The difference is on the label in the milligrams of omega-3. Getting to that point took nine months of testing.
Maria explains: “We started feeding (the supplement) to our cows at a half a pound per cow in the ration, then tested, then increased our feeding rate until our tests showed we reached the omega-3 levels in the milk and were holding at those levels for months.”
Today the TMR inclusion rate is at about one and a half pounds, and the testing through NBO3 incorporates three prongs: the K-State university system, their own company labs and a third-party verifying lab.
“Once we got to the level of omega-3 in the milk and could sustain it, that’s when we got involved in the marketing and telling the story,” says Jon.
George explains that some producers are feeding the omega-balancing product to improve cow health, fertility and performance. He says they weren’t looking for specific herd improvements, but rather to improve the milk the cows produce.
Tim says the performance of the cows has been quite good in production, SCC and fertility, but again, their goal is what transfers to the milk.
“We want to niche our milk,” George relates. “Downsizing the herd was never a question of not producing milk. It was a business decision on the farm side because of the dynamics of the milk market and dairy pricing. We chose to downsize and diversify.”
The farm has gotten into custom work and a seed dealership. “We went from being 40% overcrowded to having less than 50% of our freestall capacity used, that changes a lot of things,” says Tim.
One thing it changed is feeding the methane digester that has been integral on the farm since the 1980s, so they’re fattening 180 beef heifers that go to commercial markets, along with a small number of pasture-raised Angus cattle, owned by the store, that are finished at the farm.
The beef cattle help keep the digester fed and stable to receive the other waste, to generate electricity and be part of the composting business they started over a decade ago.
Meanwhile, the store was also looking to diversify and capitalize on direct relationships with consumers.
“I go back to the concept of doing what you are good at, and this is what we are good at,” says Jon. As part of the next generation bringing their perspectives to the business, he sees local, natural, family and fun as what Oregon Dairy is good at. This omega 3 niche allows them to envision more about the future.
“We want to be thinking outside the box of how to handle the amount of milk produced and needed,” Jon observes.
“It all ties back to the consumer and the cows. Through our agri-tainment and corn maze and events, we hear consumers talk about health, we talk to consumers about milk and health. I talk to my own friends and family about cows and milk, but it always comes back to a health discussion,” Jon explains. “People in my generation want natural and local, and this is natural and local. Those two words capture carbon footprint and health, and it’s part of our story.”
“I think what is encouraging for other farms to take from this is to look for opportunities to diversify and differentiate within your sphere — to pursue and collaborate with others even in a small way, to find the opportunities whether producing milk, meat or eggs,” George reflects, adding that the beef industry seems to have a better handle on dealing with plant-based competitors where the dairy industry is playing catch up.
Differentiating Oregon Dairy’s milk with “mooore omega 3”, provides new ways to reach consumers with positive messages about the benefits of milk — things you just can’t get from plant-based lookalikes.
For Oregon Dairy, the bottom line in this first-ever product is to provide the same great milk from the same great cows at the same great price with the same local story, the same great health information – but now with a little more to show and tell.
The marketing is so fresh, Jon and Curvin Hurst don’t have a handle yet on how much their sales have increased, except that the omega 3 message dovetails with the trend they already see of consumers buying the higher fat milks.
“Whole milk sales, in general, are higher,” says Jon. “We have seen that shift increase in the last two years. Whole milk is number one now.”
That trend made this possible, because without the fat, there’s no omega 3.
At the store, the staff is trained to answer questions, the QR codes are on the bottle caps, the omega 3 milligrams are on the new labels, the ‘Don’t forget mooore milk’ signage is up with information about omega 3 health benefits, and free milk giveaway contests have been done on facebook, along with celebratory videos launching the message.
Much planning went into the launch, which they never dreamed would happen during a pandemic.
But that really doesn’t matter.
“We are already hyper-local, and now we have this extra step to further differentiate our milk,” says Jon. “As always, our story, even this new story, starts with the cows. Yes, we are proud of our milk.”
BROWNSTOWN, Pa. — The bottom line is the Federal Milk Marketing Orders are not functioning as farm-level pricing can be easily manipulated.
Negative PPDs continue to persist, and all indications are this could be the case through yearend. Several stories in Farmshine since May have covered the Producer Price Differential (PPD) situation and what it means to producer milk checks.
Now, even the American Farm Bureau Federation (AFBF) is on record evaluating the fallout from the new way of calculating the Class I advance base price as implemented May 2019 after passage of the change was made part of the 2018 Farm Bill.
In terms of the money subtracted from Federal Milk Marketing Order (FMMO) pools, Farmshine first reported the $1.48 billion in FMMO revenue gap across 7 of the 11 FMMOs that are multiple component pricing orders. The article and above chart were published in the September 18 edition. September losses will be reflected in FMMO reports in mid-October, and so far PPDs for September milk are mixed, some positive and some negative, but all are well below what would be the case under the old Class I pricing method.
This week, AFBF dairy economist John Newton pegged the cumulative loss to Class I value, alone, at $2.00 per hundredweight or $403 million to-date, across all FMMOs just on Class I milk — money unpaid to farmers that stayed in processor pockets. That figure is about 28% of the $1.48 billion component loss figure shown in FMMO negative balance and it correlates to Class I utilization being roughly 28% of total U.S. milk volume.
The Farm Bureau summary also shows the concentrated loss of $436 million in Class I value for May through October 2020. (Interesting coincidence: DFA is today the largest Class I milk bottler with the May 2020 acquisition of 44 of Dean Foods’ 57 milk bottling plants at a bankruptcy auction price of $433 million.)
“Due to the rapid rise in Class III prices and a modest increase in Class IV prices, the spread between the two was $6.83 per hundredweight in July, $10.96 per hundredweight in August, $10.30 per hundredweight in September and (will be) $3.56 per hundredweight in October,” writes Newton this week in the Farm Bureau analysis.
“As a direct result of no longer including the higher-of in the milk price formula, the Class I milk price never fully captured the rally in Class III milk prices. Instead, the new Class I milk price was as much as $4.57 per hundredweight below the higher-of formula price in August and $4.26 lower in September,” he continues.
“As identified in Figure 2 (above), had the higher-of formula still been in place, the Class I mover would have exceeded $24 per hundredweight in August,” states Newton.
Newton cites a Class I minimum example for the Southeast, stating that these losses are “before Class I location adjustments are added. In South Florida, for example, with the $6 per hundredweight location adjustment, the Class I milk price would have been more than $30 per hundredweight in August 2020.”
Newton notes that from May 2020 to October 2020, the average difference between the old and new Class I milk price formulas was $2.04 per hundredweight in favor of the beverage milk processor. This means that the regulated minimum prices fluid milk processors had to pay dairy farmers from May through October 2020 were an average of $2.04 lower than what they would have been if the higher-of was still in place.
Going back to May 2019 when the new Class I formula was implemented, Newton notes that the Class I milk price was 62 cents per hundredweight lower on average for the past 19 months compared with the pre-farm bill higher-of formula. (Fig. 3 above)
When looking just at the 12 months pre-Covid from May 2019 to May 2020, the new Class I calculation added 9 cents per hundredweight to Class I pooled volume.
Newton writes that the Class I volume, alone, saw a $32 million benefit in the new Class I pricing in the first 12 months May 2019 through April 2020. Post-Covid, the new Class I pricing method is reflected as a $436 million loss May to October 2020, so the cumulative loss is estimated at $403 million over 19 months of implementation.
This analysis, says Newton, was based on actual Class I pool volume as determined pre-Covid, and does not account for the impact on all milk in and out of the pool for which producers were paid at or near FMMO blend price, before deductions.
The bottom line in looking at the Farm Bureau analysis, along with our own past four months of analysis, the new way of calculating Class I – per the 2018 Farm Bill – would be a relatively benign factor in a ho-hum market if dairy product and component values were at least somewhat accurately reflected across multiple manufacturing classes.
On the other hand, it works poorly in a lopsided market where markets are disrupted, huge government purchases occur on some products and not others, and where huge imports of some products (butter) and not others (cheese) impact accumulating inventory differently for the different milk classes.
While magnified in a severe market disruption like Covid-19 has created, the dairy “market” complex has had lopsided markets in the past and will again in the future at some level. The fact that this pricing change was made without a national hearing and without a dairy producer vote and without an FMMO administrative hearing is concerning.
Some members of Congress have stated that National Milk Producers Federation (NMPF) and International Dairy Foods Association (IDFA) — together — agreed on and requested this Class I pricing change and that Farm Bureau took a non-position, making the change a “no-brainer” for Congress to include in the Farm Bill.
Farm Bureau had done analysis before the change was implemented showing the average over time was neutral. But neutral over time does not reflect month to month cash flow impacts and messed up risk management tools when markets diverge.
What we see in this so-called “neutral” change is the capacity for processors to manipulate the transfer of market value by playing one class against others and essentially removing ‘market value’ from producer milk checks.
Congress needs to hear the story of how dairy farms are impacted in their cash flow and use of risk management tools when a minimum of $1.48 billion in component value is simply sucked out of milk checks over a 4-month period.
Yes, CFAP payments help dairy farmers. But government payments lead dairy even farther away from establishing market value to become more reliant on government payments that, quite frankly, come with more and more strings attached.
Remember, USDA Dairy Programs responded in a Farmshine interview in August to explain that the value missing from pools is “still in the marketplace” even if it doesn’t show up in the FMMO blend prices.
Specifically, USDA stated in that August 3 email that, “The blend price (SUP) is a weighted average of the uses of milk that was pooled for the marketing period (month). If some ‘higher value’ use milk is not in the ‘pool’ then the weighted average price will be lower. It is important to note that the Class III money still exists in the marketplace. It is just that manufacturing handlers are not required to share that money through the regulated pool.
From the looks of milk checks shared in Farmshine’s Market Moos survey in June and July — and looking at the All-Milk prices reported by USDA through August — this ‘money that still exists in the marketplace’ has been largely unshared with producers.
The Class I pricing change was made, according to NMPF / IDFA to so that Class I processors could manage their price risk with forward contracting.
However, CME market brokers and analysts who were questioned about the use of forward contracting by Class I milk bottlers say that few, if any, are doing it. Part of the NMPF / IDFA push for this change was their statements that Class I bottlers would use risk management to stabilize their milk costs if the higher-of method was abandoned in favor of “averaging”.
In fact, some analysts we spoke with report there’s no incentive – even with the new formula – for processors to forward contract a perishable, quick-turnaround product like gallon jug milk. It doesn’t sit in a warehouse like cheese or butter or powder.
… Unless it is shelf-stable ultrafiltered milk — like Coca Cola’s Fairlife products. Coca Cola purchased the remaining shares of Fairlife from the Select Milk Producers cooperative on Jan. 3, 2020 — just 9 months after the new Class I pricing method was implemented.
The industry said this Class I pricing change was needed so that fluid milk processors could stabilize prices and in turn be positioned to invest in fluid milk processing and innovation, which would help dairy producers in the end by providing more Class I markets.
But what happened? Just 6 months after the new Class I pricing method was implemented, the largest fluid milk bottler, Dean Foods, filed for bankruptcy protection and sale in November 2019 with DFA waiting in the wings to buy. Then, 3 months after that, Borden filed bankruptcy and ended up selling to a consortium headed by former Dean CEO Gregg Engles.
Farm Bureau’s analysis this week estimates the impact on dairy farmer revenue from a purely Class I perspective. It does not quantify the full extent of component value removed from FMMOs in the process. Thus, the $403 million cumulative loss impact declared by Farm Bureau represents about 28% of the total loss – which is equivalent to the current nationwide Class I utilization.
This is a Class I pricing calculation change, but its impact on FMMO blend prices and farm-level mailbox prices is pervasive.
In addition, it is important to be aware in this discussion of loss impacts that there is absolutely zero method of calculating the market value of fresh fluid milk. It is not possible to determine what fresh fluid milk is worth because it is:
1) Regulated by federal and state milk marketing orders and boards,
2) Used as a loss-leader by supermarkets selling it far below its cost – especially the largest milk bottling retailers like Walmart and Kroger, and
3) Federal government restrictions on the fat level of milk children are “allowed” to consume at school or daycare.
In short, the federal government controls fluid milk through USDA in lockstep with NMPF / IDFA — and don’t forget, DMI. Dairy checkoff figures prominently in this equation with the same heavyweights at the same table — pushing fat-free, low-fat, ultrafiltered, shelf-stable products, even 50/50 plant-based blends.
Even DMI CEO Tom Gallagher is on record stating that the white gallon isn’t the future because even if children can have whole milk “innovation” is needed and admitting that his job is to “get processors to do stuff with your milk”.
For processors to “do stuff with your milk”, they have to be promised a bigger margin. This could explain why the forward-looking focus of farmer-funded checkoff efforts is on innovation (processing partner margin), not on promoting and educating consumers about fresh fluid milk. And, it might explain why this new Class I formula was needed to average the only so-called market value left in the so-called dairy market.
CFAP payments are salve on some wounds, but the larger issue is still clear: Dairy producers need a voice — apart from the organizations that claim to represent them.
STATE COLLEGE, Pa. — The big question Sue McCloskey gets about fairlife is “How did you think of it?”
As co-founder with her husband Mike of Select Milk Producers, Fair Oaks Farms and the fairlife brand, McCloskey spoke about “the spark of innovation” to a crowd of over 500 at the 2020 Pennsylvania Dairy Summit in State College last Thursday, Feb. 6. She was among the featured speakers that were sponsored by ADA Northeast.
“We are all innovators in agriculture,” said McCloskey, telling how they learned of reverse osmosis when a well on their New Mexico dairy backed up 25 years ago, and RO membranes were used to separate solids to restore water quality. That experience introduced them to the concept of filtering solids by molecular size, but her larger message was about the concept of innovation in allowing companies to differentiate in a generic category like milk.
For example, she said, who would think, years ago, that water would become the multi-billion-dollar industry that it is today? And coffee? She cited Starbucks as a catalyst for the rise of coffee houses and coffee drinks and blends today.
As in these examples, someone was the first innovator to bring value to those generic categories. She said for milk, the parallel is fairlife.
“Innovation – thinking outside the box — that’s what grabs people,” she said.
McCloskey maintains that as consumers, “We are all waiting for the next new thing. We want more. We want new. That’s where we have seen success with fairlife.”
McCloskey talked about her husband’s journey from being a dairy veterinarian to a dairy producer and innovator. They started with 300 cows in California and a partner they still have today in Tim DenDulk. One by one they bought dairies, fixed them up and rolled them over.
Once they got to New Mexico with a 3000-cow dairy, that was the real beginning of it, she said. That’s where they founded Select Milk Producers 25 years ago, which is today the sixth largest cooperative on a milk volume basis with 99 members.
They formed to focus on high quality milk with low somatic cell counts and to sell that concept direct to retailers instead of being part of a co-op that commingled their milk to blend-down the somatic cell counts. That’s where they were introduced, she says, to the concept of what has become fairlife through the use of RO membranes to ultrafilter the milk. She explained that the milk going in must be very low in somatic cell counts because the process of ultrafiltration concentrates the solids – including somatic cells.
She pointed to the “incredible success” of building different plants and beginning to build the fairlife brand, which led them to their next opportunity in the Midwest – Fair Oaks Farms.
When the McCloskeys came to Indiana, DenDulk, their original partner in California, was already in Michigan.
McCloskey said the housing technology had developed by that time to where they felt they could do larger dairies in the Midwest climate. They built the first of the original four 2800-cow dairies in 1999. Today, there are 13 separate dairies totaling over 36,000 cows that are owned and managed by a few families on the roughly 30,000 acres, including the new 800-cow robotic dairy that opened at the end of 2019.
In fact, she spent part of her time talking about the innovations coming out of Fair Oaks to recycle and recover nutrients and to address greenhouse gas emissions to improve the “sustainability” and carbon footprint of dairy.
“There are cool things happening and things we are doing that we really need to embrace,” she said.
(Sue’s husband Mike, who spoke in March at the PDPW virtual business conference on U.S. Dairy’s goals for GHG emissions, was the first chairman of the Sustainability Initiative when it was launched under DMI’s Innovation Center for U.S. Dairy in 2009-10, and the checkoff’s research and development and marketing assistance for fairlife and Fair Oaks came from DMI through the Innovation Center where such partnerships are born.)
Establishing fluid milk supply relationships with large retailers like H-E-B and Kroger, McCloskey said they have worked over two decades to move closer to consumers as they began using RO and ultrafiltration as early as 1995 to reduce the water moving loads of milk to cheese plants, while at the same time beginning the high protein, low sugar milk proposition partnering with H-E-B in Mootopia in 1996, before what is fairlife today.
They saw other protein drinks in the market they could compete with – by concentrating the protein in milk.
So began the process of building the brand from coast to coast as new products have been added continually. While most people are familiar with fairlife ultrafiltered milk, the CorePower fitness recovery drink was among the first that was created as a competitor for Muscle Milk.
Today, there are flavored Yup drinks, snack drinks that pair ultrafiltered milk with oats and honey, new coffee creamers, and a full line of weight management and healthy lifestyle products that are just emerging under the fairlife brand.
While Select Milk Producers sold its remaining half-interest in fairlife to its early partner Coca-Cola a few weeks ago, McCloskey remains a spokesperson for the brand. Also, the research and development teams remain intact and are still located in Chicago.
What Coca-Cola did for fairlife, said McCloskey, is to provide a nationwide distribution network that the Select co-op could not have achieved on its own.
“The hardest thing in consumer goods is to get a product in front of the people who want to buy it,” said McCloskey. “Our challenge was distribution. So, we formed a partnership with Coca-Cola. With Coca-Cola as 100% owner of fairlife, what happens now is that they are just going to run with it.”
This means that, “Milk is in the spotlight. While we hear the bad news from Dean’s and Borden, the good news is that the Coca-Cola, a top-five company, is involved in milk,” said McCloskey.
With an ultrafiltration plant producing fairlife in Michigan, she explained that the east coast and midwestern markets could be served and that the new Select plant in Arizona will serve the west coast market. A plant is also being built in Canada.
Answering a question about whether fairlife, or this direction of milk innovation, would ever “play ball” with the smaller average size farms in Pennsylvania, she replied that any milk supply for fairlife must be very low in somatic cell counts and will have to meet with flying colors all of the new levels of audits and animal welfare requirements that Select Milk Producers and Coca-Cola have implemented since the undercover animal abuse video at McCloskey’s original farm at Fair Oaks this past summer.
When asked how producers are compensated for these additional measures, she did not disclose proprietary information about how producers are paid.
She said the fairlife story shows “there is still room for investment and innovation in milk, innovation that makes milk relevant to consumers.”
McCloskey explained how the ultrafiltration process raises the protein and calcium levels, removes the lactose and reduces the natural sugars in milk without adding anything.
“And it is still real milk… but better,” she says, explaining that fairlife is finding “amazing growth in differentiation,” that fairlife’s entire proposition to consumers is the concept of “believe in better.”
“Our core tenets of the master brand are better taste, better nutrition, and better values,” she said.
“The brand is created around values, and these values are not new, but they are done in a way that is a little more creative to today’s consumers.”
She explained that Select Milk Producers sends milk that goes into a jug at Krogers and sends milk to fairlife, “but it’s the innovation and sharing the values that leads to growth.”
Sharing consumer surveys showing 90% of fairlife consumers are satisfied and 69% are repeat customers, McCloskey said this growth and innovation “mean bigger things for dairy than just fairlife.”
She said that 45% of the fairlife market share is coming from within the milk category and 55% of their consumers are coming over from outside of the milk category.
While fairlife’s ultrafiltration process is patented, McCloskey said a dozen new products have come on the market since fairlife that use similar technology or other means of delivering high protein, low sugar outcomes.
This allows these products to differentiate themselves next to the gallon of milk as a generic staple, she explained.
“If someone is on food stamps and can’t afford these new products, that’s okay,” McCloskey said. “They can buy milk. People will still buy milk.”
The next phase
McCloskey stressed the “tremendous value checkoff organizations bring to dairy farmers to promote how to innovate dairy and make it better.”
She explained the next phase, how DMI is sitting down with young urban-suburban consumers to “learn how they make food choices, to learn what they look for. This is leading us into sustainability and carbon footprint,” said McCloskey.
“We also sit down with the different NGO’s (like World Wildlife Fund for example). We all sit at the table and talk about the challenges that face dairy farmers,” said McCloskey. “The Net Zero Initiative coming out of that is one of the coolest things, and we are a collaborator on what is needed for dairy to get to net zero. It’s a big stake in the ground, but it’s got to be the place where we need to go.”
She explained the Net Zero Initiative under DMI’s Innovation Center for U.S. Dairy has a catalog of technologies to help producers deal with environmental issues.
“What if 37,000 dairy farmers could have net zero greenhouse gas emissions? This is what we have to chase,” she said. “The innovation can’t stop. The whole genome of the dairy cow has been mapped. Manure can be fractionated. There is innovation that is so exciting for us to think about what dairy can look like in the future.”
The forward-looking picture McCloskey painted for Summit attendees includes even more fractionization and extraction of milk’s elements, more use of specialized GMO crops and more consolidation of farms and processors with fewer cows producing more milk to meet new sustainability benchmarks.
McCloskey said the innovation from fluid milk to cheese to fractionating protein into “all kinds of other products” — while reducing the overall dairy carbon footprint — is the road to 2050.
The ‘perfect laboratory’
“We have only begun to know milk’s power and the different vitamins and elements we are just discovering how to use and extract,” she said.
“And it all happens in nature’s perfect laboratory – the dairy cow.”
On the flip side, McCloskey acknowledged that DMI has also learned consumer choices come back to this bottom line:
“It’s got to taste good and it’s got to do something for me,” she noted. “This is why dairy is not going away. Dairy is real and it tastes great and it makes you feel good.”
Lorraine Thiele went with the Statue of Liberty theme this week for the farm’s patriotic round bale art display ahead of July 4th. It’s attracting a lot of attention on state route 356 at the end of the farm lane just outside of Cabot, Pa. Photo by Lorraine Thiele
Round bale art gets noticed at Thiele Dairy Farm
By Sherry Bunting, Farmshine, July 3, 2020
CABOT, Pa. — The flag-draped Statue of Liberty round bale artwork at the end of the long lane leading to Thiele Dairy Farm in Butler County, Pennsylvania is attracting attention. The Thiele family placed it on their farm alongside state route 356 just outside of Cabot this week ahead of Independence Day.
“Everybody just loves it, especially in a time like this with what our country is going through, with the turmoil we are in,” says Lorraine Thiele when asked in a Farmshine interview about the community’s response. A photo of it has also created a lot of activity on the farm’s facebook page.
“We get a kick out of seeing people drive by, stop, back-up, and take their pictures with it,” she adds. “I enjoy putting a smile on someone’s face, to have something that can make people smile on their way to work or wherever they are going.”
James, William, Lorraine and Edward Thiele at their sixth-generation dairy farm in Butler County, Pa. Photo courtesy Marburger’s Dairy
Edward and Lorraine Thiele and their twin sons William and James farm 300 acres of corn, soybeans, hay and oats and milk 40 cows at the sixth-generation Dairy of Distinction, established in 1868. Lorraine does the bookkeeping and all the feeding. She hops on the tractor and helps with other things when needed, although she doesn’t milk much anymore.
Lorraine is also the artist behind the series of round bale portraits that have been created over the past several years. She credits her husband and sons for helping with some of the technical strategy and by providing custom-sized round bales when she asks for them.
“When Ed sees me with the skid loader stacking and piling round bales, he’ll get involved and we’ll draw it out. He likes to help with the more technical side,” she adds.
Her Statue of Liberty this year was painted on three large round bales. Last year she did just the American Flag on six. She’s been doing the round bale art projects for several years now – ranging from turkeys and pilgrims at Thanksgiving, to cows and milk jugs for June Dairy Month, and from tractors with wagons full of pumpkins in the fall, to Santa Claus, reindeer, Christmas trees (with lights) and a Nativity last Christmas.
“I try to do something different every year,” she says, explaining how she “googled” for some patriotic ideas to see what struck her fancy for the 2020 July 4th rendition. She came up with the Statue of Liberty.
“I can’t do faces, so I found a silhouette for the design. I also found a ceramic statue with the flag draped over and figured I would try that.
“I’m not an artist,” Lorraine states humbly. To guide what she calls her ‘graffiti style’ spray painting, she used big baler twine pinned to the stacked bales. If her design gets too big, she tailors it down with a background color.
She admits she has been surprised by how relatively easy it is to paint round bales. Their straw bales are not plastic wrapped, so they take a lot more paint than one would imagine.
“Always buy more spray paint than you think you need,” she suggests, adding that painting it on the net-wrapped side holds the paint better than painting the face of the bale of hay or straw, which “really sucks up the paint.”
She also likes to get creative, using items that are laying around. One year, Lorraine painted wood planks in different colors for the feathers on the Thanksgiving turkey.
One year, for June Dairy Month, she used black drain tile pipe and painted the tip white for the cow tail after Ed drilled-in a rod to hold it.
Once she gets an idea in her head, and thinks about it for a while, it comes together.
“It’s fun, and something different to do. It looks harder than it really is.
“Don’t be afraid to try something,” Lorraine encourages. “The nice thing is, if it doesn’t work out, throw it in for bedding and no one will ever know!”
While the Independence Day Statue of Liberty is creating the buzz right now. It was the reaction to the June Dairy Month art that really surprised Lorraine.
For June Dairy Month, the painted milk pints had many people turning into the farm lane to buy milk, but the Thiele family explained that all of their raw milk goes to the Marburger Farm Dairy plant in Evans City — a great local brand. Photo by Lorraine Thiele
“I painted milk chugs — chocolate and strawberry milk pints — to put beside the bale-painted cow,” she explains. “You would not believe how many people turned in the lane and came up to the farm wanting to buy milk. I never would have thought just a straw bale done up as a milk pint would do that!”
In fact, the response was so great, Lorraine had to put a post on the Thiele Dairy Farm facebook page (and a sign by the artwork), explaining that the family does not sell milk right off the farm and that their raw milk all goes to Marburger Farm Dairy in Evans City — a great local brand.
The Statue of Liberty took about a week to finish, but she only works on round bale art when she has the time. After a painting is complete, they haul it down the lane to position it by the main road.
Faith, family and farming are alive and well on the Thiele family’s dairy farm.
The Thiele Dairy Farm facebook page is also something Lorraine enjoys. She started it almost 10 years ago through her love of photography and her desire to promote agriculture in a positive light.
“There’s a lot of negative out there,” she says. “Our son (William) has a drone, and he videos the baling, mowing, and planting. The average person doesn’t have a clue what we are talking about or how it is done or what is involved, so our sons love to show it, to do things like that to educate people about what we do.”
Each family member is a steadfast advocate for agriculture, and they are active in Butler County Farm Bureau and Dairy Promotion Committee. They participated in the Butler County milk donation drive-through back in April before the CFAP program. It was coordinated by Community Action Partnership with Farm Bureau, the Butler County Dairy Promotion Committee, Marburger Farm Dairy, AgCoice Farm Credit, and others, where 1200 gallons of milk were distributed along with a bag of groceries and a box of frozen products.
Lorraine is a positive person, and that was demonstrated in this interview and throughout her connections to the community in person and through social media. People appreciate it, even putting gifts or thank you notes to the family by the round bale Christmas tree at holiday time.
As difficult as things can be in the dairy business at times, Lorraine loves the farm and the cows and is thankful her family is farming together — where everyone in the family does everything on the farm.
As for the round bale art? If she can make someone else smile for even just a second. It is worth it.
Summer sunset this week at Thiele Dairy Farm in Butler County, Pennsylvania. Lorraine loves taking photos on the dairy farm and the Thiele Dairy Farm facebook page is full of her photos as well as drone videos by her son William. Photo by Lorraine Thiele
Table 1 showing “other use / milk dumpage” totals by Federal Order includes data for May 2020. The month of May saw 13% less milk pooled on Federal Orders compared with a year ago, and 13% less milk in the “other use / dumpage” category compared with a year ago — down dramatically from the enormous 350 million pounds of “other use” milk pooled in April 2020.
States east of Mississippi cut production, west mainly grow
USDA Dairy Market News reports each week have signaled progressively tighter milk supplies heading into summer vs. stable to strong demand pushing spot loads to sell above class price in some areas.
In April, cooperatives across the country set base limits on member milk production for May until further notice. Some severely discounted any milk provided that was above 80 to 90% of a member farm’s March marketings. Many producers chose to leave this penalty milk out of the tank.
As these co-op ‘base’ programs went into effect in May, the impact is demonstrated in the USDA May Milk Production report, estimating U.S. output at 18.8 billion pounds, which is 1.1% below year ago for May.
Cow numbers were down 11,000 compared with April, according to USDA, but still 37,000 more milk cows were estimated on farms compared with a year ago.
Nationally, milk output per cow dropped by one pound/cow/day in May compared with a year ago, the report stated.
In addition, Federal Order milk pooling totals and “other use / dumpage” data provided to Farmshine by USDA AMS by request, showed the total volume of milk pooled across all Federal Orders in May dropped like a rock to levels 13% below year ago.
Similarly, the volume pooled as “other use / dumpage” across all Federal Orders fell to levels 13% below year ago nationwide — from the enormous 350 million pounds recorded in April to 36 million pounds in May. (See Table 1.)
What is eyebrow-raising is how the numbers in these reports geographically arrange themselves.
In last Thursday’s Monthly Milk Production Report, the national drop in total output for May masks the fact that among the 24 top milk producing states listed individually in the report, those east of the Mississippi accounted for all of the production decline – plus balancing the accelerated western growth to get the U.S. total a significant 1% below year ago.
States east of the Mississippi saw large decreases in production, while in contrast, the growth states of Texas, Colorado, Idaho, Kansas, Arizona, South Dakota saw increases in production ranging from 1.4 to 9.7% above year ago.
East of the Mississippi, the Northeast milkshed really clamped down on production with Pennsylvania 3% below year ago, New York down 3.7%, and Vermont down 6.4% vs. year ago in May.
Further south, Virginia and Florida were unchanged from a year ago, while Georgia’s production fell 1.4%.
In the Mideast and Midwest, Michigan was off a fraction (0.4%), Minnesota down 1.9% and Wisconsin’s production fell by 3.1% vs. year ago. Indiana, Illinois and Iowa were down 1.7 to 2%. Ohio was the outlier, gaining 0.4% in production over year ago.
In the West, May production was larger than a year ago with South Dakota leading on a percentage basis producing a whopping 9.7% more milk compared with a year ago. Number five Texas grew by 1.9%. Number three Idaho grew by 4.6%, and Colorado grew by 4.8%. Arizona grew by 1.4%, and Kansas by 2.4%.
Three western states were key outliers as California dropped production 1.5% below year ago, Utah was down 3%, and New Mexico fell a whopping 7.2% below year ago. The Pacific Northwest had generally steady production with Oregon unchanged from a year ago and Washington down fractionally.
In Federal Order pooling, the volume pooled nationwide was down a whopping 13% from 15.1 billion pounds in May of 2019 to 13.2 billion pounds this May of 2020.
In the Northeast, total pooled pounds on Federal Order One for April and May of 2020 were essentially equal at 2.3 billion pounds each, but relative to year ago, this was a decline of 1.7% while production on farms in the region fell a whopping 4%, collectively. The difference likely came from elsewhere.
Meanwhile, the amount pooled as “other use / dumpage” in the Northeast Order One dropped abruptly from the enormous 131 million pounds in April to 12.3 million pounds in May, representing a 35% drop in “other use / dumpage” compared with a year ago.
Pooled milk classified as “other use / dumpage” in the Appalachian, Florida and Southeast Orders 5, 6 and 7, also dropped significantly in May compared with April’s large records. In fact “other use” milk in those three Orders fell to levels that were 19% (Appalachian), 9% (Florida) and 32% (Southeast) below year ago. At the same time, total pooled pounds for these three Orders – 5, 6 and 7 – were calculate below year ago in May by 1% in Order 5 (Appalachian), 2.5% less in Order 6 (Florida) and a significant drop of 11.7% less milk pooled compared with a year ago in Order 7 (Southeast).
In a sense, the pull back in production in the Northeast, Mid-Atlantic and Southeast regions, where April’s dumping had been so extreme, helped bring down total pooled pounds in those areas to rein-in the “other use” pounds as well.
Growth areas of the nation showed significantly less “other use / dumpage” pounds in May vs. April. However, in some of the Orders, such as the Southwest (Order 126) and Upper Midwest (Order 30), the “other use / dumpage” category was still above year ago levels by a modest margin, according to the USDA AMS figures.
As the dairy industry right-sizes itself after COVID-19 supply-disruptions that abruptly cut 30 to 40% from producer milk checks, it remains to be seen how states east of the Mississippi can regain their footing as western growth areas kept shipping more milk right on through — without missing a beat.
WASHINGTON, D.C. – Government and industry dairy donations and record-setting CME cheese prices all got their starter fuel from grassroots dairy producers in what has become one of the good news stories of the COVID-19 era.
Today, USDA has systemized the donating through the Coronavirus Food Assistance Program (CFAP), and dairy processors, cooperatives and checkoff organizations have partnered with food banks and non-profits to extend the reach of efforts begun originally by generous dairy producers and their agribusiness partners supplying grateful consumers.
Also in April, farmer-funded Dairy Pricing Association (DPA) purchased 228,000 pounds of block cheddar, immediately moving the CME block cheese price from its $1/lb plummet to $1.20 (adding $1.00 to Class III milk values at the same time).
This DPA move, working with charities for distribution and a Midwest processor to turn their CME-style bulk purchase into consumer-packaged goods for donation, gave a green light to other cheese market participants. Within a week of that purchase and the initial 20-cent gain in blocks that followed, block cheese continued its climb to $1.80/lb, and the upward momentum has not stopped — fueled now by huge government purchases and food-service pipeline re-stocking.
On the heels of these grassroots efforts, dairy checkoff organizations began getting involved to work with their partners and “convene” the industry to do big donations in May.
Meanwhile, the U.S. Congress had passed the Coronavirus Food Assistance Program (CFAP) in April, with $3 billion of the $19 billion set aside for the Farmers to Families Food box purchases. But it was mid-May before USDA announced those first-round contract awards totaling $1.2 billion in fresh food — $317 million of it for fluid milk and dairy products – for distribution May 15 through June 30.
This week, USDA Secretary Sonny Perdue called the food box program a “trifecta, win-win-win”, pointing out how the program is getting farmers, processors and non-profits together to directly provide fresh food to people without burdening food banks with refrigerated inventory they aren’t prepared to handle.
In April, when block cheddar was plummeting to $1.00/lb, the farmer-funded Dairy Pricing Association based in Wisconsin with member-contributors nationwide, purchased 228,000 pounds of block cheese to be cut-down for distribution by several charities. DPA Facebook photo
This was the model of grassroots groups and individuals on their own dime and time doing dairy donation drive-throughs, milk-drops, and whole milk gallon challenges from late March to the present. It was also the model of DPA, funded by voluntary dairy farmer milk check deductions, when DPA purchased the block cheese in April for cut-down and donation. Also in April, we saw the partnership initiated in Pennsylvania between 97 Milk and Blessings of Hope. They raised funds to buy local milk for donation to families in need.
As these grassroots efforts began having an impact, Midwest Dairy got approval from USDA in May to use checkoff funds to donate cheese, and UDIA of Michigan was allowed to provide minimal funding to food banks for “handling costs” associated with receiving cheese donated in May by DFA.
Now, with USDA systemizing that smart approach — started by grassroots efforts — the department stated in a news release that as of June 23, its CFAP Farmers to Families Food Box Program had delivered more than 20 million boxes of fresh food, including milk and dairy products, to families impacted by COVID-19.
The initial round of USDA CFAP contracts ends on June 30. But this week, USDA announced it will extend “well-performing” first-round contracts for similar amounts in a second-round from July 1 through August 31 to total an additional $1.16 billion.
The share of this second-round to be devoted to fluid milk and dairy purchases was not specified in the USDA announcement. One thing USDA did note is that even though most of the second-round dollars will be spent with “selected” current contract awardees, a few new contracts may be awarded to previous applicants that had been passed over due to technical errors or to provide boxes in areas identified as “underserved.”
Throughout the USDA CFAP food box delivery process, regional dairy checkoff organizations have been involved as “facilitators.”
Week after week, Farmshine has received press releases from dairy checkoff organizations, and there have been numerous social media posts, about the CFAP milk and dairy box donations. Regional checkoff organizations say they are working with processors, cooperatives and non-profits — in conjunction with the USDA CFAP food box program — and that area dairy farmers are involved as volunteers to hand out the boxes.
According to National Dairy Council president Barb O’Brien, dairy checkoff organizations began “convening the industry” before CFAP.
“We have leveraged the checkoff’s unique ability to convene companies from across the value chain to identify a number of ways to redistribute excess milk and other dairy products to families facing food insecurity,” writes O’Brien in an email response to Farmshine recently.
In a specific cheese example she had mentioned in a media call described as block cheese being purchased and cut into consumer size portions, our inquiry for details was met with this response:
“In response to lost food-service markets and dairy farmers being asked to dispose of milk, we’ve worked to connect coops to partners that donated processing capacity for any excess milk available for food banks,” O’Brien wrote. “Many other dairy companies — such as the example I gave from DFA of cheese donations in Michigan — provided massive quantities of dairy products to food banks before the USDA Farmers to Families Food Box Program was even put into place. Moving forward, it will be important that we continue working together as an industry to target the greatest needs and find long-term solutions to our nation’s hunger crisis.”
O’Brien cites DMI’s “long-time partner” Feeding America and other relationships with local food banks and pantries. Former Ag Secretary Tom Vilsack, now a top dairy checkoff executive with DMI, sits on the Feeding America board of directors.
O’Brien also noted in her response that dairy checkoff “counseled industry partners and others on how to direct dairy products toward the greatest needs.”
She reports that, “This widescale approach enabled us to pinpoint some of the biggest barriers in getting excess dairy products to hungry families during the pandemic” and to “rapidly initiate an industry response.”
As communities began doing their own grassroots efforts through the generosity of dairy farmers, agribusiness and individuals purchasing milk or contributing milk for dairy donations in the early days of the COVID-19 ‘stay-at-home’ orders, checkoff organizations took note and began to look at what they could do in terms of refrigeration equipment and setting up refrigeration trucks for industry and governmental efforts.
Grassroots whole milk donation events like this one just outside of Lancaster, Pa. in May, have been providing whole nutrition to families across the state and region since the height of COVID-19 ‘stay-at-home’ orders in April. Photo by Michelle Kunjappu
While many of the grassroots-organized milk donations were comprised of whole milk purchases vs. low-fat milk, this week marked the first time a checkoff news release showed red-cap whole milk gallons or even referenced whole milk in their facilitation of USDA CFAP box deliveries. This is another win led by early grassroots efforts.
ADA Northeast (ADANE), for example, indicated in a press release this week that 200,000 gallons of milk will have been handed out in the Northeast / Mid-Atlantic region by the time June Dairy Month ends. The release stated that 20,000 gallons would be donated this week, alone, from DFA, Upstate Niagara and Schneider’s Dairy to be given out in New York and Pennsylvania through the Nourish New York state funds and CFAP food box federal funds.
For the first time among the many news releases sent by ADA Northeast (ADANE) touting checkoff ‘facilitation’ of fluid milk and dairy donations, whole milk is in the box! Here, dairy farmer Joel Riehlman of Fabius, N.Y., and a 4-H member, hand out whole milk in mid-June at a Nourish New York and USDA CFAP Farmers to Families Food Box donation drop in Syracuse. Photo provided by ADANE
In a recent Watertown, New York drop point for these donations, ADANE board member Peggy Murray of Murcrest Farm, Copenhagen, N.Y. volunteered, and she noted in the ADANE press release that, “It was heartwarming to see their gratitude – especially for the whole milk — and to know that people really want the products that we produce on the farm.”
This has been the experience of so many farmers and ag community members involved in the grassroots distributions, as well as the industry and governmental distributions, because each event affirms that consumers love milk and dairy products, especially whole milk, and that they want to support local farms — as evidenced by their comments and long car-lines of families eager to receive these products. In some cases, recipients gave money asking it be put toward more drive-through dairy events.
In the Southeast and Midwest, CFAP contract recipients Borden and Prairie Farms have also been visible this month with Dairy Alliance and Midwest Dairy checkoff organizations often as partners, along with several state dairy producer group members joining in as volunteers and location coordinators.
Overall, the CFAP food boxes have been well-received. The program was designed by USDA to give farmers and food providers a presence within their communities, working with local food banks and non-profits without creating inventory hardships. In this way, USDA has taken what local communities were doing at the grassroots level — on their own dime and time — and systemized it with federal funds and contracts.
While dairy’s share has not been specified in USDA’s announcement of the second round of $1.16 billion in fresh food purchases in the contract extensions through August 31, it is believed fluid milk and dairy purchases will be similar to the first-round total of $317 million because several non-profits indicate they will be supplied with all their milk and dairy needs through the USDA until at least August 31.
This includes Blessings of Hope, which had partnered with 97 Milk in April, and raised over $50,000 for purchasing and/or processing local milk for families they serve in Pennsylvania.
Farms in southeast and southcentral Pennsylvania that were wanting to donate “over-base” milk for this 97 Milk / Blessings of Hope program will have to wait until after August 31, when the USDA CFAP food box program is set to end. It is possible that the CFAP program may again be extended until all $3 billion in food box funds are exhausted.
When Dairy Pricing Association (DPA) first ran an ad in the Cheese Reporter in early April looking for 200,000 pounds of USDA-graded cheddar cheese less than 30 days of age, the calls they received could not fill the order. By requesting USDA-graded cheese, the delay in their eventual purchase of 228,000 pounds showed a void in supplies that led to the initial turnaround in the plummeting block cheese price on the CME, which fueled the advances in manufacturing milk value. CME cheese prices drive Class III milk futures, which have risen rapidly since the DPA purchase bridged the gap in April. Current market strength has been extended through the large USDA food box program demand occurring at the same time as the re-opening of the food-service sector. DPA Facebook image
A positive outcome for farmers from all of these efforts — now extended by these large government purchases — is the real impact they are having in helping drive dairy markets higher since that first farmer-funded DPA purchase of block cheddar in April turned the CME away from its $1.00/lb record-low plummet.
Block cheese is traded every day around noon on the CME spot auction, and the price has set several new record-highs in June, including the most recent record-highs of $2.70/lb on Monday, June 22 and $2.81/lb on Tuesday, June 23.
This rally has pushed Class III milk futures into new contract highs for June, July, and August, while adding strength across the board.
In CME futures trading Monday (June 22) the June Class III milk contract hit $21, up $9 from the USDA-announced May Class III price of $12.14. July’s contract topped at $22.19, and August edged into the $20s. Monday’s Class III milk futures averaged $17.98 for the next 12 months, and Tuesday’s futures trading held most of that level, even adding to the July contract.
Trade sentiment is mixed on how long the upward momentum in dairy markets can last.
On the one hand, cheese prices are being driven by the combination of USDA CFAP purchases now continuing through August, re-stocking of food-service pipelines as the country re-opens, and the USDA Dairy Market News reports of consumer buying strength shown in strong pizza sales throughout the Covid period, and stable to strong retail sales meeting tighter supplies of milk and cream.
On the other hand, some experts warn of weakness ahead as these record-setting prices may prompt milk production expansion by fall when demand may wane after the USDA CFAP food box purchases end and food-service pipelines are re-stocked.
Much of the future will depend on how the re-opening of America goes for families, the food-service sector, schools, sports, and the economy at-large.
USDA data: 350 million pounds dumped, diverted nationwide. Over one-third of it pooled on Northeast Federal Order. May data show improvement
By Sherry Bunting, Farmshine, June 19, 2020
BROWNSTOWN, Pa. – The picture for May has improved as “other use” milk totals pooled across all Federal Orders came back in line, and total “all use” pooled volume also receded.
But… Remember April? The figures are in, and they are ugly.
April was the month where the COVID-19 shutdown was at its height. Everyone was bracing to flatten the curve. Retail dairy case shelves were often empty or sparse, and many stores had two-item limits on milk, butter, even cheese, yogurt and sour cream.
The milk dumping that had begun during the last weekend of March ramped up in April. By the time final milk checks were received for April milk, producers were dismayed to find big deductions, almost $2 per hundredweight in some cases, as COVID-19 line items on top of additional marketing adjustments, reduced quality premiums, and the like. Of course, hauling was also a bigger deduction, some being told they were charged destination hauling on dumped milk that never left the farm! This, despite the fact that fuel prices fell like milk due in part to COVID.
What do the USDA data tell us?
According to “other use” milk pooling data supplied by USDA AMS Dairy Programs by request, milk pounds pooled at minimum class as “other use, milk dumpage and animal feed” for all Federal Orders totaled almost 350 million pounds in April (349.9 million pounds to be exact). That was 2.57% of the total pounds of milk pooled across all Federal Orders in April, according to USDA AMS data, and it was 1.8% of total U.S. April milk production (pooled or unpooled) as reported by USDA in its Monthly Milk Production Report.
Year-to-date milk dumpage and diversion by Federal Order and total combined — as well as for 2018 and 2019 — are shown graphically in Table 1.
While March saw the milk volume classified as “other use” grow by 142% compared with year ago at 71.3 million pounds. The volume of diverted milk in this “other use” category for April 2020 was absolutely enormous at 349.9 million pounds – up 960% from a year ago.
In fact, the Northeast Milk Marketing Area, Federal Order One, as usual, was dumping-zone-central as more than one-third (37.4%) of all the milk pooled as “other use” in the U.S. showed up in the Northeast pool as minimum class “other use.”
In other words, 37.4% of diverted milk in the entire U.S. was dumped on farms or at plants or otherwise diverted as “other use” including animal feed in the Northeast Milk Marketing Area.
The Northeast Order pooled 131 million pounds of “other use” milk in April – up more than 1000% from the 11.3 million pounds of “other use” milk in April 2019 and the 13.6 million pounds in April 2018. Table 1 shows this enormous amount dwarfing other months, other years and other Orders quite plainly as highlighted in yellow.
This means that the Northeast Order pooled 4.4 million pounds, or 80 loads, of dumped or diverted milk every single day for 30 days in April.
The second largest pooling of “other use” milk was the Southwest Order 126 at 44.4 million pounds, up 1200 percent from 3.4 million pounds a year ago (April 2019) and 3.6 million pounds in April of 2018.
Third largest was the Upper Midwest Order 30, with 38.3 million pounds of “other use” milk pooled, up 1855% from the 1.95 million pounds a year ago (April 2019) and 1.84 million pounds in April of 2018.
Fourth largest was the Florida Order 6, with 31 million pounds of “other use” milk pooled, up 1520% compared with 1.2 million pounds a year ago (April 2019) and 1.5 million pounds in April of 2018.
The Mideast Order 33 came in fifth with 24 million pounds of “other use” milk pooled, up 860% from 2.5 million pounds a year ago (April 2019) and up 460% from the 4.28 million pounds in April of 2018.
USDA AMS confirms that milk purchased by USDA for feeding programs, including the extra Section 32 purchases and new Farmers to Families Food Box milk purchases are included in receipts and utilization as the class of product purchased. This means when fluid milk is purchased with these government funds and then donated to families in need, the fluid milk is to be reported as Class I.
This is also true of milk purchases by businesses, individuals and fundraisers that then use these purchases as donations to families in need or the public at large. These sales also contribute to Class I utilization.
However, when milk destined for dumping or over-base milk kept aside is processed and packaged and donated outside of these marketing channels, it can be considered “other use”.
The equally disappointing news in April was that despite the fact that retail sales data show packaged milk sales to be running about 5% ahead of year ago for April and May, the USDA Class I utilization total for April across all Federal Orders was fell by 9.7% in April compared with March to 3.6 million pounds compared with 4.0 million pounds of milk utilized as Class I in March across all Federal Order pool data. This is down 3.3% from Class I utilization pounds, nationwide, a year ago.
As noted, the milk dumping situation in May improved compared with March and April as “other use” milk totals pooled across all Federal Orders came back in line, and were actually down 13% from a year ago at 36 million pounds – roughly 10% of what was discarded the month prior in April. Total “all use” pooled volume also receded as cooperative base programs kicked in. Government purchases for the CFAP Farmers to Families Food Box Program also began pulling milk the second half of May and will continue through June.
However, keep in mind, the cooperative base programs do cause some milk dumping of non-pooled pounds on farms that choose to only ship what they are paid a price for. Some are feeding cows and other livestock with extra milk. Others are finding local processors to bottle it so they can do community whole milk donations. Some may even be fertilizing fields with extra milk.
It isn’t easy for many to cut by 10 to 20% from March production in May – as many have been asked to do to avoid salvage value and stiff penalties for the “extra”.
Seasonal style dairies especially have their work cut out for them, and it appears the true seasonal dairies with little or no milk production in the first quarter of the year won’t be eligible for CFAP payments as 6 months of payment calculations are being based on production for the first 3 months of the year.
To be continued in next week’s Farmshine with May data on total pooled pounds, Class utilization trends, “other use” data, and other information for the month as well as year-to-date for all FMMOs and individually.
HOUSTON, Tex. — Dean is a dead duck, with an estate. The ‘pools’ (no pun intended), in which it reigned as top duck — and most of the pool toys it gathered over the past 20 years — have been sold to its largest supplier, Dairy Farmers of America (DFA), leaving just the Dean Foods (Southern Foods Group) Estate to settle its affairs, including paying farmers for April milk sold in good faith.
But the funds to do that are locked into the Chapter 11 plan handling all manner of administrative expense claims that could take days, weeks or months to sort out. Part of the issue is that the super-priority credit facility of $850 million was extended to Dean to keep operating before sale. Now the sale is consummated, and that credit facility is not being used for critical vendors. In fact, what was used of the $850 million becomes the first post-petition debt to settle.
Meanwhile, dairy farmers are looking at their contracts and the regulated pricing structures and even those states with bonding and wondering what recourse they have for payment. Most have no recourse. In states like Pennsylvania, there is bonding of licensed milk buyers through the Pennsylvania Milk Marketing Board, and it is a complex process.
On a recent DMI ‘open mic’ call for producers, Jim Mulhern of National Milk Producers Federation was a guest. He said they have looked into whether the Packers and Stockyards Act guaranteeing prompt payment for livestock could be use. It can’t, he said. There is no national insurance-bonding of milk buyers like there is for meat and poultry.
Not only did Dean milk suppliers not receive payment, cooperative handlers also went without payment, and the Federal Order pools in which Dean Foods is regulated did not receive their settlement payments. This then affects payments to handlers from the pool for April milk, which in turn affects other dairy producers paid by those other handlers.
Dean Foods did pay the April advance – the first of two monthly checks paid to dairy farmers. But the settlement funds for April milk due mid-May have not been paid, and Federal Milk Marketing Orders have established dates in each milk marketing area of the country stating when the settlement payments are made to the pool, when the handlers are paid from the pool and when the producers are paid by the handlers.
All of those dates for all Federal Milk Marketing Orders have now passed as of May 19, and Dean Foods’ Estate has not honored any of these April milk settlement obligations.
According to USDA Dairy Programs, “Dean Foods, DIP, (Dean) is fully regulated in all Federal milk marketing orders except the Pacific Northwest and Arizona. Dean did not make payment into the Producer Settlement Fund (PSF) for April pooled milk to any FMMO where it is fully regulated.”
USDA also confirms that, “Dean is responsible for paying the blend price to the independent producers who supply its plants. That payment is not contingent on whether or not Dean pays into the Producer Settlement Fund.”
Dairy farmers that ship to Dean Foods confirm no payment has been received, and the Pa. Milk Marketing Board confirms being notified of the same as it regulates these payments in Pennsylvania as well.
USDA indicates that it is “closely monitoring the situation and is keenly aware of the impact this failure to pay has on the dairy industry.”
Furthermore, USDA is continuing to consult with the Department of Justice in an effort to work within the confines of the bankruptcy laws to recoup monies owed to the Pool Settlement Funds.
Handlers were notified by USDA via memorandum (see Order 5 example of what went out to all FMMO handlers above). They were notified of the non-payment and the pro-ration of available producer settlement monies.
Some handlers have indicated this affects their funds to pay their producers by 20 to 30% for April milk.
In Pennsylvania, where there is bonding through the Pa. Milk Marketing Board, every bond claim is unique and fact-dependent, so there’s no set time that has to pass before a claim is made.
Activity reports are not due to the Pa. Milk Marketing Board until May 25, so a bond claim cannot be made for Pennsylvania milk until the PMMB knows how much is owed.
On the national side, USDA confirms that Dean did timely file its milk receipts and utilization report for April, but these figures are confidential and proprietary, so the amounts owed to farmers and the Producer Settlement Fund are not known.
While USDA is communicating with the U.S. Department of Justice on this, the PMMB is reportedly doing their best to communicate and work with Dean to determine if there’s anything it can do — short of the agency filing a bond claim to have Pennsylvania producers paid. There are four Dean plants in Pennsylvania and at least two out-of-state plants, including one in New Jersey, receiving milk from Pennsylvania and surrounding states.
For Dean’s part, Gary Rahlfs is the chief financial officer overseeing the “winding down” of the Dean Foods Estate. In an email reply early this week, he referred to the May 6 public announcement at the Dean restructuring website after the sale of plants and other assets was completed that week, stating: “Dean Foods anticipates that the plan will provide for the full payment of all administrative expense claims in several months (following the repayment of its senior secured super-priority post-petition financing facility) as proceeds continue to come into the Dean Foods Estate.”
In addition to the public announcement, Rahlfs confirmed that administrative expense claims do include the payments Dean owes for April milk and many other payables.
“We are working diligently to ensure this process and the payments are made as quickly as possible,” Rahlfs wrote in an email response to Farmshine.
Unfortunately, it appears from the wording of the announcement that this could take several months, and the super-priority credit facility Dean used to continue operations during the bankruptcy sale process is being prioritized for repayment as income comes in from sale of assets and prior sales of product during this “winding down” plan for the bankruptcy.
All through the bankruptcy and sale proceedings in the Southern District of Texas, Judge David Jones referred often to how it was a priority of his to ensure a sale process that would not leave schoolchildren without milk and would not leave farmers without markets or employees without jobs. He talked often of fond memories as a child of milk delivered by the milkman.
In fact, this is one reason, Judge Jones approved retainment bonuses for professional staff to be sure that the people who understand the milk business would continue in their positions so the company and its 57 plants would remain in operation and viable during the bankruptcy sale to avoid the chaos that would result if the company fell into Chapter 7 status.
However, a detail left hanging is the final payment to farmers and cooperatives supplying milk to Dean Foods.
Back in November, when Dean Foods filed under Chapter 11, farmers had many questions about whether or not they would continue to be paid for milk. Credit facility of $850 million was secured, and the court gave permission to use income and credit facility for day to day operations to pay employees and critical vendors, including farmers.
In fact, a Raw Milk Supplier FAQ dated November 2019 still searchable in a cache file of the Dean restructuring website stated (as shown above) states: “We intend to pay suppliers in full under normal terms for goods and services provided after the filing date (Nov. 12).”
While DFA, the buyer of 44 of the 57 Dean plants at a price of $433 million, has been Dean Foods’ largest milk supplier, the company also has many independent family farm shippers throughout the Northeast, Southeast and across the country. All are left waiting for payment at a time when they’ve already come through five years of low income and below-break-even prices and at a time when they are taking further losses in milk pricing and additional marketing costs due to the COVID-19 pandemic.
In a separate action this week, a lawsuit was filed for an injunction against the sale of 44 of Dean’s 57 plants to DFA. The lawsuit was filed by Food Lion and Maryland Virginia Milk Producers Cooperative in Federal District Court for Middle North Carolina in Greensboro Tuesday, May 19.
The lawsuit states that DFA’s ownership of Dean’s milk plants is the “coup de grâce (final blow) for competition” in fluid milk markets, arguing the merger gives DFA monopoly over the dairy supply chain, the death of the independent, family-owned dairy farms, and higher prices ultimately for consumers.
Plaintiffs are specifically asking the Court to grant a preliminary injunction to block the sale and want DFA to divest at least one of the Dean facilities in the Carolinas to an unaffiliated independent purchaser.
“This action arises out of Defendant Dairy Farmers of America, Inc.’s (“DFA”) longstanding effort to seize control of the milk supply chain. Indeed, for the past two decades, DFA has rapidly consolidated and dominated the market for the supply of raw milk not by competing on the merits, but through unlawful conduct and anti-competitive agreements through which it has gained near-complete control over the purchasing of key nationwide milk processors,” the plaintiffs state in their filing.
“This anti-competitive campaign has allowed DFA to transform itself from a modest regional dairy cooperative into the Standard Oil of the modern dairy industry.”
The U.S. Department of Justice (DOJ) already approved the deal three weeks ago with the stipulation that three plants in Wisconsin, Illinois and Massachusetts be divested from the 44-plant DFA purchase.
Prior to the bankruptcy and sale, Dean Foods was DFA’s largest customer and DFA was Dean Food’s largest milk-supplier.
“Their partnership was forged through a corrupt bargain entered into at the time of a prior merger between Dean and another dairy processing giant, in order to avoid U.S. Department of Justice (“DOJ”) scrutiny through subterfuge and deception,” the plaintiffs state.
“On May 1, 2020, DFA and Dean closed on the Asset Sale, transforming DFA overnight into both the largest milk producer and the largest milk processor in the United States,” plaintiffs continue. “With capability to wield market power at two levels of the supply chain, DFA now has both the ability and the incentive to wipe out any remaining pockets of competition.”