Milk Map MATH…

map-1.jpgAuthor’s note: Since Milk Map Math was published April 6, I came across another interesting piece in April 11 Tank Transport Trader, where Dr. Mark Stephenson talks of the surpluses in the Midwest and West and states the 8 bil. lbs. Northeast milk deficit and 41 bil. lbs. Southeast deficit, and how the challenge is getting milk from the surplus areas to deficient areas. Read on, for Milk Map Math – 2017 data.

By Sherry Bunting, Farmshine, April 6, 2018

BROWNSTOWN, Pa. – Dairy consolidation away from the eastern U.S. continued in 2017, aided by further losses in basis revealed in the average net mailbox milk prices.

As the state and regional variations in mailbox milk prices move closer to a national price, the losers on the map are the states encompassed by the Federal Orders with highest Class I utilization: Northeast, Mideast, Appalachian, Southeast and Florida.

Not only is fluid milk the shrinking piece of the expanding pie, it is also the segment of the market with a legacy tied to local farms, family farms, farms that are getting dropped by bottlers as the milk bottling industry is also consolidating into wider spheres of milk sourcing.

The only way to slow this trend is to work directly with consumers and retailers because they have already told the dairy industry they want: local milk. Trouble is, the industry, and the checkoff dollars paid by these significant farms in the diminishing eastern region, are not listening to consumers. They’ve got eyes set across the seas on exports hitting 20% by 2025, while leaving the domestic market for nature’s most perfect food — milk — vulnerable and neglected.

Meanwhile, the milksheds on both the East and West Coasts had production levels in 2017 that were lower or unchanged, while big gains in production in the Western Plains milkshed overtook all milkshed production for the first time.

ChartWhile U.S. production was 215 bil. lbs., up 1.4% over 2016, the traditional Northeast milkshed, at 36.88 bil. lbs. added just 0.6%. Anchored by New York (up 0.9%), Pennsylvania (up 1.1%), Ohio (up 0.8%) and Vermont (unchanged), this milkshed includes other New England states that lost 3 to 5% and Maryland down 0.4%.
National-footprint cooperatives, like DFA and Land O’Lakes talk of the flood of milk in the Northeast.

Land O’Lakes is shrinking the Eastern base from 9 mil. lbs. per day to triggering penalties above 8.6 mil. lbs. per day, according to letters received by members. At the same time, different rules are applied in the Upper Midwest where demand will be affected by expansion of the Agropur plant driving expansion in the I-29 corridor.

DFA has placed a base program on members in parts of the Southeast, despite the Southeast deficit and virtually unchanged milk production in the milkshed, while different rules are applied elsewhere on the map, even in states that ship milk to the eastern states throughout the year and have a new powder facility in Kansas to balance that.

When the industry refers to the eastern markets being oversupplied, they are really talking about the ability of expansion areas of the U.S. to serve the markets and consumers of the East.

In particular, they are including in the description of a Northeast supply, the Mideast states of Michigan (up 3.3%) and Indiana (up 2.7%). Even when we figure in these states, the combined Northeast and Mideast milksheds produced 52.37 bil lbs in 2017, up 1.3%.

The Midwest milkshed — from Wisconsin and Illinois to the Dakotas, including the rapidly growing I-29 corridor of Iowa, Minn. and South Dakota — made 50.25 bil. lbs, up 1.3%.

The sea of green in milk production, however, can be found in the Western Plains milkshed from Texas, New Mexico, Arizona in the south to Nevada, Utah, Idaho to the north, including rapidly growing Colorado, Kansas, Nebraska and Oklahoma. This milkshed grew by 5% to 53.12 bil. lbs.

Texas, alone, produced over 12 bil. lbs., up virtually 12% on the strength of output per cow and 7% more cows — leapfrogging both Pennsylvania and Michigan for the No. 5 spot — pushing Pennsylvania to 7th.

New Mexico grew 6.5% to 8.21 bil. lbs. with 4.3% more cows. Every state in this milkshed grew by more than 5% except for Nevada’s growth of 3.6% and number 4 Idaho’s small loss of 0.3%. The West Coast made 48.85 bil lbs, down 1.7% in 2017 with No. 1 California off by 1.7% and Pacific Northwest off by more.

Shifts in state and regional Mailbox Milk Prices tell the story. Losing the most ground relative to the U.S. average were Pennsylvania and the Southeast states. Both were averaged by USDA at $17.55 for 2017. In fact, the eastern Pennsylvania portion of that price was even lower, at $17.39.

Interestingly, the West Coast gained the most ground on net mailbox prices with California’s mailbox at $16.19, up 9.3% over 2016 and the Northwest at $17.59 up 10.2%.

Florida regained the number one position with a mailbox price of $18.96, up 9%, while the Southeast milkshed was tie for 10th with Pennsylvania at $17.55. This value represented a 7.2% gain over 2016 for Pennsylvania but just a 5.8% gain over 2016 for the Southeast.

New England was second at $18.65 and the Appalachian region regained third with a 2017 mailbox price of $18.09, up 8% over year ago. New York was $17.46.

Wisconsin had the fourth highest mailbox price in the nation at $17.95, up 7.6% while Minnesota was 9th at $17.56, up 6.4%. Iowa and Illinois were up 8 and 9% with mailbox prices of $17.69 and $17.96, respectively.

Ohio was up 9% with a mailbox average of $17.61, while Indiana was up 7.4% at $17.02.

Michigan, up 8.3% at $15.59, and New Mexico, up 5.4% at $15.24, were the states with the lowest mailbox prices. West Texas garnered a mailbox average at $16.77, up 8.6%.

Wisconsin and Pennsylvania remained the top two for the number of licensed dairy farms. Pennsylvania lost 80, down 1.3% at 6570. Wisconsin lost 430 at 9090, down 4.6%.

Overall, the U.S. milk production increase of 1.4% came from 67,000 more cow on 1600 fewer licensed dairy farms. Across the 50 states, the number of licensed dairy farms fell 4% to 40,219 and the number of dairy cows grew 0.7% to 9.3 million head.

Keep in mind, USDA milk production statistics are compiled, in part, using Market Admin. pooling reports for marketings relative to cow numbers. With milk moving in ways it never has before, there could be some gray areas in some of these state and regional tallies.

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Will ‘local’ focus stem tide of milk displacement?

PA-preferred (1).jpgHarrisburg Dairies, Schneider’s Dairy step up for milk from at least 9 of 42 dropped Pa. farms

 

(Author’s note: Farmers whose milk has been displaced in 8 states are in various stages of determining their futures. Some are exiting the dairy business, a few have been picked up by cooperatives, or as in the case of this story, by processors. Some are resorting to marketing milk with brokers at much lower prices. In addition to PA Preferred, Tennessee’s legislature is working on a state label for milk.)

By Sherry Bunting, Farmshine, March 30, 2018

BROWNSTOWN, Pa. — In the days following the “Save Pennsylvania Dairy Farms” town hall meeting in Lebanon March 19, some breakthroughs came for 9 of the 42 Pennsylvania farms notified by Dean Foods that their contracts will end May 31.

Harrisburg Dairies, based in Harrisburg, picked up 5 (possibly 9) of the 26 farms let go by Dean’s Swiss Premium plant in Lebanon.

Schneider’s Dairy, based in Pittsburgh, picked up 4 of the 16 farms let go by the Dean plant in Sharpsville.

Both Harrisburg Dairies and Schneider’s Dairy source their milk through direct relationships with local family farms, and they use the PA Preferred logo on their milk labels, signifying it was produced and processed in Pennsylvania, which also means the state-mandated over-order premium paid by consumers is passed back through the supply chain.

“It really made the decision for us, when it came to needing our milk supply to be independent producers that we can have a direct relationship, monitor and inspect ourselves,” Alex Dewey told abc27 News, Harrisburg about the PA Preferred label and their decision to add five of the displaced farms to their Pennsylvania-sourced milk. Dewey is the assistant general manager of Harrisburg Dairies.

Likewise, Schneider Dairy president William Schneider told Clarion news that, “We really didn’t need the milk, but… these people were going to lose their livelihood. I didn’t want people to be out on the street, so we did what we could.”

Both dairies appear to have chosen their 4 and 5 farms based on hauling routes and proximity to their respective plants.

Meanwhile, the situation is in limbo the remaining 12 farms in western Pennsylvania, along with the handful of Ohio and New York producers, affected by volume adjustments at Sharpsville and New Wilmington as well as 21 in eastern Pennsylvania affected by volume adjustments at Dean’s Swiss plant in Lebanon.

In addition, producers affected by these notices in Indiana, Kentucky, Tennessee and the Carolinas are also currently still seeking markets. A few in the Southeast have made plans to sell, but overall, there are still about 100 dairy farms displaced by Dean’s system-wide consolidation and Walmart’s new plant coming on line in May in Fort Wayne Indiana.

Some other marketing factors are emerging.

For example, the Dean Sharpsville plant continues to notoriously bring in loads of milk from Michigan. The company confirms that the 90-day notices sent Feb. 26 to over 100 dairy farms in 8 states, did not include Michigan.

The Sharpsville plant was referenced specifically in the December Pennsylvania Milk Marketing Board (PMMB) hearing where the Pennsylvania Association of Milk Dealers and Dean Foods requested a significant reduction in the producer over-order premium to its lowest level in 17 years. This change to a 75-cent mandated premium went into effect for wholesale and retail milk price minimums January 1.

At the time of the hearing, both John Pierce and Evan Kinser of Dean Foods testified that retailers are getting accustomed to bargain-priced milk elsewhere with documented retail milk prices offered to consumers in other states as low as 87 cents per gallon. Kinser testified that this new reality made Pennsylvania’s high state-minimum retail milk price an increasingly attractive destination for milk bottled elsewhere.

Kinser had further testified that the pressure from the increasing influx of out-of-state milk was making it difficult for milk produced in Pennsylvania to compete for retail (and apparently farm level) contracts.

Kinser also indicated that the mix of milk sourcing at the Sharpsville plant, in December, was already much different than the mix at the Swiss Premium plant in Lebanon. With Sharpsville close to the Ohio and New York borders, the plant has been sourcing milk from Ohio and New York for some time, but also increasingly from Michigan and Indiana.

In fact, at the December PMMB hearing, Kinser’s much-redacted testimony warned of Pennsylvania milk becoming displaced and that the new and lower 75-cent over-order premium level is “already a compromise that represented the highest level the current economic conditions can sustain.”

Kinser warned that if the premium were any higher than 75 cents, Dean Foods would be forced to renegotiate its contracts with suppliers to change the mix of milk used at ALL of its plants within the state in order to compete for contracts with packaged milk coming into the state from plants beyond Pennsylvania’s borders.

Even though the PMMB granted Dean’s request to lower the mandated premium to 75 cents, it appears the mix of milk is being renegotiated anyway as part of the company’s milk supply chain consolidation process as the volume adjustments at Pennsylvania plants have fallen primarily onto Pennsylvania farms.

Also emerging in the marketplace is the increased occurrence of brokered milk. This trend began in 2013 as producers across the Northeast and Mideast have dealt with contract losses in the fluid market at smaller levels than seen today.

Great Lakes Milk Producers is an example of a recently organized group of producers from Ohio, Michigan and Indiana, which is organized “like” a cooperative but markets milk as single-source loads through a broker.

Part of the drill is getting the milk qualified with farm audits and certifications as single-source loads that can be matched up to spot needs from cheese and yogurt plants to even, at times, the Dean plant in Sharpsville, Pennsylvania, the Southeast in the summer, and potentially even the new Class I Walmart plant in Fort Wayne.

Marketing through a broker can mean a long haul in a long market with changing conditions. This option makes milk quality a mandate without a premium.

As 27 farms in Indiana continue to seek a market, it is unclear whether brokering with Great Lakes Milk will become an option. The size of the displaced Indiana family dairy farms fits the single-source criteria, ranging 300 to 1500 cows and collectively represent an estimated 20 million pounds per month of displaced milk volume let go by a Dean plant in Indiana as well as Louisville, Kentucky.

“This is a huge issue for our state right now with an overwhelming impact,” said Indiana Dairy Producers executive director Doug Leman at a recent annual meeting in Indianapolis about the 27 farms with displaced milk scattered around the state. “Conversations are starting to happen, and we are planning a meeting for these farms. But just because Dean is not buying this milk, does not mean that the consumer demand has gone away. We have to let the dust settle and go through the milk shuffle.”

Among the recently affected Indiana farms is the sixth generation Kelsay Dairy Farm, operated by brothers Joe and Russ Kelsay and milking nearly 400 cows near Whiteland.  Joe Kelsay was the milkman for last year’s Indy500.

“We are exhausting all contacts and connections with cooperatives and plants,” said Kelsay in a phone interview. “Several told us they are not in a position to take any additional milk, some are doing some checking, and we do have a couple meetings scheduled. We are cautiously optimistic.”

When asked if the new Walmart plant will pick up any of the Dean dropped farms, Leman said the plant’s supply has been locked up with a percentage coming from undisclosed dairies doing contracts directly with Walmart and the balance being single-source loads via third parties.

“We can’t tell Walmart where to get the milk, but we are letting them know to check with these farms,” said Leman. “Some are within 50 miles of the plant.”

Kelsay doesn’t blame either Dean or Walmart for the market loss his family and others are experiencing. “This is a difficult time, but we can’t fault one company or another for doing their best to run their businesses,” he said.

Meanwhile, in Pennsylvania, town hall meetings were held (and reported in last week’s Farmshine) to raise public awareness. Ag Secretary Russ Redding wrote to Dean Foods asking for contract extensions.

But Dean has indicated its problem with excess volume will begin before these contracts end.

“We explored all our options before we made this decision,” noted Reace Smith, Dean Foods director of corporate communications. “At this time, we can’t extend the contracts further. As a fluid milk processing company, we are unable to store milk long-term.”

The timing is difficult with spring flush and spring decisions around the corner.

“We’re all in limbo right now,” said Agri-King nutritionist Bob Byers in a phone interview. He works with 25 farms, serving in the affected area of western Pennsylvania for 20 years. He notes that affected farm families have only so much time to make decisions like what crops to plant, what fuel and supplies to order. These decisions revolve around whether or not they will be milking cows after May 31.

“There is a timeline involved to unwind a multi-generational dairy farm with inventories of cows and feed and with a team of employees to think about,” says Kelsay. “If there is no one to purchase our milk, how can we continue? What happens here has a significant impact on our team of employees, and their families, as well as our hauler, nutritionist, equipment and feed suppliers – our whole web of contacts. We do a lot of business with a lot of people.”

Byers notes that this is the worst of times in the dairy business that he has seen in his 20 years and that it definitely affects local jobs and businesses.

Lebanon9495(Signs)

“Local people want local milk,” he said. “That is the only thing that will help these local farms at this point. Media attention will help get that message in front of consumers, and in front of companies like Walmart.”

CAPTIONS –

PA-preferred

Alisha Risser of Lebanon posted this photo of Harrisburg Dairies’ milk displaying the PA Preferred label signifying the milk was produced on Pennsylvania farms. The Rissers were part of a town hall meeting in Lebanon reported in last week’s Farmshine, and they are one of five farms whose contracts were dropped by the Dean Swiss Premium plant in Lebanon that will be picked up by Harrisburg Dairies.

 

 

 

 

‘This is the face of the dairy crisis’

(Author’s note: Look for an update here soon about developments since this town hall meeting on 3/19. As of 3/31, in eastern Pennsylvania, 9 Lebanon County dairy farms have been picked up by Harrisburg Dairies, 2 have been picked up by a cooperative and 2 have decided to exit the dairy business, leaving 2 Lebanon County farms and 11 Lancaster County farms still seeking a market. In western Pennsylvania, 4 of the 16 farms have been picked up by Schneider’s Dairy based in Pittsburgh, leaving 12 still needing a market for their milk.)

Lebanon9490(crowd)Emotional town hall meeting in Lebanon, Pa. draws over 200 people urging contract extensions for Dean’s dropped dairies

By Sherry Bunting, Farmshine, March 23, 2018

LEBANON, Pa. – “Family is a treasure for all of us here, and we have a family crisis concerning our dairy farms,” said Randy Ebersole, a local car dealer whose family has been part of the Lebanon community surrounded by dairy farms for generations. He moderated a “Save Pennsylvania Dairy Farms” town hall meeting about the 26 Lebanon and Lancaster County dairy farms that received 90-day milk contract termination letters from the Lebanon Swiss Premium plant owned by Dean Foodd on March 3.

The meeting drew 200 people to the Expo Center Monday (March 19) and was covered by three television stations and a host of other media.

State representatives Frank Ryan, Russ Diamond and Sue Helm also attended and spoke about their commitment to work with farmers on solutions.

Jayne Sebright, executive director of the Center for Dairy Excellence also attended, mentioning the Center’s resources for counseling and support as well as a joint venture with the Pennsylvania Dairymen’s Association to launch a “local and real milk” promotion by June Dairy Month.

Pa. Ag Secretary Russell Redding was not present, but Sebright said he will be sending a letter to Dean Foods in support of an extension of terminated contracts for 42 Pennsylvania dairy farms, the 26 in eastern Pennsylvania and 16 shipping to Dean plants in western Pennsylvania.

“This is the face of the dairy crisis. This is not fake news. This is real,” said Ebersole of the panel of three producers, a nutritionist, a veterinarian and a feed mill manager who shared their stories of the impact to the farms whose milk contracts will end May 31, 2018. This represents about half of the Lebanon plant’s daily milk intake.

The message of the town hall meeting was simple: Don’t blame or boycott Dean Foods because there are still another 40 local farms who did not get letters and are supplying the Swiss plant in Lebanon. But do, write, call or email support for a contract extension for these terminated farms until fall or winter.

And yes, drink more milk and eat more dairy products, especially locally-sourced dairy, knowing how it supports healthy bodies and healthy communities.

All told, Dean Foods ended marketing agreements with over 100 farms in eight states as the company says it adjusted its milk volume because of a supply and demand imbalance made worse by the trend among retailers, namely Walmart, to vertically integrate into bottling their store brands and compressing the supply-chain with consolidated intakes and wider distributions.

The emotional 2-hour meeting revealed community support for these farms by those who recognize how these farms touch many of its jobs and businesses.

Yes. A legacy is on the line here. And there were plenty of youth among the 200 attendees, many of them from local dairy farms where the future is uncertain due to the current dairy economics and especially for those in the families whose farms have been blind-sided by these 90-day termination letters.

One after another, people voiced their concern that 90 days is not enough time to find a new market at the worst time of year, ahead of spring flush, nor is it enough time for these families to unwind their businesses by selling cows, assets, even their farms and their homes to settle their lifetime investments in a way that allows these farm families to find a path forward.

“You will not find a more dedicated and hard-working people than dairy farmers,” said Ebersole. “They have invested their money, their time and their lives developing their herds and their businesses. We understand the world is changing, and that we are not an island, but what has not changed is the expectation of fair and reasonable treatment.”

A local pastor asked a blessing on the meeting and referenced Psalms 139 where David asks God ‘search me… and know my heart; test me and know my anxious thoughts. See if there is any offensive way in me and lead me in the way everlasting.’

The parallels of this passage to what these farmers are facing were obvious in the emotion that followed as each of six panelists told their stories and as others attending lent their support and as 8-oz chugs of Dean’s TruMoo milk and trays of cheese from the Lebanon County dairy royalty were enjoyed.

No one blamed Dean Foods.

Producers talked of a good relationship with the plant. They talked of how the letters completely turned their worlds upside down. They talked of how they have called eight to 10 other milk buyers in the region, none of them stepping up to accept new milk.

“Our cows are like our children,” said Kirby Horst of Lynncrest Holsteins, which has produced milk for the Lebanon Swiss Premium plant for 60 years across two generations. “The thought of 90 days and no market for our milk and no place for our cows to go… the thought of looking out at the pastures and not seeing the cows … I don’t know if I can handle that.”

The affected producers and the businesses that serve them stressed that with a little more time, they could do what is best for their families.

“Just like all the 26 farms affected in this community, our minds are missing right now,” said Alisha Risser. She and her husband have been shipping their milk to the Swiss plant for 17 years. She described how they worked full time jobs and saved and rented a barn before purchasing a herd and then building a dairy full time on their farm in 2001, when they began shipping milk to the plant in Lebanon.

“We have been lucky to have our passion be our job every day and to share this with our kids,” said Risser, her voice tinged with emotion as she described how her husband and youngest son bounce ideas off each other about the cows and the crops. “Our children wonder what future we have now. This is such a feeling of helplessness.

“We are proud of our milk that we produce on our farm, and we are proud of the Swiss Premium milk in our community,” she added. “We are just asking the community to support us with letters to Dean Foods to provide a contract extension until fall or winter.”

As milk pricing, promotion, regulatory environments and dietary guidelines are sorted out in the coming months, these farms are left without a milk market, without an opportunity to compete, to survive.

“God is always faithful, and we know we will be okay in the end, but an extension would allow all 26 farms here to make decisions for our families and our futures,” Risser said.

Ebersole added that, “These farms have developed their cow herds over a long period of time. They are rooted in our community. It’s not like a car dealership where you can just go to the Manheim Auto Auction and get in the business of selling cars.”

Lebanon5278(ProducerPanel).jpgIndeed, a legacy is on the line in Lebanon and Lancaster Counties, as in other communities similarly affected.

“I am not sure how we are going to handle this going forward. We have put all we have into the farm. Nothing will settle like it should,” said Brent Hostetter, who received his letter a week after the other farms on his milk hauling route were notified. Hostetter and his wife have been shipping to the plant for 19 years.

“Our kids love the farm. It has been going three generations, and now I am not sure how we can see a fourth,” said Hostetter. Like the others, he said a contract extension would give them some time to figure things out.

He also encouraged the public to “support our Pennsylvania farmers” to buy local milk and to look at the plant codes.

Lebanon5282(AgBizPanel).jpgRick Stehr, a nutritionist and owner of R&J Consulting, directed some of his comments to the significant number of youth in the audience, saying that these farms are where the next generation learns morals, values, work ethic and the joys and failures of life.

“This is worth fighting for,” said Stehr, “worth fighting all together for.”

He noted that for every 9 milk cows in Pennsylvania, one job is supported in the related business infrastructure. In Lebanon County, alone, one job is supported by six cows. The impact is deep if these cows and farms are lost, he said.

“Each cow here produces $14,000 in revenue for our community,” said Stehr, “16% of U.S. dairy farms are located in Pennsylvania where the average farm size is 80 cows. We are not California or New Mexico. We are located well within a day’s drive from 50% of the U.S. population. It seems our location would be pretty good, and yet this is happening.”

The emotion was palpable as Stehr and others offered to do whatever is needed in terms of counseling and assistance through this.

Alan Graves, manager of Mark Hershey Farms, a prominent feed mill in Lebanon County, said 80% of the mill’s feed business is dairy.

“We have been in business 45 years and employ 55 people in this community,” said Graves. “This day is about the producers and how they affect everything else in our communities. Our mill employees and their families rely on these dairies for their jobs. We don’t make business projections for 90 days, we are out a few years in our projections.

“The extension these producers are asking for is a fair request,” he added. “They have spent their lives improving their cows and improving the product they produce. The thought of taking that away in 90 days is almost unjust.”

Ebersole described the community impact this way: “These folks write out checks to other businesses in our community. There has to be a check coming back the other way. In 90 days that will all stop.”

Dr. Bruce Keck of Annville-Cleona Veterinary Service talked about how the public is unaware of what has been happening over the past 30 days and the past 10 years of consolidation and change. He asked the three television stations represented to raise awareness.

“We want to bombard Dean Foods with letters and emails and phone calls,” he said.

“These dairy farmers are so invested in cows and equipment that they can’t just quickly turn around,” said Keck, who has worked with local dairy farmers as a veterinarian for 25 years and took over the practice started by his father in 1961. He understands the family business dynamics.

“Without an extension, these families will be forced to sell their herds, and even their farms, for a fraction of their worth in this environment,” said Keck, “and that will trickle down to affect truckers, nutritionists, equipment companies, feed mills, veterinarians and more. This is like asking a loaded tractor trailer to turn as fast as a speeding car. It’s not enough time.”

To communicate support for the farms facing 90-day termination of contracts, call Dean Foods at 214-303-3767, email dairydirectsupport@deanfoods.com, or mail a letter to Dean Foods, 2711 North Haskell Avenue, Suite 3400, Dallas, TX, 75204.

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Lebanon5240(Hostetter)Brent Hostetter, Lebanon County dairy producer: “I am not sure how we are going to handle this going forward. We have put all we have into the farm. Nothing will settle like it should.”

 

Lebanon5228(Risser)Alisha Risser, Lebanon County dairy producer: “We are proud of our milk that we produce on our farm, and we are proud of the Swiss Premium milk in our community. We are just asking the community to support us with letters to Dean Foods to provide a contract extension until fall or winter.”

Lebanon5216(Horst)Kirby Horst, Lebanon County dairy producer: “The thought of looking out at the pastures and not seeing the cows … I don’t know if I can handle that.”

Randy Ebersole, local car dealer and panel moderator: “This is not about blaming or boycotting Dean Foods. Please do the opposite, fill yourselves up with these dairy products.”

Lebanon5260(Kreck)Dr. Bruce Keck, Annville-Cleona Veterinary Service: “Without a contract extension…This is like asking a loaded tractor trailer to turn as fast as a speeding car. It’s not enough time.”

Lebanon5272(Stehr&Moderator)Rick Stehr, R&J Consulting: “This is worth fighting for…worth fighting all together for.”

Lebanon5257(Graves)

Alan Graves, Mark Hershey Farms: “These producers have spent their lives improving their cows and improving the product they produce. The thought of taking that away in 90 days is almost unjust.”

Lebanon9500(Helms)Rep. Sue Helm: “A group of representatives are writing a letter Dean Foods. We want farmers to stay in contact with us.”

Lebanon5291(RepDiamond)Rep. Russ Diamond: “We wanted to get Pennsylvania milk into Pennsylvania schools but have been told that with the product stream in Pennsylvania, this is hard to do. This Pa. Milk Marketing Board issue is a hard issue to get to the bottom, and people get very protective of it.”

Lebanon5303(RepRyan)Rep. Frank Ryan: “Keep faith first and foremost and your sense of humor and talk with your bankers. This is emotionally draining and people want to run from it. There is a solution and we need to work together to find it.”

Lebanon5314(Morrissey)

Bernie Morrissey, retired agribusinessman: “Dairy farmer Nelson Troutman got me involved in this nine years ago, and I have given up my retirement to work on this issue because it’s important to our farms. No matter who buys your milk, this is all connected… There are over 25 milk contracts from outside dairies selling milk in Pennsylvania while you guys are under the Pa. Milk Marketing Law. You have been shafted.”

Lebanon5318(EbyMike Eby, chairman National Dairy Producers Organization and former Lancaster County dairy farmer: “The media are our friends. We can work with the media to advertise our product in ways the (check off) promotion programs can’t.”

 

Lebanon9495(Signs)

Dairy at a crossroads Part 2: Blinders off, seek help to navigate

PA-Farm-Financials(CrossroadsPart2)Fig1

Fig. 1 from the farm financials in the Pennsylvania Dairy Study shows average annual rate of return on assets 2011-16 for Pennsylvania small, medium and large (over 500 cows) farms compared with a 3-state average (NY, MI, WI) for small, medium and large farms. The Center for Dairy Excellence confirms that producers of all sizes are calling to have Dairy Decision Consultants come out to help them figure out how to move forward and lower their cost of production or the best scenario for exiting the dairy business. 

By Sherry Bunting, Farmshine, March 2, 2018 

BROWNSTOWN, Pa. — Every avenue of approach to a four-way crossroads comes with a temporary stop or yield and the need to know whether to turn one way or the other, double back, or drive forward. Staying put is only an option for the time it takes to know which way to go.

For dairy producers at this turning point, not one of these options can be exercised without knowing the farm’s cost of production and its equity position to decide upon a direction for what’s ahead.

Difficult discussions are being had around farm kitchen tables across the country. Seek out the help that is available to navigate, say dairy lenders and consultants interviewed recently by Farmshine.

“Don’t internalize too much or to try to do it on your own. Don’t be afraid to reach out for help,” says Dale Hershey of Univest Bank and Trust. “Don’t wait to raise your hand until after it’s too late. There are people out there, good people, who can give advice and ways to do this at little or no cost.”

Competitive cost of production is shaping the future of the dairy industry. While we hear about the multi-owner multi-site dairies with nearly 100,000 cows and a very low cost of production, size does not dictate the ability to compete.

“It is being achieved here. We have 100-cow dairies and 1000-cow dairies with very competitive cost of production,” says Mike Peachey of Acuity Advisors and CPAs.

He explains that the Northeast has historically had a higher cost of production for a variety of reasons.

“We have been saved by having higher premiums for our milk, but as those premiums erode, the competitiveness of our operations is exposed,” says Peachey. “It comes down to how well-managed a dairy operation is — regardless of size — and how competitive we can get in cost of production.”

“We used to have a milk price advantage in Pennsylvania. That is gone,” adds Mike Hosterman AgChoice Farm Credit business consultant. “We are less than 25 to 50 cents difference to New York, when it used to be $1.00.”

They both see a wide range in cost of production among dairy farms that can vary by $2 to $3/cwt.

“There is easily a variance (in profitability) from bottom to top of at least $1000 per cow, so it really is segmented by thirds,” says Peachey. “We have a top third with a very competitive cost of production, a middle third hanging in there and a bottom third making tough decisions that carry a lot of emotion.”

“So much of the difference comes back to debt, especially for younger farmers,” says Hershey. “Dairy is tough to get into, and the biggest thing is how you come in. Those beginning farms won’t survive without capital or backing from family. We will have some startups this year, but fewer than other years.”

In this business of large capital investments, Hosterman observes debt per cow creeping higher.

“If you go back 10 years, debt was just under $3000/cow. As milk prices go through these wild swings, the trendline was still slowly increasing so producers could afford that increase. Now the price is leveling out while debt per cow can be over $5000 or $6000,” he reports.

“As lenders, we’re all stepping up to help these producers, but we may not have the capacity to help them all.” He notes that refinancing options, different debt structures, and FSA loan availability are some options.

While the fundamentals of future dairy demand and proximity to consumers in the eastern U.S. would suggest a key place for small farms here, Hershey is realistic about the hand being dealt.

DPAC(farmbill)9261(ExtraPhoto)“To be in this for the long haul, we have to look ahead and know what we’re dealing with,” he says, wistfully reflecting upon growing when his father made a good living with 40 registered dairy cows.

“That model is pretty tough to cash flow right now. I see a return to where we were 40 years ago, where farms here had different things going on, multiple income streams, seeing more farms diversify to strengthen their positions,” says Hershey. “If producers are solely dependent on their small dairies, it will be very tough unless they have a very low cost of production.”

Key advice? “Bring a team in around you.”

“Dairy producers are managing expenses and monitoring cash flows, budgets and cost of production throughout the year. They are bouncing ideas off their advisors and consultants to be more competitive,” says Mike Firestine of Fulton Bank. He was recently recognized by American Bankers Association with the Bruning Award for dedicated leadership.

Extension educators also report they are receiving very high interest from dairy farmers wanting to do financial analysis because of varying degrees of stress already experienced over the past three years.

As for Acuity, Peachey regularly looks at clients’ positions around four key areas: cost of production, percent equity, profitability and cash flow, providing information and context for discussions about where they stand, what is their competitive position and where they think they are going to be not just now, but a year from now.

Because things change from year to year due to many variables, including weather and markets, Peachey says it’s important to be monitoring all the things that go into that “cost of production stew,” including milk quality, good internal herd growth, good milk components and feed conversion.

Armed with a team approach, and the numbers, they can uncover how well the animal husbandry is being managed, the breeding program, pregnancy rates, heifer replacement programs, milk production, especially components, and milk quality.

“Done well, these things add up,” says Peachey. “Small farms can counteract some of the competitive disadvantages on the cost and income sides, by having their good management in all these areas add up.”

This becomes cumulative math. For each year that one dairy is not as competitive as another on cost of production (COP), the impact compounds.

For example, a $50,000 annual difference between two similarly-sized farms adds up to half a million dollars over a 10-year period that’s either not in a bank or being reinvested in the operation to stay competitive or being used to pay down debt to put the farm in a better financial position to weather these storms – to provide the liquidity and working capital to get through it, according to Peachey.

Continual monitoring of the COP and doing annual year-ahead budgets are key, Peachey points out, because “guarding cash flow is very important right now. Producers are really scrutinizing capital expenditures with an understanding of what is a need and a want. They are focusing on investments and management decisions that reduce cost of production beyond the initial payback.”

He notes that cutting costs is tricky: “If reduced feed costs means reduced milk production, for example, it ends up contributing to a tailspin when a cost-cut reduces top line revenue.”

“Some guys may sell off some assets and use proceeds to reduce debt,” says Hosterman, citing sales of mountain ground, extra timber, and selling heifers. “Heifer numbers have increased so much on dairy farms that selling extra heifers is not a bad option to generate some cash,” he says.

cropped-reprotour-73.jpgIn fact, some farms are opting to sell quite a few heifers. Even though prices are not the best, these sales contribute to cash flow, which is critical. Some farms are breeding to beef breeds and producing a dairy beef cross for the feeder market. Again, not a big price, but the cost of the breeding is less, and the calves generate cash flow as well as cost savings. Such strategies require careful thought so as not to jeopardize the position of the herd for the future.

Knowing the farm’s COP provides the information to make these types of decisions.

If the farm’s COP is not competitive, the question is, can it become competitive? Is the farm within striking distance of getting to a competitive COP? If the answer is ‘no’, there may be tough business and family decisions to make, according to Peachey.

He says it is also very important to evaluate the farm’s equity position, to sit down with the lender and look at the way the farm’s debt is structured.

“If the farm still has a strong equity base to restructure things to provide cash flow relief, it should be paired with an assessment of the farm’s COP and what can be done to improve it,” says Peachey. “How much runway do you have to work with? Knowing this is helpful for a restructure, but the airplane still has to get off the ground.”

In other words, equity for restructure provides the runway and working toward a competitive COP elevates the plane before it reaches the end of that runway.

It’s critical to go through the budgeting process, says Peachey, “to understand your cash burn rate for the coming year, to know if you have the working capital and liquidity to absorb this and if you have the broader equity base to recapitalize those losses. If I lose x-amount, can I put that on a 3-year note and pay it off and still be okay?”

Peachey equates the breakeven to a Class III price and looks at it from both the intermediate and long-term perspectives. For the short term, he sees the goal being a Class III breakeven of $15 to $15.50, so if the farm’s basis is $2 over Class III, that equates to a breakeven of $17 to $17.50 in other discussions or venues.

He cautions that, long term, the marketplace is going to demand a lower COP with Class III breakevens down to $13 and $14.

Hosterman concurs: “Some of our best farms are achieving a COP under $16.50 right now, so they can get by at a $14 Class III price, but the bottom third still needs a Class III price of $17, and the average producer needs a $15 or better Class III price to break even.”

“It is being achieved here,” says Peachey. “We can do it, but it gets back to all of the other little things that add up to how well the operation can be managed. When we know our COP, we know the weak spot in our model and can figure out how to compensate for that and find where the opportunities are.”

Hershey has received numerous calls from producers wanting to do these projections and breakevens to navigate the road ahead, and he cites Dr. Kohl’s four cornerstones of success — plan, strategize, implement and monitor. “We are pushing that, more than anything, that farmers who are struggling can ask for help.”

There is high praise for what the Center for Dairy Excellence and Penn State Extension offer to improve producer competitiveness to also improve the state’s competitiveness in dairy.

“The resources, educational opportunities and ways to connect folks are greater than ever,” says Peachey. “We have a strong infrastructure and a lot of good things in place.”

Other states have similar extension and organizational services. Seek them out.

Look for more in future editions of Farmshine as we continue this dairy crossroads conversation with producers, industry participants and leaders in the East… and beyond. The next installment will move into the policy realm with a look at the critically acclaimed film “Forgotten Farms,” produced in New England, and a panel discussion about our nation’s food policy centering on the burning question: why has dairy largely been left out of the local food movement? And what is being done about it.

 

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Seismic shifts in milk supply chain ahead: New Walmart plant triggers Dean’s cut of over 100 dairy farms in 8 states

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By Sherry Bunting, from Farmshine, March 9, 2018

LEBANON, Pa. — He saw the mailman drive up and linger in the driveway, wondering if they were expecting a package. Moments later, his wife was standing there, holding a letter she had signed for.

The certified letter informed this Lancaster County dairy farm family that after 13 years of sending their milk to the Swiss Premium plant in Lebanon – along with decades of the farm’s milk in generations before them — the agreement with Dean Dairy Direct would end May 31, 2018.

The same story played out Friday among neighboring farms on the same hauling route to the same plant. And it was the same scene in driveways for approximately 120 dairy farms in eight states, including 42 in eastern and western Pennsylvania — around half of the Dean Dairy Direct shippers to three plants in the state.

Reace Smith, director of corporate communications for the Dallas, Texas-based Dean Foods, confirmed in a phone call Monday that against the backdrop of expanding raw milk production, and companies “asserting and expanding their presence in a market where consumers are drinking less milk (namely the Fort Wayne, Indiana Walmart plant where bottling begins this month) over 100 dairy farms in eight states received 90-day termination notices” from Dean Dairy Direct on Friday and Saturday, March 2 and 3 stating that their agreements will end May 31, 2018.

Smith confirmed that the over 100 affected dairy farms are in the states of Indiana, Ohio, Pennsylvania, New York, Kentucky, Tennessee, North Carolina and South Carolina.

“This affects all size herds and is not a large or small farm thing,” said Smith. While she was unable to supply specific information about the farms that were terminated, she said the widespread volume adjustments at multiple plants across four Federal Orders was necessary due to the new Class I plant (Walmart) coming online this month and the loss of a contract through a competitive bidding process (Food Lion).

Both market losses for Dean indicating structural change to the dairy industry as more retailers move into milk bottling in more centralized distribution models.

Sources in the various states confirm the affected farms range in size from less than 100 cows to over 1000 cows.

“This was an incredibly difficult decision. We tried very hard to avoid it and regret this decision had to be made,” said Smith. She indicated that Dean Dairy Direct field representatives are serving as resources to these producers and can provide a list of contacts for potential milk buyers. They are also offering counseling.

DeanFoodsMap.jpgWhile the company will not provide a list of affected plants or a state by state break down in the number of farms or volume of milk affected, they have indicated that the state that may be hardest hit on a volume basis is Indiana.

In fact, the volume of displaced milk in Indiana, alone, has been estimated at over 20 million pounds per month, representing the under 100 to over 1000 cow size range but most of them milking 300 to 1000.

The affected Indiana farms shipped milk to the Dean plant in Louisville, Kentucky, which also terminated 22 Kentucky dairy producers, ranging from 50 cows to 250, according to Maury Cox, executive director of the Kentucky Dairy Development Council.

In Tennessee, Julie Walker of Agri-Voice near Knoxville has confirmed nine (now 10 confirmed) affected producers ranging 60 cows to 300, and numbers in the Carolinas are unknown at this time.

From the standpoint of the farms affected, Pennsylvania is hardest hit, and while the number of New York farms is unknown at this time, some may have shipped to Dean plants in Pennsylvania.

According to Jayne Sebright, executive director of the Center for Dairy Excellence, 42 Pennsylvania dairy farms shipping to three Dean plants in eastern and western Pennsylvania received notices Friday – representing half of the Dean Dairy Direct shippers in the state. This includes 26 producers in eastern Pennsylvania, including Lebanon and Lancaster Counties, as well as 16 in western Pennsylvania, where the Dean plants in Sharpsville and Erie also ended agreements with Ohio farms. The number of Ohio farms affected is unknown at this time.

“The (Agriculture) Department and the Center have been reaching out to other markets to see what capacity is available, but at this point we do not know of any with available capacity,” said Sebright. “We are working to support the affected farms as best we can. We are very concerned both about the future of the farms and the well-being of the farm families.”

Sebright noted that the Center is making additional resources available and recommending use of their Dairy Decision Consultants Program to evaluate options — both within and outside of the dairy industry. “This is a difficult situation to be in and we are concerned.”

Dean-Cows.jpgIn fact, the farm this reporter visited in Lancaster County Tuesday was already working to call every available market and neighbors who also lost their contracts were looking at everything they could think of. Four or five trucks go through the county picking up milk every day so they wonder if each one can find a market or if they are better off pulling their milk together to find a single-haul market.

The producer was thankful, at least, for being part of a dairy producer discussion group and thankful for folks like Dr. Charlie Gardner with the Center who leads the group.

Not only were the Pennsylvania dairy farms shocked to receive the letters, veterinarians, nutritionists, feed company and equipment maintenance folks are facing this loss with their farm customers as the news spread this week throughout farm communities and the greater dairy community.

In Indiana, where estimates are that over 20 million pounds of milk per month has been displaced, producers had already been on edge as the Walmart plant took shape in their state and they contemplated its milk sourcing.

“We are working with producers and contacting cooperatives and potential markets to try to work together to get through this thing,” said Doug Leman, executive director of the Indiana Dairy Producers. He has been in contact with affected producers, the Indiana Department of Agriculture, and the plants and cooperatives that provide markets for milk in the region.

“I’ve had calls not just from the affected producers, but from many other Indiana dairy producers sharing their concern and asking if there is anything they can do,” said Leman. “I’m encouraged by that, and I am encouraging our producers to keep their chins up through this difficult time in their lives, families and businesses in the hopes that we can work through this together.”

Leman said he does not want to blame Walmart because, wherever the first Walmart plant would have been located, this was coming. Indeed, Walmart has entered a trend among retailers to move toward bottling their own private label store brands (Great Value and Sam’s Club Member’s Mark) rather than contracting with Dean Foods.

“Walmart was coming to Ohio, Michigan or Indiana, and I still believe it is better to have the plant in Indiana because it offers opportunities,” said Leman.

While fluid milk consumption is on the decline for 15 years — although stabilizing with more consumption of whole milk last year — retailers notice that nearly every shopping basket going through their stores includes milk. They seek their own store brand loyalty as loyalty to their store and some of the retail price wars happening in states without loss-leader protection are evidence of this. As is the ability to pull premiums away from states that have loss-leader protection or a minimum retail price as in Pennsylvania, to “fund” price wars in other surrounding states without any loss-leader protection.

The dichotomy points to a need, perhaps, for a federal loss-leader threshold versus random state programs that can fuel the picking of winners and losers in today’s times of seismic structural change to the dairy industry from retail all the way through the supply-chain.

In short, the region would likely have been affected by Walmart’s decision to vertically integrate its Great Value and Member’s Mark milk brand for its stores in the region — no matter which state the plant had been located.

In fact, sources indicate potential sites to the south are being eyed for a second Walmart plant in the future, revealing a corridor strategy to this vertical integration of single-source, full-traceability, each-truck-one-farm model.

The Dean Dairy Direct letters of termination to dairy producers in the region were dated February 26, 2018, which was the same day as Dean’s 2017 earnings call where the company projected its strategy in brand and private label supply and to “right size” its milk volume and consolidate its supply chain to achieve a “flatter, leaner and more agile” company into 2019.

According to Smith, there are no official announcements of any plant closures at this time and none of the plants involved have released all of their shippers. Still, there remains concern that some of the plants that have released a larger portion of their farms are vulnerable.

“We still have a commitment to local milk,” said Smith about the volume adjustments. “There are many factors that impacted this decision. We are seeing surplus raw milk when the public is consuming less fluid milk, and we see companies asserting and expanding their presence in a market where consumers are drinking three gallons less annually, per capita, since 2010 while the U.S. dairy industry is producing 350 million gallons more milk annually than the year before.”

In addition to the overall imbalance Smith said that, “The introduction of new plants when there is an industrywide surplus forced us into the position of further adjusting our milk supply according to demand.”

As vertical integration of milk at the retail level leads to consolidation by the nation’s largest milk bottler – Dean Foods – the company has diversified into soft dairy product brands that are just starting out of the gate and were discussed in the Dean earnings call as well.

Specifically, the letter received by Indiana and Kentucky dairy producers shipping to the Louisville plant stated “two indisputable dynamics led to this difficult decision. First and foremost, a retailer’s new Class I fluid processing plant is coming online in the region, significantly decreasing our production as milk volume is moved away from our facility to this new plant.

“The second reason is bigger than all of us. The steady increase of raw milk production combined with the decrease of Class I fluid dairy consumption…” the letter stated.

Letters received by producers in the southern market as well as eastern Pennsylvania did not specifically reference the new Class I fluid processing plant built by a retailer (Walmart) as had the letter to Kentucky and Indiana producers serving the Louisville plant and western Pennsylvania and Ohio producers serving the Sharpsville plant.

Those letters received by farms further to the east and the south indicated the plants had “lost a portion of customer fluid milk volume to a competitor through a customer-bid process.” Sources indicate this may include both the Food Lion private label store brand and the Walmart Great Value private label in these areas as well.

The letters received by producers said further that Dean was “unable to lock-in enough new customer volume to offset this loss.” This is a function of the overall decline in fluid milk consumption and the new milk via large multi-owner, multi-site farms in surplus regions of the Mideast and Midwest.

One thing is also clear in speaking with producers, veterinarians, organizations and others in the industry, the farms that are facing this difficulty are largely well-managed and producing high quality milk. Many of them are young families representing the next generation. Many are progressive, with updated facilities and technologies as well as utilizing the resources available to them for continued improvement in all that they do to supply their communities with milk.

In these states affected, whole transportation routes were terminated, presenting both challenges and opportunities for a collective effort in dealing with these market losses.

Walmart will not reveal the farms they have secured to supply the plant, but it is widely known that some of the milk will come from the north, some from within Indiana, and that a processor in Wisconsin is handling contracts and in a position to balance the Walmart plant’s fluid needs that may or may not have involvement by cooperatives.

As in Indiana and other states, Cox said of Kentucky: “We, are contacting other potential markets for our producers and would like to meet with Dean Foods to see what more we can do for these producers and to have a better understanding about the future of the Louisville plant” (where both the affected Kentucky and Indiana producers shipped their milk.)

Some state dairy organizations, state departments of agriculture and other industry leaders indicate they want to let the dust settle and allow options to emerge as they adopt a patient mindset to look at potential options for their respective state’s producers.

In the meantime, all are reaching out to producers and urging producers to reach out to them, and to each other. In fact, right now, more than ever, the dairy community needs to be reaching out and talking about its future to higher levels of relationships beyond what has occurred in the past.

“We want to survive,” said the dairyman this reporter visited 15 minutes from my home in Lancaster County, Pennsylvania, just four days after receiving the letter.

Like others this reporter has spoken to, they have done everything the industry suggests to make their farm competitive. While a small farm whose milk shipped for generations to the Lebanon Swiss plant serving local stores and consumers, this young farm family had invested in the latest technology, produces milk with very high components and very low somatic cell counts.

But here they are, facing what 120 of all sizes face throughout eight states as vertical integration from Walmart and other retailers sends a ripple effect and seismic shifts throughout the supply chain.

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Dairy at a Crossroads Part I: 2018 Turning point?

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Number of farms, robust infrastructure are interdependent. The ripple spreads wide and the pain in rural communities, deep.

 By Sherry Bunting, reprinted from Farmshine, February 23, 2018

BROWNSTOWN, Pa. — Dr. David Kohl recently said he is still bullish on the small farms that populate the eastern dairy industry, that there will always be a place for them, but they will change their focus.

Still, lenders and industry participants confide they are concerned about a large number of dairy exits in 2018. They are encouraging producers to work with advisors, and urging the industry to work together in the embattled eastern U.S., because the whole infrastructure depends on the number of farms as much as — if not more than — the number of cows and amount of milk produced.

While lenders like Dale Hershey, director of ag lending for Univest Bank and Trust, say they have already seen many diversify and change how they operate, others are in the process of re-thinking their futures.

The biggest concern for Hershey is when farms decide to sell the cows, seldom do the cows come back to the farm.

“Some of those farms will stay empty. That, I do see,” he asserts. “Occasionally they’ll come back in and milk, but mostly they will go into something else, or if the farm is sold, we’ll see most of them stay dark in terms of dairy production.

“I think we’ll look back 10 years from now and see 2018 as a turning point.”

Mike Peachey of Acuity Advisors and CPAs agrees. He sees dairy at a crossroads similar to the hog industry in the 1990s: “My concern is that we will see a dairy industry 10 years from now that looks very different from how it looks today, and we are helping our dairy customers take stock of that.”

Peachey observes that as the number of farms decreases, “This puts a lot of pressure on the dairy infrastructure and the ag businesses that support the dairy farms. One of Pennsylvania’s competitive advantages is that there is a lot of infrastructure and support in the whole supply chain that is very beneficial for competitive pricing for our dairy farmers.”

He cites the region’s multiple feed companies, multiple points of expertise, nutritional perspectives and a bidding process, multiple veterinarians, the strong ag lending infrastructure, equipment dealers, and expertise in different specialties.

“My concern is that if the number of dairy farms decreases, and if the infrastructure goes away, then it changes that competitive advantage,” he says, observing that the number of cows or the amount of milk produced does not necessarily make up for what is lost when the quantity of individual farms is reduced by consolidation.

Yes, the dairy industry is at a crossroads, and no where is this perhaps more evident than in eastern states, like Pennsylvania.

The Northeast was a fluid milk market in the past, close to 50% of utilization. Today it is less than 30%. As more milk is produced — even if per capita fluid milk consumption stayed the same — not enough other products are made here, so mailbox prices are falling under the coinciding weight of increased hauling costs and losses in competitive and quality premiums.

Meanwhile, the Class IV utilization has increased as a percentage in the blend price, leading many to believe the Northeast model of dairy pricing may be broken.

In fact, so concerned are states and dairy organizations that state-wide analyses are being conducted in top tier “notably fluid” states like Pennsylvania and New York in the Northeast as well as in Georgia, in the Southeast. The states of Michigan and Wisconsin are also looking at their state’s production, processing and infrastructure to improve their future competitiveness.

In Wisconsin, milk prices are driven off the cheese market — a growing market that has been cultivated to generate variety, demand and competitive premiums — whereas the Northeast model is built off Class I, which is not competitive, nor is it growing. And, unlike cheese with its diverse growth in specialties and brands, the Class I milk at the store is treated like a base commodity against which all newcomers and imitations are compared and premium-priced.

Dairy producers and industry participants also say they are concerned about the Pennsylvania Milk Marketing Board’s role in terms of the costs associated with milk assembly vs. where the state premiums are going.

Meanwhile, store inventories are kept close to the bone. If they throw a gallon of milk away, the margin on every other gallon is affected, and so stocking depth is being reduced.

These are the kinds of issues that states like Pennsylvania, Georgia, New York and Michigan, among others, are actively looking at as they study capacity and market needs and trends.

Producers don’t control these decisions, but their input is vital.

From farm to table, technology and workforce are two other big pieces with immigration reform being a double-edged sword.

If the Congress and the Trump administration are able to legalize immigrant worker status, what will that really do for the dairy workforce? A National Milk Producers Federation study with Texas A&M reveals that 80% of the nation’s milk was harvested by immigrant workers — up from 60% in 2009.

With general unemployment now falling below 5%, which many economists consider to be full employment, a legalized immigrant workforce may be lost to jobs in industries with better margins.

Workforce issues are also affecting trucking and other infrastructure employment.

Labor is fast replacing environmental as the number one issue facing the dairy industry, and against that background, farms will do things differently over the next 10 years to systemize their production, say various experts.

Builders, lenders and others are seeing the emphasis for this in three areas: wet calves, dry cows and post fresh, as well as through investments in technologies that improve management, specifically by their impacts on cost of production because this is the criteria that will drive farm-level investments into the future.

Technologies may help solve it, but this requires investment. The right answer, policy-wise, is elusive, but for individual farms, the right answer comes, again, from knowing cost of production from which to weigh out the options and run projections and scenarios based on where the farm is now and where it wants to be in the future.

While some see opportunities to drive milk output per cow higher with more cow comfort and better heifer programs, pointing out that Pennsylvania lags behind other states in its milk output per cow, others in the industry point to imposed restraints pushing the focus toward managing risk.

Complicating the marginal milk model for improvement in Pennsylvania is the Land O’Lakes base program. When producers are over base — because they’ve improved their management — they take a penalty when the base is enforced, depending on the eastern region’s total production.

Learning to manage through this intermittent penalty seems to be affecting mainly the producers in the East, despite more substantial growth in the West. In addition, DFA has started a base program for portions of its membership in parts of the Southeast U.S., where milk is already regionally deficit.

How will this push-pull play out at the farm level?

Some producers will carry a lunch. Hershey is seeing a trend toward small farm operators finding seasonal off-farm employment to keep their dairy farms running.

Others have and will become diversified, which can reveal two pathways: Getting successful in another area and exiting the dairy, or seeing the dairy as a lifestyle to keep, and using other income streams to weather the storm.

In addition to diversifying, lenders note niche processing will be a path for some. There are a number of niche producers in this part of the country. Some have been doing this a long time, others are just getting in.

“The good economy has really helped those operations. Tourists are traveling, coming to our county, dining out, and packing the places we deal with,” Hershey observes about Lancaster County, Pennsylvania. Some of our cheesemaking stores are flourishing right now, but that business is not for the faint of heart. It requires deep pockets to get into.”

Connecting dots for consumers is essential for eastern states, like Pennsylvania. For example, in Lancaster County, Pennsylvania, there is this dichotomy. The county — like other parts of the eastern U.S. — has grown in produce and other specialty crops to become a great hub of food. To some degree this includes dairy, but more stimulation is needed.

As will be further discussed in part two of this dairy-at-a-crossroads series, knowing the cost of production for the farm business and knowing where lie the passions, strengths and weaknesses of the farm family are keys to finding each farm’s own path — whether that means keeping the cows and diversifying, investing in niche marketing, getting more competitive on cost of production or giving the cows up and channeling that valuable positive experience and energy to new pursuits.

This industry is about the milk and the cows, but even moreso, it is about the people.

“We can do it here,” says Peachey. “When we know our farm’s cost of production, we know the weak spot in our model and can figure out how to compensate for that and find where our opportunities are.”

As these changing tides and issues sort themselves out, Peachey observes how dairymen are making these “tremendous strides to improve their operations,” and he believes the next wave of improvement is figuring out how to do risk management well, how to capture margins when they are available, and how to protect operations from downside risk.

“We can take an operation so far and continue to improve, but the next wave of significant profitability and improvement is in managing the top line price and the input costs and locking in those good margins when they are there,” says Peachey.

“A generation ago, with price supports, dairy farmers could work hard and do okay or very well. Now it is a business requiring an approach to management for the long run,” he adds.

In part two of this series, we’ll examine the map for navigating the dairy crossroads.

 

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Buy back and give? Sell cheap and dump? You decide.

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Cheese was loaded recently for Hunger Task Force, based in Wisconsin and part of the Feeding America network. Changes in USDA feeding programs are making Food Banks a more vital food access point for the poor. Farmers rise to the occasion when it comes to feeding the hungry. Dairy Pricing Association seeks to work continually with farmer funds to see that paying forward helps give back as times are very tough today on dairy farms across America. Facebook Photo: Dairy Pricing Association

Commentary, by Sherry Bunting, Farmshine, December 19, 2017

BROWNSTOWN, Pa. — Buy back and give? Or sell cheap and dump?That is the question.

“Just imagine what we could accomplish if there was a groundswell of farmers coming on board to fund this process to clear excess milk and dairy products and help others in need at the same time,” notes Amos Zimmerman of Dairy Pricing Association, Inc.

Zimmerman lives in Lancaster County, Pennsylvania and works with farmers here and in the Midwest on behalf of Dairy Pricing Association. He and others involved are excited about the organization’s track record and the new projects that are starting up that are funded by voluntary assessments. Dairy farmers sign up because they believe in the power of helping to clear the overloaded milk system of excess while helping people in need as the ultimate form of promotion.

Founded initially in Taylor, Wisconsin, the farmer-funded organization operates nationwide to help balance dairy plants across the country.

Dairy Pricing Association (DPA) does not disrupt the flow of milk. Instead, DPA uses the funds contributed by dairy producers to buy dairy products for donation to feeding programs in a way that has begun making a difference and has the potential to do even more.

Disappearance positively affects price, according to DPA literature. However, this is not milk ‘dumping,’ this is dairy giving. DPA’s activity in the marketplace is one that values the hard work of the dairy farmers while recognizing the pain and suffering caused by hunger in the world. DPA purchases dairy commodities and donates them for humanitarian purposes, for a two-fold benefit.

These and other donations show the heart of this dairy industry we are all proud to be a part of. Though it has been around for more than a decade, DPA is a lesser-known entity that is out there buying and donating milk and dairy products, not just at the holidays, but consistently throughout the year.

Buying excess dairy for donation is something Dairy Pricing Association has been expanding upon since its inception gathered steam in 2009 when a call to action by founder Robin Berg of Wisconsin led to a more systematic method. Farmers designate voluntary milk check assessments by signing up. Now others can also donate through a joint effort between Dairy Pricing Association and Hunger Task Force.

Tom Olson, DPA vice chair, tells of this history: “After the second meeting we could see that no one in the industry was going to help get this started. We were going to have to start this at someone’s kitchen table.”

With private donations for startup costs, Dairy Pricing Association, Inc. was born.

Today, their work is supported by dairy farmers who sign up to pay a voluntary assessment for the expressed purpose of buying excess milk and dairy products and channeling it to feeding programs that are the only option for poor consumers. The base of operations has expanded from the Upper Midwest into California and the Northeast as more farmers in Pennsylvania, New York, Ohio and Indiana have come on board to provide the necessary funding.

Dairy Pricing employee Amos Zimmerman of Lancaster County, Pennsylvania, is excited about the organization’s track record and the new projects that are starting up. In a phone interview with Zimmerman, Farmshine learned that dairy farmers can tailor the amount and purpose of their voluntary assessment to participate in this double-goal: To help clear the overloaded milk system of excess and help those in need as the ultimate form of promotion.

Every three months for the past two years, Dairy Pricing has been buying block cheese for donation to feeding programs. “We have gotten into a routine and the industry is starting to predict our purchases,” said Zimmerman. “We are changing things up and working on new projects for next year to start in January.”

One new project Dairy Pricing is working on is to satisfy the desire of the Central Pennsylvania Food Bank to have cheese donations coming every month of the year, not just at certain intervals, with the Food Bank paying half and DPA paying half.

“Central Penn Food Bank came to us to talk about a monthly arrangement,” Zimmerman said. With this in mind, Dairy Pricing is looking at a plan with Pennsylvania milk, processed in Maryland, but then cut to consumer package size by a Pennsylvania firm. DPA would purchase the cheese and Central Penn Food Bank would pay wholesale price for half of it, delivered in retail-size, pantry-ready.

Back on the bulk cheese purchases in the Midwest, recent loads of block Cheddar include one in October at 41,592 pounds, purchased by Dairy Pricing for donation to the Houston Food Bank for their needs after Hurricane Harvey.

The first load of blocks were purchased in 2016, when 30,588 pounds were bought at $1.65/lb for the Hunger Task Force in Milwaukee. That was followed by a $1.90/lb purchase of 41,604 pounds in December 2016 for Hunger Task Force and 41,860 pounds at $1.65 in April 2017 for Hunger Task Force. In July 2017, 39,662 pounds were purchased at $1.61 for Ruby’s Pantry in North Branch, Minnesota, followed by the October purchase of 41,592 pounds at $1.84/lb for the Houston Food Bank of Houston, Texas.

Dairy Pricing will be trying to do both the bulk purchases in the Midwest and the new programs in the Northeast and Midatlantic region, with the money available through dairy farmers’ voluntary assessments, according to Zimmerman.

Similar milk balancing through cheesemakers for feeding programs has also been happening in the Midwest, including recent milk to cheese through Lynn Dairies to The Community Table in Eau Claire, Wisconsin.

Another new startup project is coming about through inquiries by dairy farmers wanting to be involved in dairy donations through Christian Aid Ministries, based in Ephrata, Pa.

“They only handle powder because it goes overseas,” said Zimmerman. People who want to be involved in that project can sign up for a voluntary 15-cent/cwt assessment.

The powder project will be 100% whole milk powder to a host of oversees destinations where hunger is prevalent.

“Whatever we buy or donate, it has to be the whole milk product, not just the skim,” says Zimmerman, who spends his days on the road talking to farmers and attending meetings. He does a conference call with farmers every Monday night, attracting 100 to 150 people, and he serves as the boots-on-the-ground contact person for Dairy Pricing here — covering the whole East Coast and spending time in Ohio, Indiana, Kentucky, Virginia and Wisconsin.

He also works with farmers and farm groups on the side to help them with local processing start ups and other marketing solutions. He has been involved in the dairy industry his whole life, working as a herdsman for dairy farms since he was 18 and known for his curiosity in always looking for information about how the dairy industry works with a keen interest in the processing side.

“I’ve always had an interest in it, and since the marketing system is going the way that it is, people are having to find different routes to their consumers,” said Zimmerman, adding that “local consumers come to us all the time wondering how to support local farmers.”

This has become a difficult direct line within an increasingly national and global marketplace. Processing investments are the tough part of this task.

.“I can’t stress enough how important it is for dairy farmers to be informed to make better decisions,” Zimmerman says.

Since Dairy Pricing Association expanded to the east with its producer voluntary assessments, the very first milk donation was to New York for hurricane victims in 2012. When surplus milk is available over holidays, Dairy Pricing pulls gallons for donation, including donations last year to feeding programs in Washington D.C.

“None of what we do is to get the credit for doing it,” said Zimmerman. “We are doing this because it needs to be done.”

In fact, a bit more credit for doing this work could help get more of it done. As farmers learn more about what DPA is doing, more voluntary milk check assessments could accomplish an even greater impact.

Zimmerman noted that since Dairy Pricing balances the bottling of White Gold Milk and Chocolate Gold here in the East at California standards, this is the brand they typically pull from the wholesale supply for donations of fluid beverage milk. This utilizes both fresh fluid milk and powder to arrive at the higher solids content of the milk, including a 3.5% fat profile for whole milk instead of the minimum standard of 3.25%.

“What we can accomplish hinges on signups,” said Zimmerman. “The more we get the word out, the more interest we see. In 2014, we could hardly talk to farmers, prices were good. But that’s when we should be jumping on board to fix things before they get bad again.”

A ubiquitous figure in local dairy circles, Zimmerman gets calls every day from farmers in trouble thinking of selling their cows. “This problem is deeper than the milk prices,” he says. “It is the whole structure that is at risk that could destroy the infrastructure, even in Lancaster County.”

The typical voluntary assessment signup is 10 cents/cwt. But can be as little as 5 cents/cwt or as high as 30 cents. To specifically participate in the whole milk powder donations through Christian Aid overseas, a 15 cent/cwt level is required. (See form at the end of this story).

“It is all a donation, and farmers can cancel at any time,” Zimmerman explains, stressing that this assessment cannot be used to replace the 15-cent promotion checkoff nor the 4-cent CWT deductions taken off milk checks by member cooperatives.

In addition, others can also donate through a joint effort with Hunger Task Force. (See form at the end of this story).

DPA notes at their website that when milk is in great supply, many loads are sold at up to $3 per cwt below the Class III price. “When this happens, this cheap milk goes into storage as cheese or powder and starts to pile up,” according to DPA. “We need to have a fund to buy at these times to keep the system from being overloaded.”

Through Food for the Poor and Christian Aid, exporting to 17 countries overseas, the need is great for all the whole milk powder that can be supplied and as well for domestic use through Feeding America for soup kitchens and feeding the homeless here in the U.S.

The point is for the dairy product to go to people who could not get it any other way except through donation, not to take a sale away from a store. It is estimated that for every semi-trailer load of whole milk powder exported or used in domestic soup kitchens, eight tanker loads of milk are removed from the overloaded system.

Because the program is voluntary, producers can follow the progress of what DPA is doing, and can continue their contributions or cancel at any time.

Whether it is tens of thousands of gallons of milk or tens of thousands of pounds of cheese, DPA has steadily increased its benevolent presence from coast to coast as more farmers sign up to be involved.

Who are DPA members? They are dairy farmers from coast to coast shipping their milk via nearly every cooperative and direct milk plants. These dairy farms span the milk marketing and handling system across the U.S.

According to the DPA website, farmers funding Dairy Pricing Association with their voluntary assessments include shippers to Agri-Mark Inc. in New England; Associated Milk Producers in Minnesota, Clover Farms Dairy in Reading, Pa., Cloverland Farms Dairy in Baltimore, Md., Cooperative Milk Producers in Blackstone, Va., Dairy Farmers of America, Dean Foods, Farm First Coop in Wisconsin, Galliker’s Dairy in Johnstown, Pa., Grassland Dairy Products in Wisconsin, Guggisberg Cheese in Ohio, Horizon Organic based in Colorado, King’s Kreamery in Lancaster, Pa., LaGranders Hillside Dairy in Wisconsin, Lancaster Organic Farmers Cooperative and LANCO-Pennland, both based in Hagerstown, Md., Land O’Lakes, Lynn Dairy in Wisconsin, Maryland-Virginia in  Reston, Va., Mount Joy Coop, Mt. Joy, Pa., Nasonville Dairy in Wisconsin, National Farmers Organization headquartered in Ames, Iowa, Organic Valley, Prairie Farms based in Illinois, Smith Foods in Ohio, Westby Cooperative in Wisconsin, and former DMS shippers in New York and Pennsylvania.

 

Current dairy prices are not sustainable for the future survival of dairy farms and the rural communities and businesses that rely on them. At the same time, we read about the concerns of food insecure Americans as well as staggering numbers of war refugees and victims of disasters and famine throughout the world.

If our industry builds a storehouse of dairy goods that end up pressuring farm milk prices lower, and if growing numbers of people here and abroad are unable to access dairy nutrition without assistance, what better way to meet the needs of both than to voluntarily, consistently and strategically provide this assistance?

When the storehouse of goods is channeled to the needy through farmer-funded purchases in a way that helps to balance the market, America’s farm prices can improve and the food-security of our nation in the future can be assured.

The government and the industry do not have a plan that adequately addresses either of these concerns. This is why DPA exists as a way for farmers to help themselves by helping each other and helping those less fortunate at the same time.

Dairy Pricing Association is not funded by the government, nor is it funded by processors or marketers. Participation in DPA funding cannot be used to replace the 15-cent federally mandated promotion checkoff or the 4-cent CWT assessment. Nor can it  replace new deductions showing up on milk checks in the current marketing environment.

However, DPA attracts new farmers every day because the mission is funded by dairy farmers who believe that sitting back and doing nothing but complain is not an option. They want to take the future by the horns and move forward.

Through membership donations in the form of 5-cent to 15-cent per hundredweight (some even give 30 cents/cwt), farmers are joining together through DPA to strengthen the organization’s ability to place orders for finished dairy products from processing plants and once the order(s) are filled, donating the product for humanitarian purposes.

The possibilities of this concept are only limited by the funding available, and that means dairy farmers, themselves, can make the difference. Unlike the marketing and balancing fees that are being increased on dairy farm milk checks, the Dairy Pricing Association assessment is completely voluntary, simple, direct, farmer-run and built from the ground up to help dairy farmers help themselves, help each other and help children and families who know real hunger throughout America and the world.

The question is: Do farmers want to gain strength by joining together voluntarily to buy back their own excess for giving to people less fortunate?

Or do they want to continue to allow the system to do the incomplete job it has been doing – bound by its Federal Order rules that allow dumping but not giving, and costing farmers ever-higher deductions from their milk checks to “balance” the excess through below-class sales that create market-depressing inventory or by dumping milk down the drain at a cost to the farmers?

Hats off to the givers. May their vision and efforts continue to multiply.

To learn more about Dairy Pricing Association, Inc. and to acquire forms for milk check pledges, call Tom Olson at 715.284.9852 or 715.299.1332 or Amos Zimmerman at 717.872.1464  or email dpainc@ceas.coop. Visit DPA online at visit dairypricing.org and follow on Facebook @dairypricing. Ask about national producer conference calls.

To learn more about Christian Aid Ministries, the vehicle for a new farmer-funded Dairy Pricing Association, Inc. project of whole milk powder donations for hunger assistance worldwide, visit christianaidministries.org and dairypricing.org

Find out more about what they are doing, and then decide if your farm can help make a positive two-fold impact on markets and hunger. See below the forms for farmer milk check deductions and for non-farmer donations.

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