Tag Archives: PA Milk Marketing Board

My thoughts on the ABC’s of PA’s state-mandated OOP

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By Sherry Bunting, published in Farmshine, May 5, 2023

The purpose of Pennsylvania’s 1930s Milk Marketing Law was to regulate and support the Commonwealth’s dairy industry. Today, it continues to set a retail minimum price for milk through the Pennsylvania Milk Marketing Board (PMMB) while most other states have zero protection against supermarkets using milk as a loss-leader to attract shoppers. 

To me, that’s the real problem. Nationwide, consumers don’t know or appreciate the true value of milk after years of rampant and extreme loss-leading. I’m not talking about random sales to clear inventory, I’m talking about day-in-day-out well-below-cost prices as a retail business model.

Supermarkets chains have gotten into doing their own milk bottling or refuse to pay for services or quality as a way to avoid eating all of the cost of their own decisions to knock the price of milk back several dollars per gallon. They know milk is in 95% of shopping baskets. It’s a staple. If their store brand is the cheapest around, they’ll get your business and sell other high margin items at the same time.

Dairy farmers and milk bottlers, quite frankly, should not be on the hook for that. Period. But indirectly they are.

At the federal level, no one wants to address this because USDA also benefits when it comes to buying cheap (skimmed) milk for food programs like school lunch, where they also reimburse Impossible not-burger, nacho chips and pop-tarts — but not whole milk, only skimmed.

Is it any wonder consumers balk at spending $5 for a gallon of milk in Pennsylvania but will pay $1.50 for a cup of water, even more for a cup of water with artificial additives? 

Is it any wonder consumers don’t think of milk’s nutritional value next to other protein and vitamin drinks? Intrinsically, the higher margin drinks are perceived as more valuable because the price is higher. Milk is perceived as worth less than water!

This makes Pennsylvania a sitting duck in a national, no, a global market. Why? Because Pennsylvania sets a minimum retail and wholesale milk price each month.

Pennsylvania’s Milk Marketing Law prevents supermarkets from selling milk under the monthly announced state-minimum price. The over-order premium (OOP) portion of this price was intended to help Pennsylvania farmers. The Milk Marketing Law already gives the retailers and bottlers a 2.5 to 3.5% profit margin over average industry costs within that set minimum-price buildup.

The OOP is currently set by the PMMB at $1.00 per hundred pounds of milk plus a 44-cent per hundredweight fuel adjuster. This come out to 13 cents per gallon paid within the state minimum retail price that is meant to be the farmer’s over-order premium (OOP).

A variety of loopholes have diminished how much of the state-mandated OOP gets back to Pennsylvania dairy farmers as intended by the law. It has encouraged interesting business models that involve more out-of-state milk coming in to displace Pennsylvania milk in some Pennsylvania stores (and some creative accounting for sure).

Whether in tankers or packages, more out-of-state milk is competing with an unfair advantage when the built-in OOP is either collected and not paid to farmers or remains completely undocumented — floating around and up for grabs by the supply chain.

Senate Ag Minority Chair Judy Schwank had an interesting exchange with Chuck Turner of Turner Dairy near Pittsburgh during the recent Senate Ag hearing on the matter. She asked whether or not the aseptically processed, shelf-stable milk, which she buys, has the OOP built into its price.

Good question.

Turner explained that for the members of the Pennsylvania Association of Milk Dealers, the OOP is factored in as a cost that they incur when they procure milk within the state and then return this OOP to their Pennsylvania farmers based on their sales of Class I fluid milk products within the state.

On the other hand, when a Nestle or some other company, like fairlife, makes a shelf-stable flavored milk that ends up in a retail dairy case in Pennsylvania, the OOP doesn’t enter into their thought process on these products coming most likely from Indiana (and New York), he said. To his mind, that means it does not “collect” OOP.

In reality, such out-of-state packaged fluid milk products that fall into the Class I fluid milk category are ‘collecting’ the OOP — even ultrafiltered and aseptically packaged milk. These products compete for Pennsylvania consumer dollars. Whether out-of-state fluid milk products are unflavored or flavored, fresh or shelf-stable, they are part of the unknown number Schwank said the Senate Ag Committee needs to know.

It doesn’t matter if the milk is sold above state-minimum price, the OOP is in there.

Take for example the fresh fluid milk brands that are bottled in Pennsylvania — that are not shelf-stable – but are priced on supermarket shelves above the state minimum retail price.

This happens when stores like Walmart and Costco want to differentiate their private label store brands as the lowest-price. What do they do? They put other brands higher.

Since supermarkets in Pennsylvania cannot go below the state’s minimum price to “loss-lead” with their in-house private label, they bump-up the price on competing name brands instead.

In some cases, this pressures sales volume even lower for name brands that are produced, processed and sold in Pennsylvania, reducing the OOP that goes back to the Pennsylvania farms. At the same time, some of the private-label store brands sold at state-minimum fall into the category of breaking the chain of produced, processed and sold in Pennsylvania, which affords them the ability to keep the farmer’s OOP.

Here’s my bottom line from the recent Pennsylvania Senate Ag hearing on the OOP:

For 15 years grassroots dairy producer groups have been grappling with the concerns shared at the hearing, and how the OOP may be affecting the use of Pennsylvania-produced milk in Pennsylvania consumer markets. The embarrassment of not knowing definitively how much fluid milk is sold in the state and how much premium is stranded off-record or on-record has been the subject of meetings, hearings, estimates, emotion, stonewalling and bickering for over 15 years!

Attempts have been made by lawmakers like former State Senator Mike Brubaker and current State Representative John Lawrence repeatedly putting forward bills that would have penetrated the armor surrounding this issue.

Now, in the past 12 to 18 months, we have the Pennsylvania Farm Bureau on high-alert, the Department of Agriculture now is involved and has come up with a plan. 

The CDE and PDMP are studying the issues around the premium and the obstacles to processing investment with the help of a Cornell economist. 

And the Senate Ag Chairman and Minority Chair offered their data-driven bills last session and will offer them again, because, of course, they are paralyzed by still needing that data they’ve been needing for 15 years!

Now, as the fluid milk market is in steep decline over the past 15 years (ironically the same 15 years in which whole milk and 2% milk have been federally prohibited as choices in schools and daycares)…

Now as most of the milk bottling assets, nationally, are owned by cooperatives and most of the rest by retailers…

Now as fluid milk plants are closing to the south and the west, while Pennsylvania has managed to hold on to a core of independent bottlers…

Now as the state courts the favor of Coca-Cola / fairlife or other new processors to invest in Pennsylvania … (Coca-Cola announced May 9 that New York will get the new plant).

Now as everyone is sitting up noticing that the tens of millions of Pennsylvania-paid ‘stranded’ OOP annually over the past 15-plus years may have been fueling growth beyond Pennsylvania’s borders while Pennsylvania’s own farms have been stagnated by more stringent supply management programs due to lack of processing capacity…

Here we are, back to the question of needing the data. Senators were interested in doing something, but Chairman Elder Vogel, said threading the needle will be difficult, and Minority Chair Schwank said “we have to have the data.”

Pennsylvania is enduring erosion on one hand in part because of the OOP and/or the minimum pricing, while on the other hand, these structures are believed by some to provide a stabilizing effect for the Class I bottlers that remain.

And so, the cats keep chasing their tails around the milk bowl!

Meanwhile, more producers have strived to get some of their milk outside of this game by selling it raw – an entirely separate market. The PMMB reached out to a number of them last year telling them they had to be licensed and do monthly reports, then backed off a bit for the time being. They are not the problem. Their milk is not pasteurized, and it is not part of the system in Federal Milk Marketing Orders either.

My biggest questions after the recent hearing, after 15 years of following this and for a time helping farmers who were involved in seeking changes more than a decade ago: Where would we be today if in any of the prior legislative bills, meetings, hearings, plans, would have moved forward in some fashion? 

And yes, this too is related: Where would we be today if whole milk had not been removed from schools?

One thing is clear on the first question, we would by now have solved the math equation of A + B = C instead of estimating, stonewalling, bickering…

On the second question? We might be selling more milk.

Read Part One and Part Two of the PA Senate Ag Hearing about the ABC’s of the OOP here and here

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Little bit new, little bit Dé-jà vu – PA Senate Ag hearing digs into ABC’s of milk OOP

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Data and reform needed, but is Secretary eyeing portion of estimated $30 million-plus for ‘dairy reinvestment’?

By Sherry Bunting, Farmshine, April 27, 2023

HARRISBURG, Pa. – Little bit new, little bit Dé·jà vu. (That’s French for ‘the feeling of having experienced this situation before.’) 

Those first thoughts came to mind listening to the Pennsylvania Senate Ag Committee’s hearing Tuesday (April 25) on reforming the state’s mandated over-order premium (OOP) that is part of the state’s minimum wholesale and retail milk prices, set by the Pennsylvania Milk Marketing Board (PMMB).

Ag Secretary Russell Redding laid out for state lawmakers the Department of Agriculture’s plan to seek reforms that: 1) uniformly and fairly distribute the OOP, 2) ensure the amounts charged to Pennsylvania consumers substantially equal amounts distributed back to farmers, and 3) uses a distribution system that does not have incentives to avoid paying Pennsylvania producers by selling milk from across state lines.

He said the Department is a “reluctant participant” but sees the need to make the “collective case” for the “composite of Pennsylvania Dairy.”

“We believe there are inequities, and we see division and growing farmer mistrust,” said Redding. “We knew there were data gaps in our petition last year… Think about the OOP as an equation: A + B = C.

“What we know today is that of the $23.6 million in OOP collected by processors in 2022, $14 million was required to go back to farmers. That’s A. 

“B is generated in the marketplace but not collected,” he explained. “Our belief is that this is another $5 to $10 million (annually). 

“C is the total that we believe is in the neighborhood of $28.6 to $33 million. The question is, what do we do about it?” he asked.

He answered to say the only way to fix this is to change the system and begin removing the OOP from the minimum price buildup and instead have the PMMB establish a retail-based premium, collected at that point of sale and remitted to the Department of Revenue into a designated fund.

This would require the legislation.

“The General Assembly could then appropriate direct payments to producers and to reinvestment in dairy processing,” said Redding.

The Secretary called it an “embarrassment that we don’t have this number (B)” to complete the A + B = C equation, but as he talked about the PDA’s plan, we heard articulated for the first time this idea that once numbers can be put to the equation and legislative authority for the Board to devise a formula, the OOP could become a “milk tax.” 

The difference being that many consumers don’t know they are already paying the OOP, but when pulled out of the minimum price buildup, it becomes a known quantity.

“We trust the state to do this with liquor, cigarettes and liquid fuel. The legislature could decide how these funds would be used, and a portion could be used to help processors invest or reinvest,” said Redding.

In fact, Zach Myers for the Center for Dairy Excellence said a study is underway to assess the obstacles that are preventing processing investment and reinvestment in Pennsylvania.

PMMB Chairman Rob Barley noted that, “It’s certainly time to evaluate how the OOP dollars get back to farmers and not pick winners and losers. The over $800 million that has gone back to dairy farmers since 1988, especially when the majority of it did, no doubt made a positive difference, but that is changing,” he said. “Fluid milk sales have dropped in half (since then), and it is difficult to account for the dollars with the current tools that we as a Board have.”

Barley noted that if the process moves forward to reform the structure, perhaps other products could be eventually added.

“Right now we don’t have the authority to do any of this. Going back to the 1988 testimony, the primary reason the over-order premium was added (to Class I) is that was the practical point, that was the mechanism already in place for fluid milk. There is no such system for other classes, and Class I is also more of a localized product, which I think is still true today,” Barley explained.

Going forward, he said, the choices for the Board are “to get rid of what we have, which is a choice many are not in favor of, or to have legislation to change the OOP without violating interstate commerce, or to develop a new system that strengthens the Pennsylvania dairy industry to benefit all sectors.”

Redding stressed the point that, “This is all about the dairy farmer, how do we incentivize what we need? Keeping our eye on the farmer and understanding we can do something extraordinary here, we have this opportunity to extract this premium from the marketplace and get (the OOP) back to farmers and for the purposes of reinvestment…”

That’s the New. Now for the Dé·jà vu…

The next thought to emerge in this reporter’s mind after hearing the new twist on OOP as ‘milk tax’ and a portion for ‘reinvestment’ was this: Everyone is at the table now, sitting up, alert, paying attention, and offering solutions after 15-plus years of meetings, hearings and discussions. But the same bottomline emerges: everyone still wants a dip of the farmer’s elusive cream.

Not 15 minutes later, after PMMB board member Jim Van Blarcom testified, his Senator Gene Yaw of the northern tier counties shared a similar thought about how this may be already happening within the minimum price buildup in a rapidly changing industry.

“We made this so complicated and there are too many fingers in this pie, frankly,” said Yaw, asking whether processors get any of this money, now.

PMMB auditor supervisor Gary Gojsovich answered that the OOP is currently collected by processors through their sales, and they pay it back to Pennsylvania producers only when the milk is produced, processed and sold in Pennsylvania, all three must apply.

“In the simplest terms, it sounds like we need to change how the premium is collected and the point of where it is collected,” Senator Yaw responded.

Senator Judy Schwank representing parts of Berks County said: “We need the data. We have to have the data.”

So, we are back to the data. 

The Secretary called it an “embarrassment that we don’t have this number.”

Chairman Elder Vogel and ranking member Schwank said they plan to reintroduce their bills that did not move forward in the last legislative session that would give PMMB authority to license distributors, a move that would account for all packaged milk sales coming into Pennsylvania from out-of-state and other cross-border transactions, which ‘strand premiums.’

A quick history

For decades, there have been meetings and hearings and discussions about the future of the Pennsylvania Milk Marketing Law and the PMMB that sets minimum wholesale and retail milk prices. The law dates back to the 1930s, but the mandated OOP was introduced to the existing structure during a year of drought and high feed prices in 1988.

At that time, the state’s OOP was set by the Board at $1.05 per hundredweight (9 cents per gallon). Today it is $1.00 plus a 50-cents per hundredweight fuel adjuster (combined is 13 cents per gallon). 

At intervals before 2018, the OOP was as high as $3.00 plus a fuel adjuster (over 26 cents per gallon). In 2017, it was nearly $2.00 (17 cents per gallon), but was abruptly cut in half in December of 2017 due to the pressure of out-of-state milk — a harbinger of things to come just four months before Dean Foods announced it was ending contracts with 130 dairy farms in 8 states, 42 of them in Pennsylvania and five months before the startup of the Walmart bottling plant in Indiana.

Also included in the minimum resale and retail milk price buildups are the Federal Order price benchmarks, which vary geographically because Pennsylvania is split between two different Federal Orders. To this minimum federal benchmark price, the OOP is added, translating now to about 13 cents per gallon. 

Also added are the average cost recovery amounts for bottlers and retailers as determined by annual hearings for each area of the state, along with adding the 2.5 to 3.5% profit margin the Milk Marketing Law guarantees milk bottlers and retailers on top of the average cost recovery.

What has come under fire, especially since 2009, is the producer OOP, how it is collected and passed back to farmers, how some of it is stranded and how the changing dairy industry has impacted the real and perceived equity of the distribution of these funds.

Lawmakers made it clear that they look at this as two distinctly separate things, the collection is one issue, and the distribution quite another.

Among those testifying, the amount of the current OOP at $1.50 including fuel adjuster that is received on their farms ranged from 6 cents to 50 cents.

The bottomline is for all of the PMMB’s efforts to expand communication and transparency with the tools available, even board member Van Blarcom conceded that it is becoming more difficult to justify the OOP to his peers.

For his part, Matt Espenshade, a Lancaster County dairy farmer representing the State Grange, told lawmakers that producers and cooperatives that are ‘in’ the Class I market take risks and have requirements other class markets do not experience. 

He cautioned against reforms that would dilute the premium for the 15 to 20% of state farmers currently receiving a meaningful amount because they have costs and risks associated with that reward.

Johnny Painter, a Tioga County dairy farmer testifying for the Pennsylvania Farm Bureau advocated for a uniform distribution of the OOP in reforms that would have the state collect it all. He said farmers in all classes of milk have the same quality standards to meet. 

When pressed by Senator Schwank on why PFB made policy to end the OOP, Painter said it was a tactic to get the dialog started.

Troye Cooper for the Pennsylvania Association of Dairy Cooperatives and a member services director for Maryland and Virginia Cooperative said those receiving very little OOP are part of the 3500 Pennsylvania dairy farms shipping milk through cooperatives that perform essential “balancing” services for the fluid milk market. As coop members, they share in the cost of that.

However, what remained unspoken in his testimony is that the current minimum wholesale and retail milk price buildups now include a roughly 25-cent ‘co-op procurement cost’ for these balancing services along with the requirement that cooperatives list on member milk checks how much of the producer OOP was included. 

Representing the Pennsylvania Association of Milk Dealers, Chuck Turner of Turner Dairy near Pittsburgh, pointed out that fluid milk sales are declining, and other class products are increasing. He asked how bottlers can continue cutting checks to the Federal Orders to bring up the payments for other class milk while reducing the payments to their own shippers when their own fluid milk market volumes are shrinking.

“The fluid milk business is in tough shape. Sales volume has trended downward for 13 years by more than 20%. That’s 1 gallon in 5 lost, 1 plant in 5 closed. It can’t bear the burden for the other classes. It seems particularly unfair with sales growing in the other categories,” said Turner, noting that plants outside of Pennsylvania have been closing “at an astonishing rate.” 

He said the number of independent milk processors in the U.S. fell from 69% to 44% in 2020, whereas in Pennsylvania, independent bottlers still represent 62% of the fluid milk, and he credited the PMMB system for that difference.

Myers noted that Pennsylvania is the state with the second most dairy farms and the fourth smallest average herd size, with production costs that are higher than in some neighboring states. 

He cited loss of market premiums, including quality premiums, the impacts of other price erosion such as Federal Order make allowances that a potential hearing could further degrade. 

Compared to the U.S. All-Milk price published monthly by USDA, Myers noted the Pennsylvania All-Milk price used to be higher than the U.S. average, but this gap has narrowed significantly in the past 15 years.

“It was $1.73 per hundredweight from 2008 to 2012, averaged $1.29 from 2013 to 2017, and in the last five years, it has narrowed to just 49 cents, on average,” said Myers.

In fact, during the pandemic in 2020-21, the Pennsylvania All-Milk price averaged 18 cents less than the U.S. All-Milk price, according to Myers.

“There are several factors for this narrowing, but it’s safe to say it can’t be fixed by increasing the premiums,” said Myers, noting that 80% of the milk produced in Pennsylvania is marketed through cooperatives, and there are cooperative base programs limiting expansion on Pennsylvania farms.

These coop base programs and penalties affect the dairy farms and are in part tied to the limits in processing capacity.

Meanwhile, there were several references by testifiers citing milk coming from New York into Central Pennsylvania for processing and sale and displacing milk produced in that area. The OOP, of course, stays with that retailer, processor and/or cooperative as part of their business model to expand their state’s markets into Pennsylvania so their producers can grow.

“When that premium goes back to New York, that’s exactly what is playing out, and it feels like an injustice to be asking our consumers to pay it without regard to that investment,” said Redding. “We want to capture that premium and put it back into our Pennsylvania dairy farmers.”

The problem, said Barley, is the PMMB can’t just “grab that money and give it to Pennsylvania farmers if the milk is not produced, processed and sold in-state without being challenged in court as in the past on the grounds of violating the interstate commerce clause.”

Senator Yaw interjected that, “If the milk is sold here, we should give the premium back to our farmers. If the milk came from New York, those farmers should not benefit from what we are doing to support Pennsylvania farmers.”

Redding said lawmakers “do not have to wait for the data. The bill on licensing distributors could go forward along with a bill to set up a structured system, assuming the amount to be around $30 million, and we believe it to be higher, to decide how to distribute that revenue.”

Redding said his fear is that as the frustration undertow grows, Pennsylvania will lose this premium without action.

He pointed out that his committee “kept its promise” to get everyone around the table to hear ideas, but that it will be “difficult to thread this needle and it will require collaboration.”

Ranking member Schwank said everything hinges on getting the data that is needed to know how to proceed.

Click to read Part Two.

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Dean pays independents for April milk, owes millions to co-ops, USDA FMMOs, MilkPEP

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DeanLineup_2018 (2)

The Dean Foods product lineup as pictured on its website just prior to the November 2019 bankruptcy filing and May 2020 sale.

By Sherry Bunting, Farmshine, June 12, 2020

HOUSTON, Tex. — Dairy producers who ship milk independently to any of the former Dean Foods’ 57 milk plants began receiving their final payments for April milk on Monday, June 8. These were the payments due from Dean debtor in possession (DIP) in mid-May that became part of the administrative expenses in the post-sale proceedings of the Southern Foods Group (Dean Foods) bankruptcy in the Southern District Court of Texas.

Several dairy producers in several states confirmed to Farmshine Tuesday that they received these  payments. Furthermore, their May advance payments were timely made by the new owners of the former Dean plants — namely DFA and Prairie Farms.

The Pennsylvania Milk Marketing Board (PMMB) staff also confirmed late Tuesday that, “All Pennsylvania independent Dean producers have been paid what was due them for April.”

For its part, the PMMB staff had initially begun the process of auditing non-payments in preparation of filing bond claims. Seven of Dean’s plants are licensed and bonded in Pennsylvania – a requirement to buy milk from farms in the state. This includes four plants in Pennsylvania, one in New Jersey, one in New York and one in Ohio.

The PMMB quickly shifted gears early this week from auditing non-payments to auditing the payments to independent producers, and as conveyed, found that producers received what was due.

The PMMB staff also indicated they are completing their auditing of what is still owed to milk cooperatives. If payments to cooperatives are not received, PMMB will file the necessary bond claims for any Pennsylvania cooperative milk that remains unpaid by the Dean bankruptcy estate.

Nationwide, independent producers have been paid, but cooperatives are still owed for April milk as of June 10.

In addition, USDA AMS Dairy Programs in Washington replied Tuesday, June 9 that, “USDA has not received payment from Dean (DIP) for April producer settlement funds owed.”

USDA had previously indicated that not only were the pool funds outstanding, Dean had also not paid the FMMOs for producer marketing services, transportation credits and administrative service in nine Federal Orders. Dean Foods is fully regulated in all Federal Orders except for the Pacific Northwest and Arizona.

In mid-May, USDA reported that, “handlers were notified via memorandum of the non-payment and the pro-ration of the available producer settlement monies.”

The loss of Dean’s Class I contributions to Federal Order settlement funds from 57 plants regulated in nine Federal Orders would decrease the blend price paid to all producers in those areas — under normal conditions — by reducing the pool funds drawn by handlers for other class uses. Several cooperatives are handling the loss of pool funds from back in Oct./Nov., and potentially April, by way of milk check deductions that will continue until the pool shortfalls are covered.

In an email response this week to Farmshine, USDA AMS Dairy Programs confirmed that, “No claims for these April producer settlement funds have been filed with the bankruptcy court because the April Federal Milk Marketing Order (FMMO) obligations are post-bankruptcy debts and are recouped through the post-bankruptcy process.”

The post-bankruptcy process involves the Dean estate’s plan being filed with the court outlining how it will pay its vendors (including USDA producer settlement funds) as it winds down operations of the estate. According to USDA, Dean has notified the court that it will file the payment plan by August 3.

How much is owed for April milk to the USDA FMMO producer settlement funds across the U.S. is deemed proprietary information, according to USDA, and “it has not yet been aggregated with appropriate redactions and cannot be released at this time.”

However, some milk cooperative sources handling only manufacturing class milk in the Northeast and Mideast are pegging their losses from these unpaid April settlement funds to be upwards of 30% of the blend price.

In addition to the missed payments to FMMO settlement funds for April, USDA confirmed in an email that it filed proofs of claim in the bankruptcy proceeding for monies owed prior to the bankruptcy filing for October and mid-November 2019 milk marketings.

“Those proofs of claim (for Oct./Nov. 2019) totaled $13.8 million for monies owed to producer settlement fund, marketing service, administrative, and transportation credit funds, as well as the Fluid Milk Processor Promotion Program. The proof of claim documents were filed on April 21, 2020 and can be viewed on the Dean Foods Restructuring website,” USDA stated in an email response this week.

With more than 3000 documents on the Southern Foods Group bankruptcy docket, a search of claims did yield more than two dozen separate proof of claim filings by USDA on April 21, including information showing that Dean owes $3.1 million for Oct./Nov. 2019 to the Fluid Milk Processor Education and Promotion Program (MilkPEP). Fluid milk processors are obligated by USDA to pay 20 cents per hundredweight into this fluid milk promotion fund.

It is unclear how much of what was due the cooperatives back in Oct./Nov. 2019 is also upaid, but proofs of claim filed in March 2020 by milk cooperatives peg the largest amounts owed from last fall at $103.4 million to Dairy Farmers of America (DFA); around $14 million to Southeast Milk (SMI); and over $7 million to Land O’Lakes. The link to claims documents on the Southern Foods Group bankruptcy docket can be found at https://dm.epiq11.com/case/dnf/claims

As for what is owed to USDA for April 2020, it is difficult to estimate an amount based on the proof of claims filed for Oct./Nov. 2019 because COVID-19 disruptions completely altered the milk marketing landscape in April.

While Class I sales were much higher in April 2020 compared with October and November 2019, the Class I base price was $5.00 per hundredweight lower in April vs. Oct./Nov. Also, the amount of milk diverted to the lowest class “dumpage and other use” category for April was enormous – at 350 million pounds across all Federal Orders, this was up 960% from a year ago and represented almost 2% of the entire U.S. milk supply in April (see related story in next week’s edition of Farmshine).

These factors would most assuredly reduce the Dean settlement fund obligations to the FMMOs for April 2020 as compared with “normal conditions”. However, the marketing, transportation credits and MilkPEP checkoff obligations were likely higher in April than last fall.

Producers and state and federal sources indicate that the remaining skeleton staff for Dean Foods, post-sale, has been helpful in keeping lines of communication open. Each step of the way, independent producers, producer groups, state boards and others received information about the process and its potential timelines.

In the case of the independent shippers, at least, the Dean estate paid them the first week of June after letters were sent the week prior, indicating potential payment by mid-June.

State and regional organizations, such as Farm Bureaus, milk marketing boards, state departments of agriculture, and others had written letters to the bankruptcy court and the Dean estate, and articles about the unfolding situation had also been provided, leading up to Dean’s communication with producers and ultimately these payments to independent shippers being made.

As well, the bankruptcy court docket, hearing process, and bidding process seem to have been transparent, for the most part, albeit extremely complex.

In spite of this transparency, bidders other than Dairy Farmers of America (DFA) were not privy to details needed about payables for some of the Dean plants – information that was critical to putting together financing for potential bids. Furthermore, the 44-plant lump-bid by DFA provided an edge to win plants that had multiple contending bidders by lumping them together with plants that had no contending bidders.

What remains unclear is how the more than $100 million dollars, Dean owes to DFA will be handled in relation to DFA’s purchase of substantially most of Dean’s plants and assets at a price of $433 million. The U.S. Department of Justice (DOJ) approved the sale, with the stipulation that three plants located in Wisconsin, Illinois and Massachusetts be divested.

Dean-DFA_plants (2)

The map of Dean Foods plants as provided by Dean Foods after its bankruptcy filing last November juxtaposed with the map of DFA plants — both wholly owned and affiliated — according to locations listed as such or otherwise publicly available.

Through the Chapter 11 bankruptcy sale process, which was consummated the first week of May 2020, 44 of Dean Foods’ 57 milk plants (including all seven licensed to buy milk from Pennsylvania farms) were acquired by DFA, the nation’s largest milk cooperative, headquartered in Kansas City, Kansas accounting for one-third of the U.S. raw milk supply with members nationwide and sales nationally and internationally. DFA was Dean’s largest milk supplier and the Dean accounts represented DFA’s largest milk buyer, according to court documents.

Eight Dean plants and other assets were acquired by Prairie Farms, a milk cooperative headquartered in Edwardsville, Illinois with members as far south and east as Kentucky to as far north and west as Minnesota, marketing products in at least 14 states. Several years ago, DFA and Prairie Farms jointly purchased and incorporated the previously family-owned Hiland Dairy Foods, headquartered in Kansas City, Missouri, with its 17 fluid milk and dairy plants and 51 distribution centers that together stretch through the Heartland from Texas to South Dakota.

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