Efforts are underway to find a marketing home for about 100 dairy farmers orphaned after two Wisconsin processors notified them they could no longer take their milk. Meanwhile, the farmers impacted by the loss of milk markets are being urged to contact their lenders, and review any risk management contracts.
In mid March, cheese manufacturer Nasonville Dairy, located near Marshfield, Wisconsin, informed about 20 dairy farmers that it would no longer be able to accept their milk, effective April 1.
On April 1, Grassland Dairy, Greenwood, Wisconsin, notified about 75 dairy farmers that it would stop accepting their milk, effective May 1. The larger of the two, Grassland Dairy’s decision was estimated to eliminate a market for about 1 million pounds of milk per day.
Both companies also notified the Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP).
“When we were notified that they were sending letters to producers, we started calling other processors immediately so we could try to find a home for some of that milk,” said Ben Brancel, DATCP secretary.
According to Brancel, Nasonville Dairy lost a large cheese contract, and was unable to find additional cheese markets to make up for that loss.
“We did find a home for some of that milk, but some very small producers, faced with higher milk transportation costs, have indicated they would retire,” Brancel said.
Grassland gave DATCP an idea of the number of producers and approximate milk volumes impacted by the decision. However, because the patron list is confidential, producer names were not made available.
So, along with calling on dairy processors and organizations to see if any milk processing capacity was available, DATCP also circulated the telephone number for the agency’s toll-free Wisconsin Farm Center Help Line (1-800-942-2474), urging farmers to call.
“The Center’s agricultural economic development consultants help Wisconsin farmers deal with the critical economic, business and social needs of farm families,” said Brancel.
“The nature of our call volume often depends on what is going on in the bigger farming picture,” said Kathy Schmitt, Farm Center director. “Right now, we are expecting to hear from more dairy producers seeking assistance in finding processors willing to take on more volume.”
When a producer calls, DATCP is listing the farm’s location, number of cows and estimated milk production. That information is being put in a spreadsheet, and shared with processors with any available space for milk.
24 DBMMC/DBA members impacted
John Pagel is a dairy farmer in Kewaunee County, Wisconsin, and president of the Dairy Business Milk Marketing Cooperative (DBMMC). He said 24 members of DBMMC and its sister organization, the Dairy Business Association (DBA), were impacted by the Grassland decision. DBMMC-member milk volume needing a new market was estimated at about 12 million pounds per month.
As a verification co-op established to address federal milk marketing order requirements, DBMMC provides milk component testing and equipment calibration services for its members. All DBMMC members ship milk to private (non-co-op) plants, and the organization has no processing facilities of its own. The co-op also represents its members on international trade and other federal policy issues.
Like the Wisconsin DATCP, DBMMC is compiling a list of members and milk volumes, in an attempt to find alternative markets.
”DBMMC is working one-on-one with our farmers who are affected by this to address the immediate concern — attempting to connect them with potential buyers. We are calling processors about availability,” Pagel said.
PDPW adds support
In a statement released by the Professional Dairy Producers of Wisconsin (PDPW), the board of directors noted many of the affected family farmers were members of its organization.
“While the dairy industry is the fabric of our rural communities, fellow dairy farmers are family,” the PDPW board said in the statement. “Each farm affected by the notification should know that they are not working alone and that leaders throughout the Wisconsin dairy sector are working around the clock to find resources and ways to debottleneck the situation.”
Efforts included locating possible milk processors and truckers.
“During these difficult times it is critically important to stay focused on what you can control,” the statement continued. “While we all work together on behalf of farm families, we remind our farmers to remain steadfast at taking care of their own health, their families and taking care of their cows.”
Plants are full
Finding a new home for displaced milk is proving difficult. In most cases, in-state plant capacity is already stretched. While lost dairy product markets were cited for both situations, excess milk supplies are compounding the challenges.
“It’s already been filled, including some milk from out of state that’s already under contract,” Brancel said. “We’re coming into the spring flush, which makes it even more challenging.”
Brancel said DATCP is expanding its search for milk processing outside the state’s borders, “but with the production increases in South Dakota and Michigan, it’s unlikely we’ll find additional space. We’re doing everything we can to open up avenues of opportunity for milk to get relocated.”
With the flush milk production season coming up, there are concerns other processors and producers may be faced with similar challenges. DATCP was taking proactive measures to head off another round of letters eliminating markets for farmer milk, Brancel said.
”We’re well aware these situations may not be an isolated cases,” Brancel said. “We’re doing everything possible to have communications with processors.”
One effort underway is a Wisconsin program providing grants to processors seeking to modernize and expand. The Grow Wisconsin Dairy Processor Grant program makes funds available to processors to cover engineering and design, food safety training and structural/equipment planning.
DATCP is currently soliciting applications for the next round of grants. Application deadline for the next round of grants closes April 14. Maximum grants of $50,000 will be announced in May. The application form is located on the DATCP website.
DATCP discontinued distribution of similar grants for dairy farm modernization and expansion when it became apparent milk production was outpacing processing capabilities, Brancel said.
Farmers urged to notify lenders
Although he’s outside the Midwest, Chris Laughton, director of Knowledge Exchange with Farm Credit East, urged any dairy farmers who lose their milk market to contact their lenders.
“Your lender should absolutely be one of your first contacts,” Laughton said. “Losing your milk market is obviously a serious issue, and while you may be a bit nervous to notify your lender, open lines of communication are essential. The earlier the lender knows, the more options and flexibility they will have. Don’t put it off.”
When a processor closes a milk market, Laughton reminds producers they aren’t alone.
“You are likely not the only farm affected,” he said. “While a lender can’t directly solve the problem, the more they know about the situation, the more they may be able to advocate on your behalf.”
Lenders are asking more questions than they have in the past about a borrower’s milk marketing arrangements and how secure they are. Laughton advises producers to add market security to the list of risks requiring management, along with weather, price, input costs and regulations.
“Consider how secure your milk market is,” he said. “This is particularly important when thinking about expansion. Where will that additional milk go? And how reliable is that market?”
Check risk management
Most companies offering a risk management program to their dairy farmers with milk supply contracts likely spell out what happens in event of a physical milk contract termination, said Eric Meyer, president of HighGround Trading Group’s Dairy Division.
What happens with those farmers who have milk futures contracts separate from their milk buyer depends on whether they find another market for their milk.
If another market is found, the contracts would apply as normal.
If however, they do not find a home for the milk, the futures and options positions held by the producer “becomes a speculative position, which is not a good place for the farmer to be in,” Meyer said.
In that case, he urged producers to contact both their lenders and lawyers to understand their options.
Policy change cited
While Nasonville’s hand was forced due to the loss of a large cheese customer, Grassland lost a large export market for its ultrafiltered (UF) milk when Canada changed a dairy ingredients policy to encourage use of domestic milk in cheese manufacturing. Due to Grassland’s substantial investment in UF milk processing, it is likely the largest Wisconsin-based processor to be impacted by the Canadian policy.
“Grassland’s situation is very unfortunate, because this milk had a home,” said Brancel, who noted Grassland had invested in UF processing capacity after Canadian customers asked for that product.
When it first became apparent Canada was moving toward changing its pricing system, potentially negatively impacting U.S. exporters, DATCP began working at state, national and international levels more than a year ago.
“It was rumored this was coming, and we kept talking about it, but it was hard to envision until farmers got letters smacked in their faces,” Brancel said. “We’ve tried to open up doors repeatedly to resolve this issue.”
Future negotiations, including reopening the North American Free Trade Agreement (NAFTA), may be one solution.
“Most farmers don’t want NAFTA to go away,” Brancel said. “NAFTA has done a huge amount of good for agriculture in the U.S., but it is these kinds of Canadian policies at the provincial level that are not within the spirit of the NAFTA agreement, and could be trade violations. We have to go to the negotiation table to get it straightened out.
“But even if we go through the World Trade Organization (WTO), we’re years away from a resolution, and my farmers have 30 days,” Brancel said.
National organizations seek policy fight
The situation has escalated a call for the Trump Administration to fight back against Canadian policies designed to protect their producers. Leaders of the National Milk Producers Federation (NMPF), U.S. Dairy Export Council (USDEC) and the International Dairy Foods Association (IDFA) contend Canada’s National Ingredients Strategy and “Class 7” pricing policy are trade agreement violations.
“Canada’s protectionist dairy policies are having precisely the effect Canada intended: cutting off U.S. dairy exports of ultrafiltered milk to Canada despite long-standing contracts with American companies,” said Jim Mulhern, president and CEO of NMPF. “American companies have invested in new equipment and asked dairy farmers to supply the milk to meet demand in the Canadian dairy market. This export access has suddenly disappeared, not because the market is gone, but because the Canadian government has reneged on its commitments.”
According to Michael Dykes, president and CEO of IDFA, the U.S. dairy industry stands to lose $150 million in UF milk exports, with Wisconsin and New York hardest hit.
In an article published last year, Grassland officials warned Wisconsin’s dairy industry stood to lose $100 million annually if the Canadian UF market was restricted. (Read: U.S. lawmakers seek Canadian dairy policy investigation)
Cayuga Milk Ingredients, which represents 25 dairy farms in central New York, exported more than $23 million worth of milk protein isolate and UF milk to Canada in 2015. Sales in 2016 were expected to generate $30 million, about 25 percent of the company’s total gross income.
New York dairy cooperative O-AT-KA of Batavia, which exports about 20 percent of its production to Canada annually, said potential trade restrictions and tariffs on UF milk, which added up to 180 million pounds of milk and $19 million in sales, threatened O-AT-KA and the entire western New York dairy industry.
(Progressive Dairyman efforts to reach Cayuga Milk Ingredients and O-AT-KA were unsuccessful prior to this article’s publication.)
Supply management urged
With Congress beginning to hold hearings on the 2018 Farm Bill, there’s a renewed call for milk supply management in U.S. dairy policy.
Wisconsin Farmers Union president Darin Von Ruden, a third-generation dairy farmer from Westby, said the milk supply-demand imbalance should be a wake-up call to all dairy farmers.
He encouraged farmers to advocate for private and cooperative processor policies that: 1) balance milk supply and processing capacity across all members, instead of dropping selected producers; and 2) establishment of co-op base programs to harmonize milk supply and processing capacity to avoid termination of milk contracts and milk dumping. Von Ruden also called on NMPF and member co-ops to advocate for market stabilization as a feature of any federal dairy policy.
With advance warning Canada was moving toward policy changes impacting U.S. exports, Von Ruden expressed disappointment farmers were given so little notice of milk contract terminations.
“The affected farmers would be in a much better position today if they had received advance warning from Grassland months ago to curtail their production,” Von Ruden said. “We encourage other dairy processors to be more forward-thinking in their communications with their farmers.”
Finally, Von Ruden defended Canadian efforts to protect its own dairy farmers, urging the U.S. dairy industry to focus on matching its own supply with domestic demand.
“We are at a critical turning point in the U.S. dairy industry,” Von Ruden said. ”We can either continue with this increasingly volatile roller-coaster ride that has been brought on by changing international trade policies and fluctuating currency values, or we can decrease our over-reliance on international markets and harmonize domestic supply with demand.”
The U.S. exported nearly 15 percent of 2016 milk production (total solids basis). USDEC president and CEO Tom Vilsack recently told delegates at the Dairy Farmers of America annual meeting that USDEC was seeking to raise exports to 20 percent of U.S. milk production by 2020.
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