In 2010, I retired as the CEO of Southeast Milk Inc. (SMI), a Florida-based regional dairy cooperative. From July to November of last year, seven years after retiring, I returned to SMI as the cooperative’s interim CEO. During those seven years some things changed and some things remained the same. Let me share with you the major ones.
The number one change was milk supply. It is a challenge balancing the milk supply in a fluid or Class I market, such as SMI’s market. This challenge is further compounded when the area is semi-tropical and has a seasonal population. During my first tenure, my balancing efforts were focused on finding enough milk to meet customer demand.
Cooperative members were encouraged to increase production. New dairy farms were welcomed. Millions of pounds of milk were imported annually from other parts of the country to ensure an ample milk supply.
During my second tenure, the balancing effort switched from finding milk for the markets to finding markets for the milk. More milk moved south to north instead of north to south. Milk supply exceeded demand. Dairy farmers were not actively encouraged to increase production.
New dairy farms faced difficulty in finding a milk market. Over-supply was not only a challenge for conventional milk but also organic milk. Who would have ever thought there would be a surplus of organic milk in the Southeast?
What caused this reversal from not enough milk to too much milk? For the past several years, milk supply in the Florida market increased while fluid sales decreased. For example, from 2010 to 2015, Florida milk production increased 21 percent while Class I sales by Florida processors declined 7 percent.
In the past, dairy farmers in the Florida and other Southeast milk markets focused on producing all the milk they could, knowing there would be readily available markets for their milk. Now the focus is changing from producing milk to finding and developing new milk markets and expanding current markets.
Related to the changing relationship between supply and demand are milk prices and over-order premiums, which is the next change. Historically, Florida and other Southeastern milk markets enjoyed some of the highest, if not the highest, over-order premiums in the dairy industry.
A review of published mailbox milk prices showed the Florida market consistently having the nation’s highest mailbox price. Generally, the Florida mailbox price was higher than the Florida order blend price.
After returning to my old job, I saw firsthand this had changed. Over-order premiums had declined significantly. The Florida mailbox price was no longer always at the top of the USDA’s monthly mailbox price list. Milk supply increasing faster than milk demand resulted in lowering over-order premiums, by some, to find a local milk buyer.
When over-order premiums are lowered to one customer, they spread throughout the market. Lower over-order premiums mean lower mailbox prices and mailbox prices lower than federal order blend prices. In addition, excess milk shipped north just to find a market increases marketing costs, which lowers mailbox prices even further.
On the positive side, low milk prices provide an incentive for dairy farmers to come together and seek ways to restore over-order premiums and improve marketing efficiencies, with the goal of increasing dairy farmer returns. Low prices prompt dairy farmers to realize they must work together, regardless of their cooperative affiliation, to improve their returns. Granted, this is a slow process, but hopefully the process is starting.
The next change is animal care or welfare. During my first tenure at SMI, the main agenda items when meeting with the fluid milk processors who purchased the cooperative’s milk were price and service. Price and service are still major topics, but animal welfare is moving to the top of the agenda.
Dairy product consumers are concerned about how the cows that provide them with dairy products are cared for. Consumers communicate their concerns back up the food chain to processors, and processors communicate it to their milk suppliers.
Almost all milk processors now require their milk suppliers to participate in the FARM program. Some processors even do their own spot auditing of dairy farms that supply them with milk. Due to comments and questions from their customers, processors told me animal welfare will become a larger issue both they and their dairy farm suppliers must constantly address.
Fluid processors emphasized to me that their company did not want to be in the news because one of the farms they received milk from was accused of not properly handling their cows. Processors stressed that the cooperative must ensure its dairy farmers provide the best animal care possible.
As stated earlier, fluid processors’ major concerns years in the past were price and service. Now that list includes animal welfare.
Even after being gone seven years, it was gratifying to see two things remained the same: resilient and cooperative-minded dairy farmers, and a strong team of employees. It goes without saying 2015 and 2016 were financially challenging for dairy farmers. Declining over-order premiums, growing surplus milk production and environmental compliance issues added to the financial challenges for the dairy farmers I worked with.
However, even with all of these challenges, most dairy farmers continued to find a way to lower costs, improve efficiencies and remain optimistic. Plus, they continued to be cooperative-minded, realizing more can be accomplished by working together “cooperatively” than going it alone.
Hopefully, a cooperative’s CEO makes a positive difference by providing proper leadership and direction and helping to plan for the future. But CEOs come and go. It is the cooperative’s other employees who get all of the day-to-day work done to make a cooperative function.
They do the vital work such as getting the milk picked up and delivered, milk samples tested, dealing with quality challenges, billing plants for milk sales, collecting the money for milk sold and seeing that producers receive a timely milk check. A hardworking and dedicated group of employees makes any CEO look good and makes their job much easier. As said many times before, you win with people.
What changed and did not change at SMI is a mirror of the nation’s dairy industry. Focus must shift from producing milk to marketing milk. Dairy farmers must work together, regardless of their cooperative membership, to improve returns from milk sales.
Animal welfare is a major issue in the eyes of dairy consumers – and one that dairy farmers must continually address. Even in times of depressed milk prices, most dairy farmers find a way to meet the challenge. Be it a dairy cooperative or a dairy farm, those who get all the daily tasks completed make the cooperative or farm work.
Calvin Covington is a retired dairy cooperative CEO and now does some farming, consulting, writing and public speaking.