Financial year in review
DFA officials reported net income of $108.5 million for 2018 based on net sales of $13.6 billion. That compares to net income of $127.5 and net sales of $14.7 billion in 2017.
DFA directed the marketing of 52.7 billion pounds of member milk, up 2.5 billion pounds from the year before. When including nonmember milk marketings, the total was 64.5 billion pounds, representing just under 30 percent of the total U.S. milk marketings.
With milk volumes up in 2018, declining sales and income were primarily the result of lower milk and dairy commodity prices. The U.S. annual average all-milk price was $16.20 per hundredweight (cwt) in 2018 compared with $17.65 per cwt in 2017. The average 2018 price DFA paid to members was $16.04 per cwt compared with $17.57 per cwt in 2017. Payments to members for milk marketed in 2018 totaled $8.45 billion compared with $8.83 billion in 2017.
Mirroring 2018 milk production trends in the U.S., marketings were up in DFA’s Western, Mountain and Southwest areas; steady in the Central area; and down in the Southeast, Mideast and Northeast areas.
The number of member farms declined from 8,551 in 2017 to 8,019 in 2018. The average herd size is about 270 cows.
By quartile, about 25 percent of DFA’s 2018 milk supply came from each of four distinct groups by herd size:
- 114 herds with 3,530 or more cows, averaging 4,987 cows
- 224 herds with 1,869 to 3,529 cows, averaging 2,544 cows
- 565 herds with 540 to 1,868 cows, averaging 1,009 cows
- 7,374 herds with 20 to 539 cows, averaging 77 cows
2019 outlook improves
John Wilson, senior vice president and chief fluid marketing officer, said DFA is forecasting U.S. milk prices to be slightly above the average of 2017, which would make the 2019 average the second highest since 2014. In addition to the potential of somewhat higher milk prices, a stronger federal dairy safety net will benefit producers’ bottom lines.
A pre-conference workshop looked at risk management options, including the Dairy Revenue Protection (Dairy-RP) program, Livestock Gross Margin for Dairy (LGM-Dairy), the new Dairy Margin Coverage (DMC) program and DFA’s forward contracting programs. DFA staff urged members to participate in DMC at the $9.50-per-cwt coverage level to take some downside risk off the table.
In a presentation to the annual meeting, Thomas Halverson, president and chief executive officer of CoBank, pointed out the U.S. economy has been growing for an extraordinary 116 months, the longest expansion since after World War II. All expansions, he said, come to an end, which could result in a recession. Unfortunately, he believes the U.S. government is not as equipped as one would hope to cope with an economic downturn.
While economists predict another recession between 2020-21, Thomas states that agriculture is in better standing.
“America’s farmers,” he said, “have always been adept at coping with uncertainty and that is a huge reason for us to be optimistic.”
Chairman’s report: Engage
In his ninth annual report as chairman of DFA’s board, Randy Mooney, a dairy farmer from Rogersville, Missouri, urged dairy farmers to practice more transparency in their businesses and engage in a global community.
“The dairy value chain has many links – all of which are essential in connecting our farms to consumers across the country and around the world,” he said. “Understanding and supporting each other makes us all stronger – individually … and together as an industry.
“If you are still dairying after the challenges of the past four years, you have proven you can survive,” Mooney said. “But if you want to thrive as a farmer, and if we want to succeed as a cooperative, and if we want to win as an industry, then all of us need to let others past our gate and inside our fences. And we need to step outside of our own farmgates into the communities that are around us.”
He asked individual farmers to engage in personal contacts or social media to make connections with consumers and potential consumers.
“When we as dairy farmers engage … our farms benefit, our families benefit and our communities expand,” Mooney said. “The cost of inaction is too high, and it has been too high for way too long. That cost is often paid for at the farm, not in a Wall Street office or even in a cooperative board room, but at our kitchen tables.”
Capital program revisited
In his annual address, Rick Smith, DFA president and chief executive officer, touched on current issues affecting dairy, both locally and globally. He noted 2018 was a difficult financial year for members, with a combination of the lower milk price and shrinking basis resulting in margins at or lower than 2009. He said he expects 2019 to be better than 2017 for dairy producers.
Despite the lengthy stretch of lower milk prices, Smith said the cooperative needed to strengthen its equity position to invest in milk markets and be in the position to take advantage of other market opportunities. That will include adjustments in DFA capital retention and patronage earnings programs, asking members to invest a larger share of their milk check and patronage earnings back into the co-op.
“Our goal is to secure markets – in some cases, new markets – and create demand. [To do that], we need more equity,” Smith said. “We have great support from the financial community to raise debt, but there has to be balance in the equation. We know we’ve needed to do this for two years, but we’ve been waiting for the milk check to be better. We know you have to replenish and get healthy, but at some point we need to do this.”
Under a timeline outlined during the meeting, the DFA board will provide details on capital restructuring to members by the middle of 2019, with implementation likely before Jan. 1, 2020.
DFA and Dean
In response to questions, Smith said the co-op’s board was watching as Dean Foods explores potential strategic business alternatives, including selling off assets, forming joint ventures, selling the business or a combination of any those. (Read: Dean Foods considering business options.)
While many in the industry are openly questioning whether DFA is a likely player if Dean decides to divest its fluid milk operations, industry sources say the situation is complicated by several factors, not the least of which is the long-term decline in fluid milk consumption.
In addition, any acquisition of Dean assets by an existing large U.S. dairy company would come under scrutiny of the Department of Justice (DOJ), related to business concentration within milk markets.
Dean’s pension obligations with current and retired employees could weigh on any sale.
Another concern is the possibility any potential sale of Dean assets could attract the interest of large, foreign-owned companies which have been aggressive in acquiring dairy businesses in other parts of the world.
Nondairy competition and global climate change
Smith said consumer issues are increasingly impacting how the cooperative must look at the future. He noted plant-based products – including product introductions by other large “dairy” companies – are encroaching in markets for beverage milk and other dairy products.
And despite individual opinions on “climate change,” consumers believe it is happening and that dairy has an impact.
“We have to sell the milk, and if we don’t participate, others will, and some of those will be from other countries,” he said. “Quality milk and quality dairy products aren’t the end of the discussion; people want to know more. We need to be engaged.”
Resolution: Base/excess programs to stay regional
Culminating a year-long review of guidelines outlined at the 2018 annual meeting, delegates attending the 2019 annual meeting voted to leave establishment of base/excess programs up to the co-op’s seven individual councils. According to DFA officials, there was no consensus within DFA as a whole, or even within individual councils, for the widespread adoption of a national base/excess program. There are currently six separate programs in three councils.
2019 Members of Distinction
Dairy farm families in each of DFA’s seven regions were recognized as 2019 Members of Distinction. They included:
- Central: Brandt Family, Brandt Dairy – Linn, Missouri
- Mideast: Brown Family, Brownhaven Dairy – New Bremen, Ohio
- Mountain: Korn Family, Korn Dairy – Terreton, Idaho
- Northeast: Reynolds Family, Cross Winds Dairy & Daughters – Alburgh, Vermont
- Southeast: Eberly Family, Eberly Family Farm – Waynesboro, Georgia
- Southwest: Koke Family, Blue Bonnet and Blue Jay Dairy – Dublin, Texas
- Western: Verwey Family, Philip Verwey Farms 2 and 3 – Hanford, California
Finally, the cooperative named 46 recipients of DFA Cares Foundation Scholarships totaling $69,000. Scholarship selection criteria included a commitment and passion for a career in the dairy industry, extracurricular activities, awards and work experience, and academic achievement. 
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