Dairy industry faces decline due to COVID-19
Dairy farmers are staring at a possible perfect-storm scenario in a few months if milk prices continue to decline because of the COVID-19 pandemic.
Research Analyst and Agricultural Economist Mike Helmar with the University of Nevada, Reno’s Center for Economic Development told the Lahontan Valley News on Friday milk prices reached a high of $20 per hundredweight, but as of last week, the price is now hovering at about $13 per hundredweight.
“Since April the prices have fallen right off the cliff,” Helmar said, pointing to a drop upward of 30% per hundredweight. “This is a national issue.”
A hundredweight equals 100 pounds, or 11.63 gallons for high-butterfat whole milk.
With many states closing schools and restaurants where indoor service is offered, Helmar said the consumer base has declined. Without students in school, the need to have milk at breakfast or lunch has dropped as has the changing trend in eating most meals at home. Before the closures associated with the pandemic, Helmar said about 54% of people ate at restaurants, but now that number is nearer to 20%.
“Restaurants are more inclined to serve ice cream and more cheese,” Helmar said. “Cheese consumption has also fallen a lot.”
Helmar pointed to 20 dairies in California that have begun dumping excess milk because of lower consumption. Even with essential industries, he said more people are, instead, working from home and not eating out as much.
The American Farm Bureau Federation also presented another concern. The occasional empty supermarket milk coolers reflect supply chain adaption challenges, not a lack of supply.
“Farmers and ranchers are determined to deliver on their commitment to provide a safe and abundant food supply, but make no mistake, they are facing make-or-break struggles, like many Americans,” said American Farm Bureau Federation President Zippy Duvall. “After years of a down farm economy and damaging severe weather, the COVID-19 ripple effects are forcing farmers and ranchers to face heartbreaking financial realities. Without question, the disaster aid provided in the CARES Act is a lifeline that will help many farmers hold on. We don’t know how many for how long, but we’re grateful.”
According to the farm bureau, the federal government’s CARES Act provides $9.5 billion to the U.S. Secretary of Agriculture for financial support to farmers and ranchers impacted by the coronavirus. Roughly $14 billion will go to the Commodity Credit Corporation. Direct food- and agriculture-related provisions in the CARES Act, including the support for USDA and the CCC and additional funding for the Supplemental Nutrition Assistance Program (SNAP) accounts for only .02% of the total aid provided in the bill.
Churchill County Commission Chairman Pete Olsen, who is also one of the Lahontan Valley’s largest dairy operators, said it’s important for him and other farmers to access some of the loan money. He said one major lender with an office in Fallon has stopped processing applications for the response fund.
He expressed hope that more applications will be processed.
Olsen said a major problem facing dairymen is consumers have stepped away from the markets. One of the saviors for local dairymen, though, has been the Dairy Farmers of America’s dry milk processing plant in Fallon, which opened more than five years ago. Olsen, who is a DFA board member, said local dairymen still ship their milk to the plant, which currently has contracts for its product.
“For the near time, we’re OK,” Olsen said. “We may be able to ride this out.”
To remain profitable or at least break even, Olsen said he will reduce his herd upward to cows. About 13% to 14% of his dairy’s milk goes to Model Dairy for milk products, and the rest goes to the DFA plant. This spring will be different.
“Spring is the best production time,” Olsen said. “Schools are in session, and it’s usually a high time for production.”
But this spring will be different, many of the area’s dairies belong to the same cooperative, but Olsen said everyone is “in the same boat” with what the dairymen face in reductions.
“Prices are horrible,” he said. “It’s like 11 years ago.”
During the Great Recession, the price per hundredweight had fallen to $11.13 in 2009. Several local dairies had reported losing upward to $300,000 that year. Helmar, though, said in looking at the commodities futures, there are poor predictors. The month of May could see a decline of $2 per hundredweight, but in June, the price could increase.
Helmar wonders if the DFA plant can continue to operate at full capacity from the local farmers.
“If they (DFA) can’t, then they may have to unload their product,” he said.
Helmar, though, said China has cut back on imports, but New Zealand has captured new markets.
Olsen said the dairymen are looking for ways to increase the visibility of their products and increase sales. Ideas he mentioned included pizzerias putting more cheese on their pizzas or encouraging food banks to hand out more milk.
The dairy producers, do have some good news pertaining to local consumption. Summer Stephens, superintendent of the Churchill County School District, said each daily meal that his handed out contains two small cartons of milk.
Another problem facing local dairies is border restrictions between the United States and Mexico. Olsen said Mexico is a good market for international milk consumption.
“We typically shipped products to Mexico,” Olsen said. “It was a good dairy trade.”
Now, without that market, Olsen said it’s causing more supply shocks as is with the decline of the Asian market, specifically Southeast Asia. He said the co-op has been taking a broader approach since a downturn five years ago and is trying to spread out the trading market for more dairy sales.
Alan Perazzo, who runs the Perazzo Brothers Dairy with his brother David, said the industry is in “a crisis mode” because of the price drop.
“I didn’t think we were this connected with everything,” he said.
About 40% of his dairy’s fluid milk goes to schools and restaurants. The Perazzo Brothers Dairy market also includes the DFA plant and Model Dairy.
Perazzo, though, is perplexed with individual stores restricting milk sales by limiting purchases to one or two gallons. He said it doesn’t make sense to have milk rationed on the shelf.
Olsen, however, said he was on a call that discussed situations like that in other states. He said it’s more of a supply chain issue because the trucks can carry only so much.
“They have plenty of milk,” Olsen said, adding it’s a problem of getting the products into the stores.
Like other dairymen are facing in Northern Nevada, reductions loom.
“We have a 30-tank excess,” Perazzo said of his dairy’s supply. “We have to cut back on our production. We may be looking at reduction.”
Perazzo explained the domino effect in the Lahontan Valley and Lyon County whereas the two dozen dairies will reduce the number of cows by taking them to the livestock auction yards. He’s looking at reducing from 1,725 head to 1,600.
“Dairy is not like a switch,” he said. “You can’t turn on the milk, you can’t turn off the milk.”
A new report from CoBank may be the one bright beacon giving dairy farmers some needed optimism.
“A stable-to-slowly shrinking cow herd will keep milk production figures in check while the world emerges from a global pandemic,” the report states. “The number of dairy cows in the U.S. has been decreasing for decades as farmers have found ways to increase the amount of milk individual cows produce. The stability of that downward trend will help farmers plan for future business.
“Feed costs are expected to be lower, which will also help dairy farmers weather this uncertain time.”