Dairy farmers hammered by COVID

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by Joseph Gresser

With schools, restaurants, and hotels shuttered to stem the spread of the coronavirus, the country’s dairy farmers are suffering even more than usual.  Milk prices that were expected to rise to about $20 after staying stubbornly below the cost of production for more than four years are now projected to plummet to between $12 and $13 a hundredweight for the next few months.

According to Catherine de Ronde, senior economist for Agrimark, those prices will result in an average $175,000 loss per farm for the year.

Farmers are expected to finish out 2020 with an average price of about $15.50 per hundredweight, according to her projections.

It costs conventional farmers around $20 a hundredweight to make milk.  For organic producers, that price is in the neighborhood of $35 said Anson Tebbetts, Secretary of the state Agency of Agriculture, Food, and Markets, who spoke at an online meeting about the dairy situation on April 9.

Without quick help from Washington D.C., Secretary Tebbetts and other meeting participants said, many farmers may not be able stay afloat.

“The markets dried up overnight, because everything is pretty much shut down,” Secretary Tebbetts said.  “Schools, restaurants, even your coffee shops are closed.  You couldn’t imagine how much milk is being served in coffee shops across the country.”

He said cheesemakers are having the same experience.  Many have been selling in the New York and Boston markets.  With high-end restaurants there shut down, they are hurting.

Douglas DiMento, director of corporate communications for Agrimark, said Tuesday that, while the quantity of dairy products going to the food service industry has dropped, milk is flying off the shelves at grocery stores as consumers buy more in retail establishments.

While that’s helpful, it’s not enough to make up for the loss of big customers, he said.

Food service businesses normally use between 40 and 50 percent of the dairy industry’s production, Mr. DiMento said.

Mr. DiMento said plunging prices come at a particularly difficult time for producers.

“This month and next is when dairy farmers decide if they are going to stay in business for the year,” he said.  “They have to decide if they are going to borrow and spend the money to plant corn.” 

Mr. DiMento said feed for cows is about 35 percent of a dairy farm’s annual expenses.  

In a letter that will be sent to Agrimark members along with their milk checks, Ms. de Ronde said, “Until the virus is under control and social distancing measures are relaxed, the loss in dairy demand will continue to drive prices down further.  Though we expect much of this demand to return, the spike in national unemployment and changes in consumer behavior have the potential to prolong the come-back.”

Ms. de Ronde participated in the conference call and said the price of cheese, which was priced at $2.30 on the commodities market a few months ago, has fallen to $1 a pound.  Similarly, butter, which was in the $2.20 range has dropped to $1.25.

“It’s unimaginable,” Ms. de Ronde said.

“If we look at a conservative forecast right now, we’re expecting that dairy markets are going to be approximately 10 percent oversupplied in the coming months because of this pandemic,” she continued.  “Now, historically, we have observed that a 1 percent misalignment in supply and demand has equated to a tenfold change in the milk price.   So with that 10 percent expectation, if it’s realized, the impact on our milk prices is going to be absolutely enormous.  And unfortunately it is going to create a reality that is a severe and permanent change to our dairy industry and our rural economies throughout the nation.”

Leon Berthiaume, CEO of the St. Albans Dairy Cooperative, agreed.  He noted that the supply of milk was increasing in the months before the coronavirus reared its head.

“Milk production was up 2 percent in the 24 major milk producing states,” he said about February’s numbers.

Mr. DiMento said Agrimark has been unable to cope with the quantity of milk its farmers are producing despite expanding plants and improving equipment.

He said Agrimark has been forced to dump some of the milk, although the cooperative paid farmers for it.

That has happened with other cooperatives around the state and country, said Mr. Tebbetts.  He said he knew of no instance of farmers who did not get paid for milk they shipped.

Mr. Tebbetts said he and agriculture officials from the other New England states have written to U.S. Agriculture Secretary Sonny Perdue to ask for help from the federal government.

He said the U.S. Department of Agriculture (USDA) was given $9-billion under the CARES Act, money meant to help farmers deal with the current economic situation.  

Mr. Tebbetts said he and representatives from other dairy states have asked Secretary Perdue to set a floor price for milk at the average cost of production, $19.50 for conventional farmers and $35 for those who make milk organically.

He said he has also asked that more dairy products be purchased and distributed to people who are having a hard time making ends meet under the present circumstances.

So far, Mr. Perdue has not responded to the letter, Mr. Tebbetts said.  He said the USDA has a lot of different kinds of farmers to look after, and he is not surprised it’s taking a little time to make a decision.

Congressman Peter Welch, who organized the meeting, said he spoke with Secretary of Commerce Peter Peterson.  He said the secretary is pushing to add $3 per hundredweight to farmers’ milk checks over the next three months.

Secretary Peterson’s proposal would pay the whole $9 upfront, to give dairy farmers some operating income.

On Tuesday Mr. Tebbetts said the plan would also include a 10 percent reduction in the amount of milk farmers produce.

“I don’t know if the program would be mandatory or voluntary,” he said.  “If it’s voluntary, I don’t think it will work.”

As Mr. DiMento said, farmers have been making as much milk as they can even with low prices in order to maintain their cash flow.

The state agriculture agency has been working with limited success over the past year or two to promote what it calls “growth management.”

Growth management or, as it is more generally known, supply management, has been proposed over the years to keep milk production in line with markets.  It has traditionally been met with skepticism by independent-minded farmers, especially in larger dairy states to the west, where producers have long tried to work their way out of difficulties by making more milk.

Things appear to be changing.  Mr. DiMento said Agrimark’s board, composed entirely of dairy farmers, approved a supply management program for the cooperative. 

He said there have yet to be any adjustments to the originally established program in reaction to the pandemic situation.  Those cannot be made until the next monthly meeting of the cooperative board, Mr. DiMento said.

Nevertheless, he said, Agrimark has been working to cut back on its members’ production for years.  It stopped accepting new cooperative members five years ago.  It currently has 825 farms in production.

During the meeting, Representative Welch said programs recently established under the legislation passed in March and intended to relieve some of the hardships faced by individuals and businesses, need adjustment

The Small Business Administration, he said, has decided that farms are not eligible for the $10,000 emergency loans provided to other small businesses.  For qualified borrowers, the loans are automatically converted to grants.

While farmers can apply for help under the Payroll Protection Plan, there are some serious hitches.  For instance, they are barred from including wages paid to temporary agricultural workers who are here under the H-2A visas when laying out their past payrolls.

This, Mr. Welch said, despite the fact they live here while working and pay taxes.

He said he and his fellow members of the Vermont congressional delegation are working to change those restrictions.

Mr. Welch said Senator Patrick Leahy has been working to reopen the Margin Protection Program, which allows farmers to buy insurance to make up income lost when the cost of production exceeds the amount they get paid for their milk.

He said there are ways to fix the problems farmers are facing, but it is important to get money to dairy producers quickly.

Every participant in the call shared the opinion that urgent action is needed.

Mr. DiMento, too, said he thinks swift action is important.

“I’ve been working for Agrimark for 37 years, and I’ve seen a lot,” he said listing about 12 different iterations of dairy policy, beginning with the whole herd buyout program in the 1980s.  “This is the most difficult time I’ve ever seen.”

He urged consumers to buy locally produced dairy products and shop at farm stands whenever possible.

Mr. DiMento spoke of the many farm auctions he has witnessed, and how hard it is to see people lose what they have worked so hard to build.

“I think of myself as a tough guy,” he said,  “but every time I go to a farm auction, I cry.”

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