Milk dumping is a coronavirus reality
Milk producers across the country are faced with the sobering reality of just how the COVID-19 pandemic is impacting the dairy industry. They are being forced to dump milk because supply chains, affected by the massive closings of schools, restaurants, and related businesses, cannot process milk fast enough.
The numbers are staggering. Dr. Mark Stephenson, Director of Dairy Policy Analysis at the University of Wisconsin-Madison College of Agricultural and Life Sciences, recently walked more than 600 webinar attendees through what the dairy market faces.
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Approximately 50% of all cheese consumption is done out of the home. “When the social distancing measures were put in place, demand from the food service sector fell almost immediately,” Stephenson says. “While we are seeing an uptick in some sectors, the decline in food service cheese demand cannot be offset by increased retail consumption. I expect the overall net loss of cheese demand to be conservatively at least 5%, and probably closer to 10%. We have had a net loss in sales.”
In the upper Midwest, five barrel cheese plants that produce for the food service industry have been essentially shut down. Those plants account for about 12% of the milk production in Wisconsin and Minnesota. While some of that milk is being moved into other plants, “that is a lot of milk,” Stephenson says. “With overall demand down, cheese plants don’t want any more product than they are making right now.”
Approximately two-thirds of fluid milk production makes its way to the retail sector. While there has been an uptick of fluid milk demand by consumers during the current pandemic (reversing a longstanding trend in the market), the institutional and food service demand for fluid milk is down significantly. “In total, fluid milk consumption is a net negative of 5% to 10%,” he says.
Traditionally, more than half of butter consumption is outside the home, and while retail butter sales are up, it’s not enough to make up for the loss in institutional and food service sales. “Total butter production is off 10% to perhaps 20%,” Stephenson says.
“If you take a look at all of these products, we are clearly down in overall demand for dairy products,” he says.
Adding to the woes is the spring flush, in which milk production was expected to see a larger than expected increase in the spring months. “February milk production was up 1.7% across the country,” Stephenson says. “Just at the time all of this social distancing was breaking, we were beginning to build up a head of steam for milk production in the country. We’ve been watching the milk supply build over the last few months and now cow numbers are up.”
The bottom line is that the increase in production would be keeping a lid on milk prices under ordinary circumstances, but adding to the depressed prices is an adequate inventory, export disruptions prior to the current crisis, and a tailspin of worldwide economies that have caused supply chain disruptions in most every economic sector, not just dairy.
“In mid-January dairy futures were in the $17.50 to $18/cwt range. On April 3, prices were down $5 to $6/cwt per contract,” he says. “That is a huge drop, and it is likely those contracts will be close to those prices.”
The pressures on the market aren’t just at the farm level. “It’s bad enough on the farm, but there is the potential for problems downstream,” Stephenson says. A significant number of milk haulers are small businesses with only one or two trucks and getting the milk off the farm could become a significant problem if there is a shortage of trained drivers.
While dairy processing plants are well versed in sanitary practices, COVID-19 infections within the workforce could create processing slowdowns.
“The reality right now is that in total there is a lower volume of milk needed by the market,” he says. “This could be another brutal year for dairy, with prices being the lowest in the past five years.”
Overall, what the market is currently witnessing is the incredible complexity and specialization that exists within the dairy sector. “We are highly specialized, which makes our market highly efficient in delivering products to consumers,” Stephenson says. “But we are also seeing that a major disruption in the marketplace can have a significant impact.”