Ex­perts to Wis. dairy farm­ers: Ris­ing milk prices may not last

USA TODAY US Edition - - MONEY + LIFE - Rick Bar­rett

Wis­con­sin lost fewer dairy farms in June as higher milk prices kept more farm­ers in busi­ness. But some ex­perts cau­tion that it’s a “sugar high” that may not last, and farm­ers say they’re not get­ting the full ben­e­fit.

As of July 1, there were 7,079 dairy cow herds in the state, down only 44 from a month ear­lier and one of the low­est exit rates in sev­eral years.

For the first six months of 2020, the state lost 213 dairy farms, sig­nif­i­cant but far fewer than in the first half of 2019.

Boosted by govern­ment pur­chases of dairy prod­ucts and the re­open­ing of restau­rants, farm milk prices have been ris­ing.

“Farm­ers are do­ing a lot bet­ter. Milk prices today are at the high­est level go­ing back to 2014,” said Dan Basse, pres­i­dent of AgRe­source, an agri­cul­tural mar­kets re­search firm based in Chicago.

“It’s a com­bi­na­tion of things. I call it a ‘sugar high.’ Un­for­tu­nately, we be­lieve the dairy mar­kets will be over­sup­plied” to­ward the end of the year when govern­ment food pur­chases wind down, he said.

Prices have vac­il­lated in the pan­demic. For ex­am­ple, milk that is used to make cheese was priced at $17 per hun­dred pounds, about 12 gal­lons, in Jan­uary be­fore slump­ing to $12 in May and then ris­ing to around $22.

“The sharp drop in May was the re­sult of the COVID-19 virus shut­ting down schools, uni­ver­si­ties, restau­rants and food ser­vice, which caused a big drop in the sales of milk, cheese and but­ter,” Bob Cropp, a Univer­sity of Wis­con­sin Co­op­er­a­tive Ex­ten­sion pro­fes­sor emer­i­tus, wrote in a re­cent col­umn.

In re­sponse, dairy farm­ers cut pro­duc­tion, and some were asked to dump milk.

Then, govern­ment food as­sis­tance pro­grams kicked in, help­ing to lower dairy prod­uct sur­pluses. Also, restau­rants placed large or­ders to re­stock sup­plies as COVID-19 re­stric­tions were eased.

Milk prices im­proved, in some cases nearly dou­bling.

Now, the ques­tion is whether it’s sus­tain­able.

“Hope­fully, dairy farm­ers do not re­spond to higher milk prices by in­creas­ing pro­duc­tion again,” Cropp said.

This fall, dairy pro­ces­sors will likely scale up the man­u­fac­tur­ing of cheese, but­ter and other prod­ucts for sea­sonal de­mand. But if there’s a sec­ond wave of COVID-19 in­fec­tions, higher sales over the hol­i­days would be at risk.

“There is a lot of un­cer­tainty as to milk prices for the re­main­der of the year,” Cropp said. “Prices should re­main strong for the next two or three months, at least, but be­yond that, there’s more un­cer­tainty.”

“This is not a good time to try and out­guess the mar­kets,” said Kevin Bern­hardt, a dairy economist at Univer­sity of Wis­con­sin-Plat­teville.

Min­i­mum milk prices are set by the U.S. Depart­ment of Agri­cul­ture us­ing com­pli­cated for­mu­las based on the whole­sale mar­ket value of various dairy prod­ucts such as cheese, but­ter and whey.

Many farm­ers see them­selves as rel­a­tively pow­er­less in an agri­cul­tural sys­tem based on large-scale ef­fi­cien­cies. Faced with few op­tions to con­trol the price for what they pro­duce, they ramp up pro­duc­tion and hope mar­kets don’t buckle un­der the strain.

Most dairy farm­ers don’t know what they’ll be paid un­til 30 days af­ter milk has left their farms.

And un­der the pric­ing sys­tem, and what’s called a pro­ducer price dif­fer­en­tial, they don’t nec­es­sar­ily re­al­ize the full ben­e­fit of in­creases shown in the com­modi­ties mar­ket.

“A lot of that does not get di­rectly to the farmer,” said Bob Ro­den, a dairy farmer near West Bend.

“There are a lot of ru­mors about what we’re ac­tu­ally go­ing to be paid for our June milk,” Ro­den said, adding that his co­op­er­a­tive told him to ex­pect around $18 per hun­dred pounds, close to his break-even price.

“I will know what I ac­tu­ally got af­ter July 18th,” he said.

The re­cent higher prices have helped farm­ers re­gain their foot­ing af­ter years of losses or barely cov­er­ing their costs.

“What’s hap­pened is farm­ers have bor­rowed against their eq­uity in or­der to keep go­ing,” Ro­den said. “But we have dug some deep holes that we need to get out of, and that doesn’t change overnight.”

The re­cent dairy cri­sis that be­gan in late 2014 un­der­scored changes in agri­cul­ture that have been tak­ing place for decades but sped up more than many ex­pected.

Farm­ers are now en­gaged in a global mar­ket­place that can be up­ended for months, even years, by trade wars, pan­demics and cli­mate change.

There’s not much con­fi­dence in the higher prices now, said Daniel Smith, pres­i­dent and CEO of Co­op­er­a­tive Net­work, a Wis­con­sin and Min­nesota group that rep­re­sents co­op­er­a­tives in dozens of fields in­clud­ing agri­cul­ture, health care and util­i­ties.

“For all of us, COVID-19 is the wild card,” Smith said.

From cran­ber­ries to wheat, other com­modi­ties have also ex­pe­ri­enced price swings.

For ex­am­ple, about 40% of U.S. corn goes into mak­ing the fuel ad­di­tive ethanol, and those sales plum­meted when Amer­i­cans be­gan driv­ing less.

“When the ethanol plants shut down for COVID, a lot of that corn re­mained in bins. If we come up with a siz­able grain crop this fall, there will be some pretty se­vere stor­age is­sues, let alone the im­pact on the mar­ket,” Smith said.

“The farm­ers are ner­vous as cats be­cause they’re afraid that we’re go­ing to stop buy­ing corn. And they’re right,” Randy Doyle, CEO of ethanol maker AlCorn Clean Fuel, was quoted as say­ing this spring in Suc­cess­ful Farm­ing mag­a­zine.

Ru­ral Wis­con­sin is fu­eled by the money that farm­ers spend at equip­ment deal­er­ships, feed mills, hard­ware stores, cafes and scores of other busi­nesses. When dairy farm­ers stum­ble, busi­nesses in ru­ral towns lose their bal­ance as well.

“I be­lieve the full im­pact of COVID is still hang­ing out there,” Smith said.

“It’s go­ing to im­pact our ru­ral vil­lages, co­op­er­a­tives, busi­nesses, all those things. We may see quite a drop in services and op­por­tu­ni­ties in ru­ral com­mu­ni­ties.”

Govern­ment pro­grams have helped ease some of the pain.

“But we can’t keep putting Band-Aids on things,” Smith said. “We have to come up with a long-term plan for the health of ru­ral com­mu­ni­ties that works eco­nom­i­cally, so­cially and cul­tur­ally.”

COVID-19 has ex­posed cracks in the food pro­duc­tion sys­tem, said Jim Good­man, pres­i­dent of the Na­tional Fam­ily Farm Coali­tion, and a re­tired dairy farmer from Juneau County.

Farm­ers dumped milk be­cause pro­cess­ing plants were full, yet there were milk short­ages in gro­cery stores. Slaugh­ter plants shut down from the spread of coro­n­avirus, re­sult­ing in meat short­ages.

“The food sys­tem that many thought was so good be­cause there was plenty in the stores at fairly af­ford­able prices now seems pretty frag­ile,” Good­man said.

“If work­ers get sick in a pro­cess­ing plant, or if there are trans­porta­tion prob­lems, the whole sys­tem breaks down.”

A third-gen­er­a­tion farmer for more than 40 years, he called it quits in 2018.

Good­man loved the an­i­mals and the work and had en­dured hard times, but he couldn’t see much of a fu­ture for his or­ganic dairy op­er­a­tion that milked 45 cows.

He be­lieves the loss of dairy farms, while it’s slowed some, will likely con­tinue un­til most small fam­ily-run op­er­a­tions have dis­ap­peared.

“I think that a farm like mine, once the cows are sold, is never go­ing to come back,” Good­man said.

MIKE DE SISTI/USA TODAY NET­WORK

A dairy cow pops its head up in the cat­tle barn at a dairy farm in Tren­ton, Wis.

MIKE DE SISTI/USA TODAY NET­WORK

Belkis Jac­que­lyn pre­pares cows for milking at a dairy farm owned by Bob and Rick Ro­den in Tren­ton, Wis.

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