Virus whipped Ohio dairy farmers
They survive volatile year, hope for rebound
WOOSTER, Ohio – 2020 started out looking pretty good – great even – for dairy farmer Matt Saal.
The monthly milk checks were up around $20 per hundred pounds of milk after years of stubbornly low prices.
When the pandemic hit, it pushed Saal to make a decision he never expected: Dump his milk – about 6,700 gallons of it. A day’s worth of work poured into manure storage.
Saal, who co-owns two Wayne County dairies with about 1,000 Holsteins and Jerseys, said he was “a little upset” about the dumping. What really frustrated him were the false rumors that dairy farmers intentionally dumped their product to spike prices as grocery stores rationed milk.
The truth was much more complex. Far from being small-time speculators, Ohio dairy farmers were swept by the pandemic onto a rollercoaster ride from unprecedented milk dumping in the spring to prices near historic lows in the summer that necessitated federal intervention to avert disaster.
The ups and downs of the past year left many family farmers feeling whiplashed, frustrated and nervous about 2021.
“There was not any rhyme or reason that could be explained as to why the prices were what they were doing, other than COVID, the blanket statement for everything that’s happened in the last year,” Saal said.
Other than a few weeks of grocery store rationing in the spring, consumers might not have even noticed what was happening behind the scenes as the price of milk off the shelf barely budged.
Coronavirus disaster for dairies
Nearly half of all American dairy products are sold to the food service industry, filling restaurant menus and the cartons in elementary cafeterias, so when schools and businesses closed their doors, demand collapsed overnight.
Though demand for individually packaged cheese, sour cream and gallons of milk at grocery stores soared, it was not nearly enough to offset the drop from the food services.
Dianne Shoemaker, an Ohio State University economist, said processors were not able to switch from packaging and shipping bulk orders to schools and
restaurants to individual packaging fast enough.
“It was backing up in warehouses, and they simply couldn’t process anymore, and that’s when we had some farmers who were asked to dump milk,” Shoemaker said. “Many farms did not have the kind of cash reserves to just say, ‘OK, I won’t get paid.’”
How low can milk prices go?
In other industries, when prices fall, supply usually follows suit, stabilizing prices. Because cows will not stop producing milk at the flip of a switch and dairy farmers cannot set their own prices, the incentives are switched.
“You’re always going to push for maximizing production because it doesn’t matter if (the price is) $13 or $20,” Saal said. “You’re going to try to produce as much of it as you can, because that’s going to increase your income.”
When demand fell off in the spring, dairy farmers kept producing as much as they could, driving prices down even further.
The amount farmers were paid for 100 pounds of milk (about 11 gallons) dropped to about $13 in April, then down to $12 and change in May, the lowest prices since the recession in 2008. June and July were not much better.
Those prices were $4 to $5 lower than Shreve dairyman Kevin Spreng’s breakeven price, and he was coming off a $1,200 loss from dumping more than 700 gallons of milk in early April.
“April and May were very disheartening,” he said. “Suddenly your financial situation turns into who gets paid first … and once you start down that path, it’s hard to dig yourself out.”
Spreng, who owns Willow Creek Dairy and milks about 650 cows at three
locations around Wayne County, has seen prices this bad before, but never had the price plummeted so quickly.
He considered whether he could afford to stay in dairy. In the summer, the federal government staged a massive intervention in agricultural markets through two programs funded by the Coronavirus Aid, Relief and Economic Security Act.
The first one, released in two stages, sent about $24 billion in direct payments to farmers to augment low prices.
According to Scott Higgins, CEO of the Ohio Dairy Producers Association, that money translated to about $6 per hundred pounds of milk for Ohio dairy farmers.
“Had it not been for the CARES Act funding, our farmers would have been in some serious hurt,” he said. “I mean it would have been much more devastating.”
Higgins and dairy farmers point out that the low prices were caused in part by government action and that many other industries received much more. Airlines received $50 billion in the first round of coronavirus aid.
The second program was the U.S. Department of Agriculture’s Farmers to Families Food Box program, which shipped 136.5 million boxes of American agricultural products to food pantries and needy families.
“The food box program, in an effort of the government to try and get these products in consumers’ hands, really played a pivotal role in moving product,” Spreng said.
‘Year of unintended consequences’
Shoemaker, the economist, said though government intervention saved many family farms, “2020 was a year of unintended consequences.”
Normally, the price of fluid milk (milk processed for beverage use) is higher than milk used to make cheese. In the 1930s, the government devised a complex payment system to redistribute earnings, so a farmer whose milk goes into gallon jugs receives about the same as a farmer who ships to a cheesemaker, Shoemaker explained.
As fluid milk has always been more valuable than cheese milk, fluid milk processors are required to pay into the system. The government does not compel cheesemakers to participate because the system usually benefits them.
When the government purchased millions of dollars of cheese for the food box program, it pushed the price of cheese milk to $21 per hundred pounds in June, then to $24.54 in July, a few cents short of the record high price, according to Shoemaker.
For the first time, cheese milk went above the price of fluid milk. And for the first time, cheesemakers were supposed to pay into the pricing system. Instead of paying up, they pulled out.
From May to June, cheesemakers yanked nearly 57 million gallons of milk out of the federal pricing zone that includes Ohio, a 30% drop, Shoemaker said.
Even though the price of milk was near an all-time high, because so many processors stopped paying into the system, farmers’ milk checks remained near all-time lows.
Are better days ahead?
Slowly the price of milk recovered, and by the end of 2020, it sat at about $18 per hundred pounds.
It’s a precarious perch, farmers and experts said.
Kurt Steiner, who co-owns Steinhurst Dairy south of Creston with his brother and his son, said that every three years, dairy prices dip because of cyclical patterns; 2021 is a dip year.
Strong demand for feed from the Chinese pork industry pushes up U.S. farmers’ feed costs considerably, and domestic demand remains weak, he said.
Steiner’s break-even point is $16.40 per hundred pounds of milk, and he said it will take careful planning to stay above that this year, but the dairyman remains optimistic.
“I anticipate that there’ll be a good influx of people who go back to the restaurants, and we’ll see that cheese and butter consumption go back up again,” he said.
Matt Saal does not know what this year will hold, but he has a plan.
“A day at a time,” he said. “That’s kind of got to be the approach to life pretty much anyway.”