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Milk with no home: Producers, processor face challenging times

Progressive Dairyman Editor Dave Natzke Published on 04 April 2017
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What started out as a year of milk price optimism is turning into a nightmare for some dairy farmers. Two recent announcements have producers in the Midwest and Northeast facing the reality they must find new markets for their milk.

Midwest: Grassland Dairy

In the Midwest, the challenges relate to both milk production growth and the sudden closing of an export market in Canada.

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On April 1, Grassland Dairy Inc., based in Greenwood, Wisconsin, sent letters to some patrons notifying them the company would no longer be able to accept their milk, effective May 1.

Grassland, a third- and fourth-generation family-owned company created in 1904, is one of the largest cream processors in the U.S. Predominantly a butter manufacturer, it produces branded and private-label butter for a wide range of markets, and also processes fluid and milk powder products. Grassland went through a major expansion in 2010-2011, adding milk powder drying capacity and boosting the company’s milk handling capacity to between 5 million and 6 million pounds of milk per day.

Grassland’s letter to affected patrons said the decision to sharply cut back milk procurement volumes was prompted by a change in Canadian dairy pricing policy, effectively closing an export market for one of Grassland’s major products, ultrafiltered (UF) milk.

Goedhart Westers, Grassland’s vice president of business development, said the company was given a two-day notice that its Canadian UF market was closed, impacting about 1 million pounds of milk it processes per day.

While Canada’s dairy ingredients policy has yet to be officially announced, market analysts say the Canadian Dairy Commission, which coordinates federal and provincial dairy policies and creates a control mechanism for milk production, has reduced the price it makes Canadian-produced UF milk (called difiltered milk in Canada) available to domestic cheese makers down to the global price.

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“We were exporting UF milk to Canadian cheese plants,” Westers said. “Canada’s policy has targeted that trade flow, making it no longer competitive. It is priced at such a level that makes our trade flow cost prohibitive.”

“We have [production] lines that were dedicated to this field that are now sitting idle,” Westers said. “We’ve tried to absorb the milk internally, but we cannot absorb it all. It’s not a healthy situation. We had to review our milk volumes, which is why we had to make this decision.”

Short term, milk intakes remain more than what the company has a market for, and milk is being diverted to other products, he said.

“We cannot develop sales for this volume of milk in two days,” Westers said. “We’ll manage through for another 30 days, but we have to let some milk go.”

Although some reports estimated the number of dairy farms impacted at about 75, Westers would not disclose the total number. Several factors went into which farms were chosen, but the company did not target herds of a specific size, he emphasized.

“These are good farms with good milk,” Westers said. “One of the things we took into consideration was whether our patrons were in areas where they might have alternative markets. They need to find a new home for their milk, and it has to happen over the next 30 days.”

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“This is the last thing we wanted to do,” Westers said. “We’re in the business of procuring milk, not getting rid of milk, and this goes against our nature as a company.”

Beyond the loss of the Canadian export market, Westers said the continued increase in U.S. milk production, which has grown faster than processing capacity, adds to the challenge. Like other parts of the country, milk oversupply is plaguing much of the Upper Midwest.

“Farmers have to milk more cows because of the low milk price,” Westers said.

Although the traditional “flush” season hasn’t begun, milk supplies are “long” and have been for months. In addition, milk components, especially milkfat, have been strong. Westers cited high feed quality and quantity in the Midwest and dairy herd genetics as potential factors. The high value of milkfat in relation to the overall milk price has also provided an incentive for dairy farmers to focus on butterfat production, he said.

Westers expressed hope the adjustment to reduce intakes is adequate to account for increased seasonal production from remaining patrons.

Grassland implemented a rBST-free program as of Jan. 1, 2017, but milk volumes did not go down markedly, he said. “You look at the markets today, we’re as long as we’ve ever been.”

Grassland previously served as a federal order balancing plant, but with milk production growth, it no longer had capacity to accept that milk.

“Now, we’re balancing our own milk supply,” Westers said. “We’re tapped out. Losing the sales to Canada, we had to fill every hole we had in our plant, and we still have too much.”

Westers said the family owners of Grassland have had stakes in dairy herds for years, but that was also not a factor.

When asked if there were any other alternatives being explored, Westers said the company is focusing on the immediate problem, with no other options available.

“There isn’t much we can do about it,” Westers said. “Cows produce milk, and we have to find a home for it. That’s the reality of it. It’s the last thing we wanted, the last thing we wanted for our patrons. At the same time, we have to protect the long-term future of the company and our other patrons. Our focus is that we make sure we get through this and help our patrons find a home for their milk. Once we’re at that point, we can visit other things.”

The border battle between the U.S. and Canada is likely to continue.

“We’ve been working to build this market in Canada for years,” Westers said. “We’ve worked with state and federal agencies, [Wisconsin] Governor [Scott] Walker’s office, the U.S. Dairy Export Council and others to hold on to the Canadian market. There was a demand for [UF milk], and there still is. But Canada has a quota system and they have protectionist dairy policy. We can argue, but it doesn’t matter. Access has fallen. It’s sad one decision can have such a big impact on us as a company and our patrons, when we know it isn’t in line with international trade agreements.”

“It’s a bad deal. It’s amazing how a decision in Canada can have such a big impact on us and our patrons. It’s a new reality,” he concluded.

Read also: DFA outlines 19-month ‘safe harbor’ for Northeast independent producers

Editor’s note: An email to Progressive Dairyman identified another Wisconsin-based company that allegedly had informed dairy farmer milk suppliers it would no longer accept their milk. Progressive Dairyman is withholding that identity until it is able to contact the company for confirmation and details.  end mark

Dave Natzke
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PHOTO: Please note that this is not the actual letter sent out by Grassland Dairy Inc. Illustration by Corey Lewis.

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