Farmers Dump Milk in Latest Blow to Battered U.S. Dairy

(Bloomberg) -- With milk prices plunging to lows that haven’t been seen in nearly four years, dairy cooperatives are dumping the product to curb an oversupply.

While shoppers are clearing out milk cases at grocery stores, that’s not making up for the closings of restaurants and schools. U.S. cows are entering their most productive time of the year right now as the coronavirus is killing off a significant source of demand.

Some dumping usually occurs during the U.S. spring, but this year it will be “even more aggressive,” said Alyssa Badger, director of operations at HighGround Dairy in Chicago.

“There’s no way to offset how much loss we’re seeing with school closings and food-service demand in the form of cheese and butter, just because someone’s buying an extra gallon of milk,” Badger said.

American dairy farmers have been suffering a wave of bankruptcies amid years of low milk prices, and with so many exiting -- Wisconsin alone was losing two to three dairy farms a day for the past three years -- the industry was just starting a recovery. The onset of the virus has put any such turnaround on hold.

Benchmark Class III milk futures, a type that’s used in cheese-making, dropped below $13 per 100 pounds this week in Chicago, a low not seen since May 2016. Butter prices are crashing, with futures touching the weakest since 2012 amid swelling stockpiles. Cheese is at the lowest in a year.

While Wisconsin dairy farmer Wayne Gajewski hasn’t yet resorted to dumping milk, supplies are backing up in local markets and prices have fallen below his cost of production. He’s hoping the federal government can buy some dairy products to distribute to those in need, and that the virus clears up soon.

“We’re not used to the supply chain breaking down,” Gajewski, who has about 80 dairy cows, said by phone. “That’s my biggest concern.”

Demand for dairy products initially surged due to consumers stocking up on staples. Grocers including Walmart temporarily limited how much milk customers could buy. The limits are currently not necessary for store shoppers, the company said on Friday.

But with schools and restaurants closed, some milk and cheese products have no market. Kristen Coady, a spokeswoman for Dairy Farmers of America, said the group is trying “all possible avenues” including donation opportunities at food banks.

And it’s not just dairy. Backed-up corn ethanol plants are shutting down in Iowa and Nebraska. Farmers in Florida are dumping yellow squash and zucchini.

“There’s some similarities with squash and a milk cow,” said James Alderman, a vegetable farmer in Florida. “With squash, if we have 85-degree temperatures, it has to be picked every day or it will get too big and we can’t sell it. They are cutting the squash every day and throwing it on the ground.”

Dumping shows how urgently farmers need help, said Grace Atherton, communications director at the Wisconsin Department of Agriculture, Trade and Consumer Protection. “If people do have milk disposal, we are encouraging them to document that loss,” Atherton said by phone.

The federal aid package to tackle the fallout from the coronavirus crisis includes $9.5 billion in assistance for farmers, according to the U.S. Department of Agriculture.

Canceled Orders

At Grassland Dairy in Wisconsin, orders started getting canceled in late March as eateries shut down or shifted just to takeout and delivery.

“There’s just so much unknown out there on the food-service side,” said Trevor Wuethrich, president at the dairy maker. “I think a lot of our customers in the food-service sector have butter in storage. They’re saying, ‘you know what, let’s not order for a couple of weeks.’”

Around half of butter and half of cheese is consumed at restaurants, said Matt Gould, editor at Dairy & Food Market Analyst Inc. Because so many eateries have closed, cheese manufacturers have either shuttered or are running on reduced schedules.

Milk that would have gone into those plants are instead being pushed to butter and milk powder plants -- but those are now full, too, according to Gould. That leaves dumping as the only alternative.

“With plants shut down and running at reduced schedules, there’s not enough homes for the milk,” Gould said.

©2020 Bloomberg L.P.