Deal to help dairies survive crisis falls through

OKEECHOBEE — Last month, dairy farmers, milk processors and retailers met to discuss temporarily setting a minimum price for class one milk being bought from dairy farms. Market prices for milk have plummeted in reaction to COVID-19, from $19.01 per hundredweight in January of this year to $12.95 in May.

Special to the Lake Okeechobee News
Walmart opened its own milk processing plant in Indiana in 2018. Dean Foods lost some of its processing business due to the Walmart plant opening and, in 2019, filed for Chapter 11 bankruptcy. Dean Foods is one of the largest dairy producers in the United States, and bought the McArthur Dairy brand 40 years ago. Dean Foods still purchased milk from about a dozen independent dairy farms around Lake Okeechobee, including McArthur Farms. On May 4, the Dairy Farmers of America reached an agreement to buy the bulk of Dean Foods Co.’s milk plants out of bankruptcy.

In order to stem the damage from the crash, farmers and processors met to agree to set the minimum price to $15 per hundredweight. Many farmers would still be losing money at that price, yet it would greatly decrease the chances of farms going out of business as they weather this coronavirus storm. The one catch was that if the deal was to work, all parties involved would have to agree with the terms.

The Lake Okeechobee News has learned that during that meeting, every single farmer and processor east of the Mississippi River was supportive of the measure, except Walmart. Once Walmart expressed that it would not agree with a minimum price floor, the deal fell apart.

Okeechobee dairy farmer Ben Butler was not in on the meeting, but when reached for comment by Lake Okeechobee News on his reaction, he confirmed he’d heard the same description.

Colleen Larson, regional dairy agent with the University of Florida’s Institute of Food and Agricultural Sciences (UF/IFAS) Extension Service, also confirmed she has heard the same details of the meeting.

“There was a meeting of multiple co-ops and processors to ask for that bottom price to be held at $15 instead of letting it continue to plummet,” explained Mrs. Larson. “And from what I’ve heard, Walmart was the one out of that group that refused to set that bottom price.”

Although market prices for milk are crashing, the price for consumers buying milk at the retail level remain unchanged. That prospect of gaining increased margins on a product may have proved too tempting for Walmart to give up.

Walmart did not return the Lake Okeechobee News’ request for a comment on the meeting.

The market crash has put even more stress on over-leveraged dairy farms that have been in survival mode in recent years. For the past four to five years, farmers not only in Okeechobee but across the country have dealt with an oversupply problem and a tit-for-tat trade war that kept prices stagnant and put many farms out of business. At the beginning of 2020, it looked like the industry was just starting to climb out of the valley it had been in since 2015. After years of losing money, farms started breaking even or becoming profitable again. But the recovery lasted only a few months before COVID-19 hit.

Mr. Butler estimates that most farms break even when the price is $18 per hundredweight, which it hit late last year. A hundredweight is a unit of measurement equal to 100 pounds. There are about 11.6 gallons of milk in a hundredweight.

Lake Okeechobee News/Richard Marion
The price per hundredweight that milk was being sold for on the first of each month leading up to and during the pandemic.

With prices currently sitting under $12, he isn’t sure how long many farms can last.

“It’s a matter of how long can you go without paying your bills,” said Mr. Butler. “Banks are going to do what they can to work with farmers, but at some point the bank is going to say they can’t do any more. I can tell you if we start getting two and three months into this, you start asking yourself where you’re gonna go. Any dairy farmer who tells you they haven’t thought about life after dairy farming isn’t telling you the truth. These last four years has caused all of us to question what we are doing.”

After the deal fell through, dairy farmers started a initiative to petition the United States Department of Agriculture (USDA) to set a temporary minimum floor for milk for June, July and August.

Cooperative members of the Dairy Cooperative Marketing Association requested an emergency hearing from USDA’s Agricultural Marketing Service to consider the measure. However, on April 29, USDA Administrator Bruce Summers announced that the USDA would not move forward with a proceeding to consider the proposal.

“Walmart sells a lot of milk,” said Mr. Butler. “Just like everyone else, they want to buy at the best price. They are a big player in the market, so whatever they say goes. I can see their side of the argument, which says that the market is saying the value of the milk is what it is. So would you be doing the consumer wrong by trying to prop up the price?”

“But on the other hand, certainly consumers can enjoy the cheap milk now,” continued Mr. Butler, “but what happens when you lose a bunch of these farms? When we get through this crisis and the cows and milk are not there next year, what is the milk price going to be? That is what the processors and retailers will find out. If we don’t do something now, what is it going to be like a year from now when we don’t have enough milk?”

He went on to pose the hypothetical question: “Supply and demand tells you that when you don’t have enough product, the price will go up. Retailers can raise the price in the store, but can the consumer afford to pay it?”

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