Now that Dean Foods has filed for bankruptcy, what does that mean for farmers whose milk gets shipped to a Dean’s plant? And what about the milk market in the Northeast?
Let’s deal with the former question first. If you ship milk to a Dean’s plant, nothing will change, at least not right now.
Anne Divjak, vice president of government relations and external communications for Dean Foods, wrote in an email that it’s essentially business as usual for the company.
“Our partnership with our dairy suppliers continues to be the foundation for meeting our customers’ expectations. All of our contracts remain in place,” Divjak wrote.
The company owns eight plants in the region: four in Pennsylvania, two in Massachusetts, and one each in New Jersey and New York. You’ve seen their brands in stores: Swiss Premium, Lehigh Valley and Garelick among many others.
The company has received a commitment of $850 million in debtor-in-possession financing from its lenders to support day-to-day operations during the bankruptcy process. It’s rolled out an FAQ you can find online.
DFA is in “advanced talks” to buy the company’s assets.
Now to the second question: What about the milk market in the Northeast? And if more Dean plants close, what will be the impact to farmers?
“There is no way to generalize a likely impact, but some impact on hauling would be predictable,” says Andy Novokavic, professor of ag economics at Cornell University. “For example, the recent announcement that AMPI [Associated Milk Producers Inc.] will close its plants in Iowa and Minnesota due to the shrinkage of milk production in those areas means that farmers who are still in business there will have their milk shipped to the plant in Wisconsin. AMPI will handle the same volume of milk and probably do so at a lower plant cost, but those surviving farmers in Iowa and Minnesota will face a higher transportation cost.
“Shrinkage of total Class I sales is an industry-wide challenge and problem. It doesn’t really matter who serves that market as far as farm prices are concerned, or at least the blend price. The shrinkage of that market is undoubtedly a major part of Dean’s problem. Farmers should be concerned about declining Class I sales, but I’m not so sure that who serves that market, whatever it is, is of particular importance to farmers in total.”
Northeast dairy market at a glance
As far as the overall Northeast market, it’s a complicated balancing act.
A May 2019 report by Farm Credit East shows that the metro region from Boston to Washington, D.C., is the biggest milk-deficit region in the country. It’s expensive for dairy farmers to farm and costly for processors to be located near big cities.
Still, milk production increases, on average, by about 1.14% a year in the overall region, or 325 million pounds. If people are drinking less milk, where is the excess milk going? Timing has a lot to do with it.
Milk demand is strongest during fall according to the report, as the holiday season accounts for much of that demand. Surges in production, though, happen in spring when the flush occurs.
Some dairy plants can make dairy products with a longer shelf life that can be held until fall, but not all of them can. And with less demand for milk in spring, this leads to dumping. The report states that milk dumping has doubled since 2015, most of it occurring during spring flush. This leads to lower milk checks.
A lot of milk that’s produced in the Northeast goes to the Southeast, another big milk deficit area, where there are much fewer dairy farms and processors. Milk is shipped in from the Midwest and West to provide the “balance” to plants here.
Less demand, bad timing and having a highly perishable product equals big challenges. So, what’s the solution? Build more plants to handle the flush? Tell dairy farmers to milk less cows? Hope people drink more milk? Probably a little bit of each.
Mark Stephenson, director of dairy policy analysis at the University of Wisconsin, said in the report that a “simple calculation of increasing processing days per week to less than the absolute potential of existing plants suggests that there may be enough capacity in the system to handle the spring surge of production. Still, plants, whether proprietary or cooperatively owned, do not want to manufacture more products than they believe they have customers for.”
In other words, getting more people to drink more milk during spring would definitely help.
Lucas Fuess, director of dairy market intelligence for High Ground Dairy, sees another opportunity for Northeast dairies.
With more milk being processed in the Midwest for cheese, Walmart’s new milk plant in Indiana and overall less farmers in that region, there is now less milk available from the Midwest to go to the Southeast. Although milk production has dropped in Virginia and Pennsylvania, production continues to increase in New York and New England, so more milk could be shipped.
“It is HighGround’s opinion that plentiful milk across New York and New England will begin to move south to fulfill processing needs in other parts of the country, and to make up for steep production declines in states to the south. This milk moved out of the region could reduce milk dumping throughout this year, therefore increasing utilization of higher value Classes and increasing milk prices across the Northeast marketing area,” Fuess said in the report.
Only time will tell just how much Dean Foods’ bankruptcy will affect the overall dairy industry.
In the meantime, though, get your neighbors to drink more milk and eat more cheese. That will be good for everybody.