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Search for Milk Buyers Continues

by Sherry Bunting

Published: Friday, May 11, 2018

As Dean Foods' first quarter earnings of $1.98 billion beat expectations by $130 million—prompting an 11 percent increase in the value of the publicly-traded company's shares by noon Tuesday (May 8) on the stock exchange—approximately one-third of the over 100 dairy farmers in eight states facing Dean contract terminations on May 31 are still seeking buyers for their milk.

Furthermore, as many as 10 of the 42 affected dairy farms in Pennsylvania did not receive an advance payment April 26 for their April milk because they began shipping to new buyers before April 23. Those farms are now waiting 40 days until settlement later in May for milk shipped to Dean Foods in the first half of April and did not have sales with the new buyer to provide much, if any, in the form of their milk check advance.

"It's tough out here for everyone right now," says Doug Leman, executive director of Indiana Dairy Producers in a phone interview Monday. "There aren't a lot of options."

For the 25 affected farms in Indiana, Leman notes that the individual situations run the gamut. Some have signed on with new milk buyers. Some are waiting on offers. Some have offers and are going through decision processes and working out details like trucking, which is another part of the situation that is unfolding.

Michigan Milk Producers and Great Lakes Milk Producers are among the potential cooperatives looking at offering contracts to Indiana farms affected by Dean contract terminations.

"We have had contacts with some of the affected Indiana farms and are looking for opportunities for them," said Doug Brechler for Great Lakes Milk Producers. "Like the affected farms, we are still making decisions. We can only take the milk we have a market for."

Brechler confirmed that Great Lakes Milk Producers is one of several entities that will be supplying the Fort Wayne Walmart plant.

Brechler and Leman both see the new Walmart plant as an opportunity for milk producers in the Mideast milk marketing area, even though the current situation in milk markets is difficult at this time.

This is Walmart's first milk bottling plant, and it is working toward full production by the end of the month.

While Leman sees the market loss situation coming to some resolution for farms in northern Indiana, he sees some challenges in the southern part of the state. Those farms largely marketed to the Dean plant in Louisville, Ky., which also terminated Kentucky producers.

"It's down to the wire and we're working on a hail-mary," said Maury Cox, executive director of the Kentucky Dairy Development Council. "We started with 19 affected producers, and we're down to 14. Some have exited the business and we may lose a couple more."

He says the KDDC, Kentucky Department of Agriculture and the Governor's Office of Ag Policy are all involved helping these farms find a solution before their last pickup with Dean's on May 31.

In Tennessee, a few affected producers sold their herds, and one is still looking for a milk market. The remaining half-dozen found a small cooperative to market their milk just three weeks ahead of the deadline.

In Ohio and western Pennsylvania, some affected producers have exited or are planning to sell their cows, but most have found milk buyers.

Schneider's Dairy, with a bottling plant in Pittsburgh, picked up four western Pennsylvania producers early-on and four more last week. Schneider's uses the PA Preferred seal on their milk and report that consumer requests have increased for "local milk" as news of the milk contract losses spread.

In eastern Pennsylvania, Harrisburg Dairies stepped up to buy milk from some of the 26 farms dropped by the Dean Swiss Premium plant in Lebanon, Pa. Harrisburg Dairies also uses the PA Preferred seal and has reported increased interest from independent retail grocers as the response from consumers seeking local milk at stores in eastern Pennsylvania has been impressive.

Reace Smith, director of corporate communications for Dean Foods noted in March that the company's plants were affected by a new Class I bottler (Walmart) in the Mideast milk marketing area, along with a contract loss in the Northeast milk marketing area, and that they would be dealing with "volume issues" as early as April and fully 30 to 60 days before the volume-adjusting contract terminations would be in effect.

That being the case, and in light of Harrisburg Dairies' offer to buy displaced milk, approximately 10 farms in eastern Pennsylvania made the switch before April 23, and are now paying the price with no advance payment for their April milk. This has created many hardships on farms where every dollar coming in is earmarked in a time when margins are below breakeven and crop inputs must be purchased as well as routine costs associated with the dairy.

On the failure to make the advance payment on milk received from producers who began shipping to new buyers partway through April, Smith wrote in an email late Monday that, "According to our vice president of milk supply, the farms shipped a few days in the month of April and left for another processor. The Federal Orders say that farms who leave prior to the 23rd of the month don't get paid an advance. At Dean Foods, we follow the Federal Market Order rules and regulations, which does not require an advance payment to farms who leave midmonth, which would apply to these farms. The final will be paid on the established due date once the final price is set. We will pay them when the April settlement is due. That date is set by the Northeast Milk Market Administrator and we expect it to be around May 17."

Questions about whether Dean Foods would be subject to a 1 percent late fee on these advance payments were submitted to the Northeast market administrator on Monday. The questions were acknowledged by the public affairs office in Washington, but not answered by press time.

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