Written by John Lindt
It’s been a wild ride for the ag industry during the COVID-19 crisis, especially for a dairy sector that has been troubled for the last several years.
Here are some items of interest to farmers and dairy operators:
Help from Washington
With the economy on the ropes, the $2 trillion dollar relief plan from Washington is said to include a nearly $24 billion boost for U.S. farmers and ranchers. Politico reports “the Depression-era financial institution known as the Commodity Credit Corporation would see its spending authority replenished to the tune of $14 billion. The package also sets up a $9.5 billion emergency fund for producers, including fresh fruit and vegetable growers, dairy farmers and cattle ranchers, along with local food systems like farmers markets.”
Strong dollar creams exports to Mexico
Mexico’s Peso currency tumbled from 18.5 per $1 U.S. to near 23.5 this week, making it more expensive for Mexico to buy U.S. products. Mexico is one of California’s largest trading partners. The U.S. dollar index has climbed higher over the past few weeks compared to a basket of world currencies. It has corrected a little in the past days.
Who are California farmers going to export their products to this year if they suddenly cost 25% more than a few weeks ago?
Mexican consumers are being clobbered not just by virus fears but also by a Saudi-led oil trade war devaluing their oil industry and the US industry as well, putting Mexico’s economy at risk.
Mexico is the U.S. dairy industry’s No. 1 export market, accounting for one-quarter of all dairy exports and valued at $1.4 billion in 2018. With milk consumption going down in the U.S., dairy farmers here have to export to survive.
That includes the Tulare County. Dairy is the county’s top ag commodity valued at $1.68 billion in 2018.
Visalia-based California Dairies alone produces 40% of all dry milk made in the U.S. — 700 million pounds per year — of which 60% is exported. They are the largest producer of skim milk powder in the world and typically send plenty to Mexico.
Besides milk powder California sends lots of cheese to Mexico. The industry faced a crisis in the US-Mexico trade war a year ago, resulting in a 40%-decline in dairy exports to that country before the revised NAFTA agreement came back.
California accounted for 35% of U.S. cheese exports to Mexico alone last year, estimated at 74 million-plus pounds, said economist Annie AcMoody of the trade group Western United Dairymen.
And it’s not just dairy. High-value, consumer-oriented goods such as dairy and livestock products, fruits, nuts, and processed foods account for the largest share of U.S. agricultural exports to Mexico and were valued at $8.6 billion in 2018.
Mexico also has a strong livestock sector too and buys U.S. feed grains and oilseeds imports. U.S. bulk commodity exports to Mexico added up to $6.6 billion in 2018 — led by corn. Mexico’s livestock sector buys our soybean meal and distillers’ dried grains and their food processors use U.S. sweeteners, fats and oils and other food processing inputs.
COVID-19 and dairy
Over the last five weeks the U.S. Department of Agriculture’s estimate of 2020 milk prices reflect a drop of about $2.85 billion at the farm level, says a top ag official.
“It’s kind of surreal. It’s weird watching these markets implode on such limited data,” says Tom Bailey a senior dairy economist with RaboAgriFinance. “We are shifting our projections to what can effectively be described as a recession.”
Some are predicting 2008-era prices. Even before the coronavirus fears grew, USDA latest projections for 2020 milk prices were below 2019 averages on oversupply.
U.S. dairy-farm numbers dropped by 3,200 in a new report from USDA. The number of U.S. licensed dairy operations has seen the largest annual decline since 2004.
Surging demand includes dairy
Grocery stores and farm groups have been urging people to buy only the food they can use, but a number of staple products have seen surges of demand, including dairy foods. Analysts say people have been stocking up on milk, cheese, ice cream and other dairy products. One small-scale milk processor in the San Joaquin Valley says he’s been operating at 140% of capacity to keep customers supplied.
Tulare’s Rosa Brothers Dairy sees surge
Rosa Brothers Dairy, based in Tulare, saw their glass bottle milk sales jump 100% last week during what company president Noel Rosa calls a “milk frenzy” by consumers.
“We are almost back to normal this week,” said Noel, who added that in some grocery stores, Rosa Brothers milk was the only milk available on the shelves. The small processor ships to about 250 stores in the Valley and more on the Central Coast.
The Milk Advisory Board said fluid milk sales last week were up around 32%. Until now, fluid milk consumption has been on a steady decline over the years. In 1975, milk consumption per person averaged 247 pounds according to the USDA. By 2017 it was 149 pounds.
Worries over workers
Tulare County dairyman Tom Barcellos — a local leader in the industry — said his co-op, Land O’ Lakes (LOL) in Tulare, recently informed local producers that they are placing limits on milk production to insure their processing plants can operate despite a potential labor issue due to the virus.
The National Milk Producers Federation said “dairy processing operations face unprecedented logistical challenges.” In a letter to Ag Secretary Sonny Perdue, NMPF acknowledged that some dairy farmers or processing plants “may be forced to dispose of milk due to transportation or logistical disruptions or if demand from domestic or international markets diminishes. Given the potential for supply chain interruptions as seasonal milk production peaks this spring and many schools remain closed, elements of existing USDA programs could provide the basis for a means to compensate farmers or processors, potentially with an incentive to donate milk when possible.”
Hanford LOL shipper Joaquin Contente said no problems have arisen so far. We have 11,500 tanker loads daily that go to processing plants across the country, he said. In California the spring flush is underway with about a 5% increase in milk production.
Chinese encourage more milk consumption
Four associations in China have published new guidelines urging Chinese consumers to take in more milk and milk products. Their statement says, “Milk and other dairy products are an excellent source of high-quality protein and can also provide a source of Vitamin B2, Vitamin A, calcium and other nutrients essential for the human body. So a higher intake of these products for those low in protein, especially when higher immune resistance is required to fight the novel coronavirus, will be very beneficial.”
Chinese milk consumption could triple if the guidelines are followed. They encourage pregnant mothers and children to drink even more than the average person. China’s per capita milk consumption increased from 18 kg in 2007 to about 36 kg in 2018, but it is still less than one-third of the world average.