When the COVID-19 pandemic surfaced in the spring, Luzerne County dairy farmer Jeff Bloss said the resulting wave of uncertainty impacting milk prices made him ready to jump off a cliff.
Months later, dairy farmers such as Bloss still stand on the precipice.
The demand for milk generated from schools is a major contributor to the price that farmers receive, but this year there could be a void.
While some school districts have opened the year with in-person instruction, others have decided to go virtual, and that means fewer school lunches and less milk being consumed by students.
Making the uncertainty with schools increasingly painful is that farmers are paid by what the milk is used for, with Class I fluid milk – which would’ve gone to schools – commanding the highest price.
In July, dairy farmers in Northeast Pennsylvania received $20.36 per hundredweight for Class I milk, which is blended with prices for three other classes based on use, such as cheese and milk powder. Bloss said the northeast price is weighted heavily toward Class I, and if it’s down then the blended price drops accordingly.
The prospect of reduced milk sales to schools isn’t what farmers like Bloss were counting on.
“In a normal year the better milk prices would return in the fall with the fluid milk, or Class I, going to schools,” said Bloss, who milks 95 cows on his farm in Hollenback Township. “We had uncertainty in the spring, and we’re seeing it again as some schools are opening virtually or even part-time. If they’re not going to open full-time, that’s going to lessen the demand for milk.”
Jennifer Huson, senior director of council affairs for Dairy Farmers of America, Northeast Region, said the uncertainty of school sales has created volatility in the marketplace because the demand from restaurants and the food service industry for dairy is also down.
But the uncertainty with the opening of school has an immediate impact on dairy, she said. The demand for milk has decreased by 40% to 50% in some districts that are opening virtually or part-time, Huson added. Dairy Farmers of America, a milk cooperative, owns nine milk processing plants in the northeast United States, collecting milk from 3,193 farms, including dozens regionally.
“If the demand is there, we have stability and the prices respond accordingly,” Huson said. “Because of the food service industry and now the uncertainty with schools, we have more volatility instead of stability.”
Still, the current situation is different from the unpredictability that farmers faced in the spring when schools closed suddenly and some grocery stores placed limits on milk purchases. The situation resulted in dairy farmers in the northeast dumping 150 million pounds of milk during March and April as demand ceased from schools and restaurants.
Because of the suddenness of the pandemic in the spring, Huson said the dairy industry had little time to adjust and respond.
“We had cases where shipments of milk were ready to go to schools the next morning, but we got calls from districts telling us not to send it. We also saw increased demand for gallons to be sold in grocery stores, but a lot of packaging was still in half pints for schools,” she said.
This time around, Huson added, the dairy industry won’t be caught off guard during the current round of uncertainty.
“I think we’re better prepared to handle the sudden changes than we were in the spring,” she said.
For example, DFA has a base program in place that’s a direct result of the demand decreases that occurred in the spring. Under the program, farmers are paid normally for 85%of their production, which is based on what they produced in March. If they exceed the 85% base, the price for the remaining 15% is based on lower-valued uses, such as cheese and milk powder.
The base program provides an incentive for farmers not to exceed their March production totals and thus lessen the chance for a surplus to occur.
Bloss said the price paid for anything over the 85% base is essentially salvage value and doesn’t cover the cost of production. Still, he isn’t opposed to the program.
“It wasn’t in place when all this started in the spring. It does help to prevent or limit surplus and keep a profitable price,” he said.
Another reason for optimism, Huson said, is the Pennsylvania Department of Agriculture and U.S. Department of Agriculture have programs in place to aid farmers financially that weren’t available prior to the pandemic.
The Dairy CARES Act has made available $40 million in funding to Pennsylvania dairy farmers, which includes $15 million in direct relief payments. The state Dairy Indemnity Payment Program compensates those farmers who had to dump their milk in the spring, along with others who were assessed fees from processors related to the displaced milk. Under the program, farmers who apply receive $1,500 plus another prorated payment after Sept. 30.
Bloss said that local milk giveaways, which are coordinated with dairy processors and charitable organizations, have also helped to prevent a surplus.
Huson added the giveaways serve as a direct link to provide milk for consumers and she hopes it’s creating a demand for dairy.
“We’re working hard to make sure there’s a home for our farmer’s milk and it’s helping to keep the supply chain whole,” she said. “It’s not completely compensating for the decrease in demand from schools, food service and other areas, but it helps.”
Still, the demand from schools remains a vital and irreplaceable component of dairy pricing, and it’s an aspect recognized by the state.
On Aug. 20, state Agriculture Secretary Russell Redding urged the USDA to extend waivers for programs that provided food, including milk, to students while they were out of school. The program expired at the end of August. The waiver would allow food and milk to continue to be distributed to children even if they aren’t physically in school.
Redding said the programs help farmers from a demand standpoint, as well as children.
“Pennsylvania’s children have faced enough inconsistency and unknowns in 2020. These waivers are critical to ensuring school-aged kids don’t have to worry about where their next meal is coming from,” Redding said.