Got too much milk? Here’s how dairy farmers can combat milk overproduction

Got too much milk? Here’s how dairy farmers can combat milk overproduction

Milk prices for farmers are dropping again, dairy producers are sweating, and the average consumer might be noticing higher prices for milk at the grocery store.

But the outcome may not make much sense considering these trends: thousands of gallons of precious milk are getting dumped on the ground—simply because there is no home or market for this dairy.

This means prices for consumers should be getting lower, not higher. In the meantime, in some parts of the world, it makes for a good way to demonstrate protest against these price drops.

Onlookers both inside and outside the dairy industry may be wondering: “Why?” Why do dairy farmers have to dump milk? Is there another way? Why does milk oversupply happen— wouldn’t slowing down production just fix the problem? For the former (dairy farmers), this is more of a rhetorical “why”— we all in the ag industry know too well why we cry over spilled milk but must spill it all the same.

Still, for those seasoned enough in the ups and downs of dairy farming— alongside consumers who know less about how dairy markets work— there is some insight to be gained about the market forces and practicalities that lead to milk dumping, what this means for dairy farmers, and how the esteemed producers of our milk, cheese, and other dairy products can manage and survive a milk dump slump (the last major slump taking place during the COVID-19 pandemic).

In this day and age, dumping milk may sometimes be inevitable for dairy farmers. But it doesn’t mean you have to lose money (or sleep) over it. Here’s what dairy farmers can do about it— and why milk dumping, overproduction, and oversupply can happen.

Unpredictable market forces and the daily reality of the dairy industry

Dairy farmers already know this tune. The price for selling milk per gallon can change by the week, the month, sometimes even the day. Dairy is a wild and unpredictable market.

Prices can spike, which is good news for dairy farmers, but may then lead to lower demand; then again, dairy selling prices can still plummet right alongside demand for milk, like they have been lately. The “dairy market machine” isn’t simple, with a predictable “in” chute on one end and an “out” chute on the other. There’s a legion of forces like dairy imports, seasonal demand (such as from schools), differences in markets from region to region (the Midwest vs. Texas for example), and yes, projected milk-per-cow amounts that can unpredictably influence what actually pops out of the machine, no matter what is carefully put into it.

Either way, many producers in recent years might open their barn (or facility) doors one morning to find: dairy storage space is running out. And yet, cows still need to be milked on the daily. If they don’t, they could become injured, sick, or die. The result: dairy production “on tap” that isn’t exactly easy to turn down, or off.

The reality is that dairy is a necessary daily commodity for Americans and for many citizens in other countries around the world, too. But, if the tides change and that necessity slumps in any way, even for a moment— this can mean dumped milk.

Unfortunately, the burden of meeting these daily necessities and losing product— and strategizing or adapting to outcomes when meeting these necessities isn’t profitable— falls squarely on the shoulders of the dairy farmer who must be hard working, skilled, adaptable, and provident all at the same time to diligently feed our country. (It’s not an easy job. Dairy farmers, we salute you!)

The latest problem: not enough dairy processing labor force

The above might not be news to dairy farmers or even the curious consumer looking into the industry. However, the most recent problem contributing to milk dumping: the lack of processing plants and the labor force to run them, which certainly adds another straw to the dairy industry camel’s— or more accurately, cow’s— back.

If dairy storage is limited on-farm, dairy processing plants can take on the burden, also preserving more milk into value-added commodities like cheese, yogurt, whey, or dried milk. The trouble is that dairy plants are closing at a fast rate, and the ones left over can’t keep up on the demands to process or store more milk or other dairy products.

What’s more, both dairy farms and processing plants are struggling to retain employees or find new workers amid this slump— even cutting hours which further exacerbates the overproduction of milk, or milk sitting around with no home to go to. A large portion of the agricultural industry, not just dairy, also relies on international labor in the U.S., which may be shrinking— or becoming more costly than it used to be.

What can dairy farmers do about it?

Despite all these challenges, low prices, and the oversupply of milk, the show must go on. Dairy will continue to be e a necessary commodity for decades to come, the cows will still need to be milked, and all of it will fall on the dairy farmer to figure out and make do— until better times come again.

What strategies have worked for dairy farmers in the past?

#1: Selling “back stock.” Namely: cows. In Minnesota, some small dairy farmers are selling to squeeze on through. It may not feel like business growth, but the reality may be thatdairy entrepreneurs can only take steps to grow when the market is growing, too.

#2: Transition to grass-fed dairy. An innovative approach that has worked for one dairy farmer, which can cut down on feed costs and fetch higher prices (grass fed dairy and butter are all the rage— and yes, it still helps milk production). Though you need the right acreage, and enough grass, to pull it off.

#3: Equip yourself with the right insurance. Frankly, and especially during these times, the right dairy insurance policy should be built right into your business— whether it be Dairy Revenue Protection (DRP) or Dairy Margin Coverage (DMC).

If you talk to the right insurance experts, they can tailor coverage options that perfectly suit your business, even making you money during (God forbid) those times where the milk just needs to meet the ground.

Watching dumped milk can be like watching dollar bills go down the drain. We can change that. That’s what we’re best at— give us at Colville Crop Insurance a call today!

Don’t let drops in milk prices get you down. Here are 2 things dairy farmers can do.

Don’t let drops in milk prices get you down. Here are 2 things dairy farmers can do.

We’re more than halfway through 2023 and we’re already seeing further drops in milk prices.

In such a climate, it can be hard for some dairy farmers to stay positive. (Although, if you have the right business strategies and crop insurance products built into your operation, waiting out the lean times can lead to some incredibly positive financial upsides!)

Still, as many farmers watch their operations lose money (and for milk to go bad— or get dumped), many may wonder about drops in milk prices. And the reality of the dairy business is: prices always change.

But why? The number of cows doesn’t change quickly. Milk production doesn’t shift drastically. Milk consumption only changes gradually. So what causes the extreme jumps and drops in milk prices? Here are the many forces that can cause or influence these volatile changes in the market, and 2 things dairy farmers can do about it to survive the storm.

Shifts in cultural demand

Demand in the dairy market is complex, and it is only one of the many forces that can cause drops in milk prices. If it was the only influence, then “fixing” the volatility of the dairy market would be simple: just speed or slow production to match demand— but even amateur dairy farmers know this is not the case. Because demand is unpredictable.

Recently, culture or generational trends— especially where U.S. milk prices are concerned— have had a hand in the demand for milk (and, thus, supply and price). According to Investigate Midwest, younger generations are drinking less milk (plain, as a beverage) and turning to plant-based alternatives instead.

Does the fading away of the “Got Milk?” culture fully explain the drop in demand and milk prices? It is creating a dent, yes, but it doesn’t cover everything: a large chunk of dairy produced also goes towards cheese, yogurt, or dry milk (for formula, for example) and these are value-added and relatively “stable in-demand” goods.

Milk is more like crude oil now. It goes into refineries and emerges as a globally traded commodity. Once milk and processed dairy hit grocery store shelves, the retail prices for each individual item factor into milk price fluctuations. 

Demand is not just based on the U.S. market

That’s right: if people aren’t chugging milk, or even nibbling cheese, on our home turf as much as they used to, there is still demand overseas to think about. The U.S. exports about 18% of its milk and dairy products across borders, most notably to neighbors Mexico and Canada, but also places like China and the Philippines. That still tops 1 billion in dairy revenue for farmers— nothing to scoff at.

About 30 years ago, however, virtually ALL demand was U.S. based. That’s a huge change, and a massive driver for demand— and, thus, milk prices. You’d think this would only create more stability for dairy producers and the industry.

But here’s the rub: markets outside of the U.S. tend to be more unstable. Even with strong international dairy market analysis and projections, U.S. producers and processors cannot pivot, angle, or strategize production to meet the fluctuations of each individual dairy market around the world. This means that prices boom and crash due to political and economic events worldwide.

In the past decade, there have been many such events. China’s reduced purchases, Russia’s ban on Western dairy imports, the EU’s increased milk production, and more, have contributed to the global glut and low prices.

It should also be mentioned: U.S. markets are liable to import a lot of processed dairy from other countries, meaning less reliance on (and income for) the dairy farmers within our borders. 

Ergo: you have the wild and unpredictable beast of the dairy market, with milk and dairy prices changing weekly or monthly. All these factors play a role in impacting milk prices for U.S. producers, as well as dairy producers in other countries around the world.

Dairy farmers worldwide are suffering, with some going bankrupt or needing government help. Large producers are less affected, as they operate efficiently at low cost. But in the US at least, dairy farmers can purchase crop insurance products to protect them against losses.

Milk prices are volatile by nature. What can farmers do about it?

Being a dairy farmer isn’t as simple as it used to be. The struggle is real.

Small businesses can learn new strategies to help tighten the belt for that eventual rewarding upswing of milk prices— while others may feel the heat too strongly, facing the possibility of closing doors or selling farms to the growing consolidation of big dairy business.

Still, for so many farmers, sticking it out and working with the dairy business can be a matter of family legacy, equity, and well-earned and well-deserved pride….and it’s possible. So, what options do these farmers have?

Keep production costs perpetually low.

While expanding business is rarely not a smart move— especially paired with plenty of available capital— this is not always provident or frugal when projected dairy income is expected to shutter. Take it from Jed Stockton, per NPR’s The Salt: “We have changed very little,” since the early years of their operation no doubt, and owing to the possibilities of low milk prices. “We are low-cost producers and by continuing our efficiencies we are able to weather the storm.”

This can make it very hard to plan growth and business expansion, according to some other dairy farmers. Though the key to growth may be a feast or famine existence: be locked and loaded for expansion when milk prices recover, and batten down the hatches when they take a tip.

Enroll in a dairy insurance coverage plan.

Many dairy farmers credit dairy insurance— especially a Dairy Margin Coverage (DMC) plan, but also Dairy Revenue Protection (DRP)— for not only helping them survive lean times but also cashing in big when those lean times are over.

Unlike other types of insurance in other industries— auto, home, life— dairy or crop insurance can be viewed more like a business asset that leverages more income in the long run, even for the smallest guys in the business.

Find a dairy insurance expert to help.

We’ve been helping dairy farmers with this stuff for decades.

Give us a call so we can help you build an insurance plan that will allow you to not only survive the lows but also ramp up those profits when milk prices turn around again. They always do!