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As Prices Fall, Texas Dairies Have To Keep Milking

Gabriel Cristóver Pérez/KUT
A milk tanker truck at a dairy processing plant in Austin.

From Texas Standard:

Texas dairy farmers have no trouble producing milk these days. If anything, they're producing too much – which has created a problem for them.

“You know it’s just hard to shut these cows off,” said Mark Sustaire, a dairy farmer in Hopkins County. “It’s not like a factory that you can turn the switch off today and you’re not producing tomorrow.”

Sustaire grew up in the dairy business. His herd fluctuates between 450 and 500 cows. And every day – pandemic or otherwise – all those cows have to be milked.

“You’re dealing with live animals,” Sustaire said. “So they’ve still got to be taken care of, they’ve got to be fed. And so it’s not an easy fix.”

Even before the COVID-19 pandemic, U.S. dairy farmers had been experiencing a tough few years. Dairy consumption is down, especially milk. Bankruptcies by two major processors – Borden and Dean Foods – highlight the difficulties.

Despite that, Texas dairy is on the rise. Over the past five years the state’s dairy herd has increased by over 100,000 cows. The industry’s grown here because of good weather, affordable land and a business-friendly climate.

But now, thanks to the coronavirus, the industry’s growth and farmers’ livelihoods are being threatened by a sudden imbalance between dairy supply and demand. The normal flow from a dairy like Sustaire’s to a consumer has been completely warped by COVID-19.

Like most commercial dairies, Sustaire sells his milk through a co-op – a group of dairies from the same area that share profits and expenses.

The co-op then sells to various processors. Each processor uses the milk differently. Some of them might turn it into products for which there’s still demand – pasteurized gallons of milk or ice cream for, example. But other processors might normally turn Sustaire’s milk into butter for restaurants, creamer for hotels or pints of 2% milk for schools. Thanks to the coronavirus, demand for those has tanked. But the facilities that make them aren’t designed to do anything else.

“Changing up how these plants operate is not an overnight deal,” Sustaire said.

So now, Sustaire is producing the same amount of milk as he was before the pandemic, except there’s very little demand for some of its uses. The result is a big hit to his bottom line. And there’s not much he can do about it.

“When milk leaves the farm, producers don’t even know what price they’re going to be getting for that milk,” said Barbara Jones, an assistant professor and director of the Southwest Dairy Center at Tarleton State University in Stephenville.

Milk producers get a check once a month from the co-op they sell to. The equation that then spits out the number on the check isn’t simple – Jones calls it “the most complicated discussion in the world” – but it basically accounts for the value of the milk sold, minus expenses.

Producers never really know exactly how much each month’s check will be, but they can make a decent guess. Projecting from current prices, Jones said that next month, most Texas dairies probably won’t break even.

“It’s really a grim outlook the next few months,” she said.

Sustaire isn’t too optimistic either. Some volatility is expected in the dairy business. But the past few weeks have been historically bad.

“I believe everybody’s extremely nervous,” he said. “You’re not normally seeing a 40% drop in price over a period of two or three weeks. That’s an unprecedented drop.”

In other states, dairies are dumping out large quantities of milk because there’s nowhere for it to go, or it’s not valuable enough to cover the cost of transportation and processing. The decision to dump or not is made by co-ops. Texas has seen some of that, but not a lot. Sustaire hasn’t had to dump any milk yet, although his neighbors have.

Whether more or less Texas milk gets wasted largely depends on demand, which largely depends on getting back to normal.

“We all hope that it’s a blip on the whole market, but…you don’t know,” Sustaire said.

There may be some relief from the federal government. The U.S. Department of Agriculture announced last week it would spend $19 billion to support farmers and ranchers affected by the pandemic.

But other than waiting for possible federal aid and the monthly milk check, there’s not a lot else Sustaire can do. In the meantime, his cows will still need to be milked.

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