Dairy Farmers of America is implementing a base excess program that could prompt Northeastern farmers to cut production.
Starting in May, the co-op will only pay full value for 85% of the volume of milk that farmers produced in March.
Milk that farmers make above that production base “will receive any value we are able to derive from the marketplace,” according to an April 16 letter sent to farmers in the co-op’s Northeast Area.
The payment for milk produced above base could be shockingly low — potentially less than $7 per hundredweight — because there is no demand for that milk and it may have to be dumped, the letter said.
The cooperative said demand is down 15% because restaurants and schools are closed in response to the coronavirus pandemic.
“These sudden changes in demand are resulting in uncertainty and are forcing some dairy manufacturers to reduce or limit production schedules,” DFA said in a statement.
DFA also said co-ops commonly use base excess programs.
Marin Bozic, a dairy economist at the University of Minnesota, posted DFA’s Northeast letter on Twitter, along with letters from other milk dealers across the country outlining steps they are taking to adjust to the lost demand.
“Strong incentives to producers to cut back 15% in May,” Bozic wrote in response to DFA’s letter.
A DFA spokeswoman confirmed that the cooperative had sent the letter.
Lancaster Farming separately obtained the document from a co-op member.
Along with starting the base program, DFA is adding a COVID-19 balancing cost line to farmers’ milk checks. That cost will be in addition to the co-op’s market adjustment, according to the letter.
DFA member Ben Masemore welcomes the base excess program as a way to manage supply.
“I think it’s the right cure for the situation,” he said.
Masemore, who milks about 70 cows in Barto, Pennsylvania, has been working to cut his production by 15%. He has cut back on rations with half of the herd and reduced his herd size.
Masemore wonders how long the base program will last, but with March as the base month, he’s confident that he’ll be able to stay in business.
As part of the farm transition plan, Masemore will soon become sole owner of the farm property, and he plans to install a robotic milker.
“I can’t imagine a day where I am not milking cows. It’s in me,” he said.
Eric Snyder is approaching the base program cautiously.
Production has been steady at his family’s 75-cow dairy in Fleetwood, Pennsylvania. The family could adjust by selling some cows, but Snyder is loath to do that.
“I’m not in favor of it, but I don’t know what to do,” he said. “We’ll keep going as long as our bodies allow us.”
One Pennsylvania farmer said the new base program is enough to question continuing in the dairy industry.
The farmer, who insisted on anonymity to discuss personal finances, said deductions for things like marketing and hauling already take about $1,000 out of the 40-cow dairy’s monthly milk check, and the base program will cut revenue even more.
While dairy farmers don’t usually try to cut milk production, there are several ways to do so.
Increased culling is perhaps the most obvious strategy.
With some auctions and packers closed or running below capacity, farmers who plan to take this route should check what markets are currently available in their area, said Mat Haan, a Penn State Extension educator.
As usual, farmers should focus their culling on cows with undesirable traits such as high somatic cell count and reproductive problems.
“Make sure you have enough replacement heifers in the herd so that they are ready to freshen and enter production when things get back to normal, whenever that might be,” Haan said.
Another option is drying cows off sooner than normal. Cows that have been dry for more than 70 days have an increased chance of health issues during their next calving, so farmers should choose these cows carefully, Haan said.
Farms that are milking three times a day can cut back to twice. This strategy can reduce milk output by roughly 7% and can reduce labor needs, Haan said.
Farmers could also reduce the amount of energy in their rations. This should be done in consultation with a nutritionist, Haan said, to make sure the cows remain nourished and do not lose future production potential.