Why farmers are dumping milk in latest blow to battered U.S. dairy

With milk prices plunging to lows that haven't been seen in nearly four years, dairy cooperatives are dumping the product to reduce oversupply.

While shoppers are clearing out milk cases at grocery stores, that's not making up for the closings of restaurants and schools. U.S. cows are entering their most productive time of the year right now as coronavirus is killing off a significant tap for demand. While some dumping usually occurs during the U.S. spring, this year it will be "even more aggressive," said Alyssa Badger, director of operations at HighGround Dairy in Chicago.

"There's no way to offset how much loss we're seeing with school closings and food service demand in the form of cheese and butter, just because someone's buying an extra gallon of milk," Badger said."

American dairy farmers have been suffering a wave of bankruptcies amid years of low milk prices, and with so many exiting -- Wisconsin alone was losing two to three dairy farms a day for the past three years -- the industry was just starting a recovery. The onset of the virus has put any such turnaround on hold.

Benchmark Class III milk futures, a type that's used in cheese-making, dropped below $13 per 100 pounds this week in Chicago, a low not seen since May of 2016. Butter prices are crashing, with futures touching the lowest since 2012 amid huge stockpiles. Cheese is at the lowest in a year.

Wisconsin dairy farmer Wayne Gajewski hasn't yet resorted to dumping milk, but supplies are backing up in local markets and prices have fallen below his cost of production. He's hoping the federal government can buy some dairy products to distribute to those in need, and that the virus clears up soon.

"We're not used to the supply chain breaking down," Gajewski, who has about 80 dairy cows, said by phone. "That's my biggest concern."

While demand for dairy products initially surged due to consumers stocking up on staples, that has now dropped, said Kristen Coady, a spokeswoman for Dairy Farmers of America. The cooperative is trying "all possible avenues to find a home" for their members' milk, including donation opportunities at food banks.

At Grassland Dairy in Wisconsin, orders started getting canceled in late March as eateries shut down or shifted just to takeout and delivery.

"There's just so much unknown out there on the food-service side," said Trevor Wuethrich, president at the dairy maker. "I think a lot of our customers in the food-service sector have butter in storage. They're saying, 'you know what, let's not order for a couple of weeks.'"

Around half of butter and half of cheese is consumed at restaurants, said Matt Gould, editor at Dairy & Food Market Analyst Inc. Because so many restaurants have closed, cheese manufacturers have either shuttered or are running on reduced schedules.

Milk that would have gone into those plants are instead being pushed to butter and milk powder plants -- but those are now full, too, according to Gould. That leaves dumping as the only alternative.

"With plants shut down and running at reduced schedules, there's not enough homes for the milk," Gould said.