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WCMA Notes: Matching Demand to Abundant Supply

A Column Offered by John Umhoefer, WCMA Executive Director

An abundant supply of fresh milk isn’t a problem unique to Wisconsin, but the recent release of dairy farms by state processors caught in Canada’s milk price shift and burdened with oversupply was unprecedented and has rattled growth-oriented America’s Dairyland.

Beyond the short-term goal of resettling about five dozen dairy farms in Wisconsin, and more in Minnesota, lies larger structural issues.  The nation’s dairy industry, legislators and regulators each have roles in helping to align milk marketing with milk production.

Short Term Success

Dairy cooperatives and some private processors in Wisconsin stepped up to assist the released dairy farms with short-term and long-term offers to pick-up milk. Their actions, in advance of a May 1 deadline, will allow nearly every one of these family farms to continue milking cows.

Credit, too, the Wisconsin Department of Agriculture and Secretary Ben Brancel for addressing this issue quickly and effectively. “I have said, and will continue to say, that the Wisconsin dairy industry is a family, and family looks out for each other,” Brancel noted this week, echoing a theme that motivated the industry. “This past month has shown how our dairy family can come together in challenging times to accomplish great things.”

Linking these farms to new marketers isn’t the end of the story. But this incident can spark frank discussion on a regional and national level.

Aberration or Trend?

The question reverberates around Wisconsin: did an unusual confluence of international trade issues, farm growth and spring flush create a short-term oversupply, or has structural growth reached a point where milk supply again may overwhelm capacity?

In the broader Upper Midwest, blueprints for new dairy plant capacity could rebalance milk production and milk marketing within a few years, and growth in America’s population and cheese consumption will create opportunities to market more cheese.

But in the short-term, discussions in Wisconsin have focused on better communications between dairy producers and their processors, more dialogue with bankers assisting dairy growth, upcoming plant expansions and for some processors, a review of milk price premium programs.

Wisconsin Cheese Makers Association proposes adding one more topic of conversation: Drive dairy demand by accelerating construction of the new Center for Dairy Research alongside Babcock Hall at the University of Wisconsin.  This building project remains mired in budget woes as construction costs rise and designers wrestle with building and equipment cuts.  When this building was co-funded by industry and state government in 2012, dairy donations outpaced state dollars by $2.4 million.  Legislators could match that $2.4 million today and advance the project to bidding and construction.

Adding Demand

Nationally, the solution to too much milk is too much demand.

Trade with Mexico, our largest export market for dairy products, must be protected and encouraged, while Canadian market manipulations must be examined and negotiated. Last summer, Ontario rolled out a new lower-priced milk class for milk used in dairy ingredients, closing down an estimated $150 million market for ultrafiltered milk from New York and Wisconsin.

A new “national ingredient strategy” in Canada, based on Ontario’s concept, debuted in February 2017 and reportedly lowers the value of milk used to produce dairy ingredients like skim milk powder and ultrafiltered milk to the lowest world market price. Not only are U.S. exports to Canada impacted, but Canada’s subsidized entry into the world skim milk powder trade will unbalance this market and lower world prices.

Last week, 68 members of Congress urged President Trump: “Please stand with us in enforcing current law and opposing Canadian policies that disrupt global milk powder markets and directly hurt American exports.”

Domestically, the U.S. Food & Drug Administration could bolster sales of ultrafiltered milk by acting on the now 17-year-old petition from the dairy industry to allow ultrafiltered milk to be accepted in the definition of milk for standardized cheeses like mozzarella and cheddar. Ultrafiltration is a straightforward, mechanical filtering that concentrates protein and reduces the water and lactose content of fresh milk – components that would naturally end up in whey and not in cheese curd.

Ultrafiltered milk can be transported more economically across the U.S. to link areas of milk surplus to areas with deficit supplies – a useful tool in today’s unbalanced national milk market.