Dean Foods drops more than 100 dairy farmers

(This story may be updated as more information is available)

SALEM, Ohio — More than 100 dairy farms in eight states received a letter from Dean Foods terminating their milk contracts with the company, effective May 31.

The farms affected are located in Indiana, Kentucky, Pennsylvania, Ohio, New York, Tennessee, North Carolina and South Carolina.

Letters

A letter, dated Feb. 26, from Brent Bunce, director of Dairy Direct Operations at Dean Foods, said “two indisputable dynamics” led to the decision to end these contracts.

The first, a retailer’s (Walmart) new Class I fluid milk processing plant coming online in the region will significantly decrease production at Dean’s own facility; and the second, the steady increase of raw milk production combined with the decrease of Class I fluid dairy consumption.

The Walmart facility is a 250,000-square-foot milk processing plant near Fort Wayne, Indiana. According to a Walmart news release, it will bottle Great Value and Member’s Mark white and chocolate milk for more than 600 Walmart stores and Sam’s Club locations in Indiana, Illinois, Michigan, Ohio and northern Kentucky. 

Most of those stores are currently supplied by Dean Foods, and one published source indicated the new plant will cost Dean between 90 and 100 million gallons of annual milk sales. Dean will continue to supply Walmart in other parts of the country.

“Quite simply, the dairy industry is producing more milk than people are consuming,” stated the letter.  Dean Foods also offered to provide assistance with finding potential new milk buyers.

Producers received similar letters last year from Dairy Farmers of America — which terminated approximately 225 independent milk producer contracts in the Mideast marketing order unless those producers became DFA members by Nov. 30, 2017 — and Progressive Dairyman reported last April that Grassland Dairy Inc., in Wisconsin, was terminating contracts with some of its producers by May 1, 2017.

Tough decisions

Joe Kelsay, a dairy farmer from Johnson County, Indiana, received his letter March 2. He and his brother Russ are the sixth generation to run the family farm and milk around 375 head.

“We really had a great relationship with (Dean Foods),” said Kelsay, noting they started marketed their milk with the company in the early ’90s.

“As unfortunate and sad and impactful as this is, we understand the tough business decision,” he said. 

Finding a market

He’s spoken to at least two other farmers who got the same letter. “I think their approach is similar to ours. Make some call and contacts to see if anyone is accepting milk.”

Kelsay has spent the week making calls to other milk processors, hoping someone will have an opening. “I have two meetings scheduled and a handful of no’s and a couple of maybe’s. That’s where we are at now,” he said.

One of those calls was to the new Walmart processing facility, but Kelsay was told they are not accepting any more milk at this time.

Jayne Sebright, executive director for Pennsylvania’s Center for Dairy Excellence, said they are using all their resources to help producers.

Of the 100 producers who received letters, 42 were from Pennsylvania, she said. “Deans is well-known for (contracting) excellent family farms. Many are young dairy families that have really invested in their farms.”

Sebright said the Center is reaching out to as many milk market outlets as they can to find out who can take on more producers, but has not received a lot of positive responses.

Resources

In the meantime, the center is offering its Dairy Decisions consulting services to affected farmers so they can evaluate their own individual options and “find a path forward,” said Sebright.

The Pennsylvania center has also put together some mental health and stress management resources for farmers. “We are very concerned about the well-being of the farmers affected,” she said. 

Bad timing

“It’s a very difficult situation and absolutely the worst time for this to happen. We are trying to get them all the help we can.”

This comes at a time when dairy producers are already fighting to stay afloat. 

“We are not seeing anything particularly encouraging in the marketplace,” said Dianne Shoemaker, Ohio State University Extension field specialist in dairy production economics.

Currently, there are too many cows and replacement heifers in the market, resulting in too much milk.

“Nothing good happens when there is more than 9 million cows in the U.S. and we are now at 9.4 million,” she said, with more than half that number in replacement heifers.

But the answer is not as simple as downsizing the herd. “Even if you know there is too much milk in the marketplace, you have to make enough milk to be a profitable business. That doesn’t translate into farms milking fewer cows,” said Shoemaker.

She added the quantity of milk coming out of Michigan isn’t going to stop. “Processors don’t need to pay a premium price for quality milk because it’s out there looking for a home,” she said.

Global

And the issues don’t stop with the U.S. market — the milk surplus is a global problem, according to Shoemaker.

The market is “impacted by the larger world price because there is too much milk on the world market and too many dairy products in reserves. Even if production goes down, the market knows there is still that much product out there,” she said.

“It’s not pretty and I think we are going to see more of this, unfortunately.”

Drink milk

Kelsay says he read some negative reactions from consumers and producers to some dairy brands and companies that consumers might choose to avoid or boycott certain brands of milk. He hopes that doesn’t happen.

“The worst thing we can do is choose not to drink milk.” While those reactions may be well intended, it may only cause a troubling dairy scenario to grow.

“I don’t think there is any bogeymen here. There’s no evil plan here. It’s a hard business reality and companies have to react and respond for their own well being,” he said.

“The best thing (consumers) can do is enjoy dairy products.”