What does 2021 hold for the dairy industry in regards to sustainability, trade outlook

Grace Connatser
Wisconsin State Farmer
2020 dealt dairy producers a big dose of uncertainty thanks to a pandemic. Industry experts provide cutting edge information on what to expect in the coming year and how to position ourselves for those changes.

Sustainability and international trade are top of mind for the American Dairy Coalition, which hosted a webinar with its members to share their vision for the dairy industry in 2021.

Jamie Vander Molen, vice president of sustainability initiatives for the manure management company Newtrient, said her organization is pursuing the Net Zero Initiative, which would make carbon neutrality a reality for dairy farmers. While many say those solutions are too expensive for the average producer, Vander Molen is confident they can find the way.

"This is a collective effort of all farms. This is not an effort to get every single farm in the US to reach net zero by 2050," Vander Molen said. "There are some farms that will take one step, or a few steps, or have taken many over the last couple of years, and others might take more. This is really about how we as an industry can reach net zero by 2050, and this will not single out individual farms."

The Net Zero Initiative was launched this spring and its goal is to be carbon neutral by 2050 in the dairy industry. Vander Molen claimed that 70% of consumers want to see the industry adopt more sustainable practices, a move she says will help find alternative income sources. She said it's possible for farms of all sizes, not just big ones, to find a path to carbon neutrality, although it will not happen quickly.

Focus areas for the initiative include feed production, manure handling, responsible cow care and energy efficiency. Contributing to water quality efforts is also a big marker, Vander Molen said, because consumers want corporate social responsibility from the ag industry.

Jamie Vander Molen

"Most of the water quality space is more of a compliance market and some of the carbon opportunities are more voluntary that occur through branded companies that have set targets because of their consumers," Vander Molen said. "They're really looking at how they can participate more. Of course, the million dollar question that exists and we all wonder is – how much are they willing to pay for a ton of carbon?"

Another goal of Newtrient is to establish a third-party water credit trading entity, like a "clearinghouse approach" that would connect buyers and sellers and reduce the risk of the trade while improving trust and credibility. The state of Wisconsin only just allowed this kind of approach in February this year and is currently studying the market before taking the next steps.

Vander Molen said their clearinghouse project would take two years to complete and would bring together many different stakeholders, including the Environmental Protection Agency, Clean Wisconsin and other groups to ensure they establish funding and identify legal issues. 

These markets are largely inaccessible to smaller farms, Vander Molen said, which is why it's important to expand them so more people in the ag industry can work on creating sustainable solutions.

"There's a few things that you can start to do today on your farm as we move towards this in the next few years. Number one, review your nutrient management plans. Identify any opportunities or assess what you're doing that would feed into environmental assets," Vander Molen said. "Are there areas on your farm that you could start to look to adopt that would feed into ... an additional revenue stream for these markets?"

Dave Crass, managing partner of the legal firm Michael Best & Friedrich LLP that works with water, agribusiness and other clients, said his firm is also looking at renewable natural gas solutions. Calling it a "gold rush," he said the evolution of manure digesters has to led to major discoveries in new markets and revenue streams. Even Walmart and UPS are converting their shipping fleets from diesel to natural gas, he said.

There's also opportunities for farmers working in low-carbon fuel standard programs, Crass said, noting that California is now requiring producers to purchase carbon credits if they don't meet the carbon intensity standards for fuel. However, he said manure digesters producing electricity aren't allowed under this program's standards.

"The dairy manure ... (provides an) incredible return under this program as the biological source of methane avoidance," Crass said. "For those facilities that have a history of digesters that produce electricity, a lot of times, substrates were brought out of the project fats, oils and grease, as well as other materials. Those are would not be allowed ... under this program."

David Crass

Right now, the idea for a renewable natural gas campus can function on a 100x100 foot piece of land with manure digesters that make the gas and send it to collection equipment, where it's scrubbed and compressed into pipeline quality natural gas for reuse. The gas can then get trucked out to where it needs to go, or it can be directly injected into a nearby property, Crass said.

Renewable natural gas is much more profitable than the alternative, Crass added – while traditional natural gas sells at $2-3 per dekatherm (equivalent to just over one gigajoule), renewable natural gas sells at $80 per dekatherm. He said the high price can be attributed to the major revelations being made in the industry today.

"What we've seen is that there's a lot of confidence that these types of returns will continue into 2024. That's why there is a gold rush, if you will, of these opportunities being developed ... jointly with farmers across the country," Crass said. "Our expectation is that these programs will actually get extended (by the Biden administration)."

American Dairy Coalition logo

Crass said farmers can jump into the game at any level of risk they want. Some farmers might only sell the manure to digester facilities, while others may own the digesters but sell the biogas or let a management company take control. Others even then may decide to own the entire process from top to bottom if they have the land and facilities to do it.

On the trade front, Mary Ledman, global dairy strategist for Dutch lender Rabobank, said global milk supply is on a steady rise, with the largest amount of growth from the United States. While global markets appear to be relatively balanced for now, Ledman said this could change as the pandemic continues to take its toll on the dairy industry.

There's also uncertainty in some trade relationships right now, like the relationship between the United Kingdom and the European Union due to Brexit, which takes effect beginning Jan. 1. China's trade relationships are also a cause for concern, Ledman said.

"The other big trade issue would be with China, and it's just not the United States having problems or challenges with China," Ledman said. "New Zealand and Australia also have their issues with China as well as Europe, so the future trade relationships are something that also can play into the role of exports going into 2021."

Mary Ledman

Ledman said there's also reasonable doubt for the numbers on milk output that China provides, explaining that the Chinese government claims to have a 8% year-by-year increase of milk output, putting their industry on the same level as Oceania. However, China has also shown fervent interest in farm investments and creating waves as the largest dairy importer in the world, so the question is if China will continue propping up global exports or if they will improve dairy self-sufficiency, she said.

Global demand has been moderate but growing, Ledman said, but possible weather disruptions may interrupt the supply chain. Trade is also showing slight weakness due to large buy-ins during the second quarter, Ledman added, with the African swine fever virus also causing some apprehension among the recovery process in China and other affected regions. 

"As they recover from those outbreaks, the herds are being repopulated in more professionally operated establishments, and those professionally operated flying facilities tend to be for lactose and piglet feed," Ledman said. "We're still very bullish on whey demand for China."

The US dollar has also lost value, with $1.20 being equal to one euro – its weakest since 2018, Ledman added. To the south, the Mexican peso has gained value as the US dollar has lost it, which may increase dairy exports to the country. Ledman said Mexico's trading relationship with the US has lost steam this year, although they are still the number one trading partner.

Mary Ledman of Rabobank says global milk supply is modestly growing into 2021.
Butter and cheese stocks are manageable right now, says Ledman.

For domestic, Ledman said butter stocks are tightening up quickly during the holidays, while cheese and milk powder stocks are in good balance, indicating good prices further down the road. The US Department of Agriculture will also continue to make dairy purchases in the hundreds of millions of dollars, improving commercial disappearance, but also leaving 2021 up to the imagination since it's unclear when USDA will stop the purchases.

"We have to recognize that those demand numbers here in the rearview mirror have been supported by government support, not just in the US but in places like Brazil and Australia," Ledman said. "The real question is what are those support packages going to look like in 2021 and whether or not we really need them, because we think that the economic recovery and vaccines are likely to really boost consumer confidence."