Scenic Central highlights roller-coaster year with pride - no milk dumped

Jan Shepel
Correspondent
Farmers didn't need to go to the amusement park to ride a roller coaster after last year's turbulent journey thanks to a pandemic and market fluctuations.

“Farmers don’t need to go to the amusement park to ride a roller coaster,” said Scenic Central Milk Producers President Tom Kerns, referring to last year’s milk market as he opened the cooperative’s in-person annual meeting March 9 in Richland Center.

“It was a very difficult year for moving milk but we did not have to dump any milk and I want to thank our General Manager Terry Hanson and the field staff for that. We are financially strong and, as always, we have no debt,” Kerns added.

In his remarks to the gathered members – a slightly smaller crowd than usual – Hanson agreed that it was “quite a wild year,” adding that he too was proud that no milk had to be dumped in manure pits. That was a common sight about a year ago on farms that work with other dairy cooperatives and proprietary milk plants.

As effects from the Covid-19 pandemic started to become known with restaurants and schools closing and dairy sales in grocery stores skyrocketing, it disrupted the supply and demand chain. Many plants had nowhere to go with their finished products and asked their farmers to start dumping milk. As those supply disruptions began last year, Hanson said his first thought was what could happen in December when a lot of the smaller dairy plants traditionally close for the holidays.

Not only were Scenic Central Milk Producers member farms spared having to dump milk unlike some farms associated with larger cooperatives like Dairy Farmers of America - the coop's board of directors also set aside  producer price differential (PPD) dollars into a rainy day fund. At the end of the year that money was used to pay member-farmers a $3.40 per cwt. premium – paid in January for their December milk.

Rainy day fund

At that time Hanson and the board of directors decided to start “squirreling away” producer price differential (PPD) dollars into a sort of rainy day fund. At the end of the year that money was used to pay member-farmers a $3.40 per cwt. premium – paid in January for their December milk. “A lot of co-ops and private entities would have put that money in the bank but that’s not how this co-op works,” Hanson said.

“It’s the principle of the thing,” he added. “Whose money is it? That’s the whole point of it.”

(Note: All members of the board are required to be actively milking cows, so if one of them sells the cows, he or she is automatically off the Scenic Central board of directors.)

By-law Changes

Another challenge faced by the co-op was how to hold its bylaw-mandated annual meeting in light of coronavirus fears. They consulted with lawyers in cooperative law and opted to schedule an in-person annual meeting this time. “It’s very important you know how this cooperative is run,” Hanson said.

However, at the annual meeting, co-op members approved changes to the bylaws that were proposed in the wake of the pandemic. “Ninety-nine percent of it was added because of Covid,” Hanson said. The changes would allow the co-op to continue to function without having an in-person annual meeting under certain conditions. All board members would retain their positions for an additional year if the annual meeting were postponed. Another approved option would be to hold a meeting virtually.

In order to hold a virtual annual meeting, the lawyers said it would have to be one where producers were visible so there could be no fudging on voting. “We would have to see who was actually voting,” Hanson explained.

The bylaw changes presented to members that might lead to a postponement of an annual business meeting included a pandemic or epidemic and government emergency laws, regulations, orders or rulings. The changes also added “acts of God”, weather events and other cataclysmic events like fires, earthquakes, tornadoes, floods and things like interruption of public utilities.

The changes that were approved by members allowed for a future annual meeting to be postponed for up to a year at the discretion of the board.

Growing milk volumes

Hanson reported that the co-op now no longer has any formal marketing of organic or non-GMO milk (from cows that are not fed genetically modified crops) as it did in the past. All 700 million pounds of milk that was marketed by Scenic Central in 2020 is “conventional” milk, he said. “That is more milk than we have ever marketed before.”

A graph showing the annual amount of member milk shows a rising line; it was about 300 million pounds back in 2008.

The co-op added milk at the end of 2019 to accommodate one processor that Scenic has a relationship with that was calling for more milk, he said. Hanson explained that Scenic Central operates on the idea of keeping relationships with processors and matching the amount of milk to those processors’ needs. Currently, the co-op is under a freeze for milk producers, which the co-op calls “Smart Growth” – a quota system. Through that system, Hanson said, the co-op attempts to closely match farm production to its sales.

Hanson urged members who feel they want to expand to talk to their field representative first.

The achievement of not dumping any milk in 2020 did not come without a lot of extra effort from Hanson and his staff. A few times they were frantically trying to market milk that was “12 hours or less before it got dumped,” he said. “Logically we had to discount the milk so they can discount the cheese they are going to make from it, but it got moved.”

Hanson praised Hemmersbach Trucking for doing a lot of “extra running” to keep all the milk moving to where it could be used. “They presented us with a bill but said ‘you just pay us when you can’,” Hanson said. “They understand.”

In what the co-op calls the Packerland procurement region (northeast Wisconsin) the co-op handles about 6 million pounds of farm milk per month and the rest of its area, which is called Scenic Central, has about 54 million pounds of milk per month.

Pete Hardin, editor and publisher of The Milkweed, a national dairy publication, provided a videotaped presentation to the group because of Covid. He reiterated that 2020 was the “craziest, wildest year” for marketing milk that he could recall in his 40 years of covering the dairy industry. “First there was $1-a-pound block cheddar then by July 13 it was $3 a pound. The dairy industry nationwide has been searching for new realities,” he said.

Food service losses

At the outset of the pandemic “we lost 45 percent of total dairy demand as restaurants and food service shut down. Then there were the spikes of consumer demand in grocery stores that left many dairy cases empty until supply caught up. It was the craziest year in history. You should give your co-op’s board and staff credit for negotiating the toughest year in milk marketing history.”

Hardin said he had gotten calls from Scenic Central members who were happy about that $3.40 per hundredweight payment they got from the co-op at the end of the year. “That money was the farmers’ money, as Terry explained it,” said Hardin. “It makes a lot of sense to turn that money back to the farmers.”

Pete Hardin

He contrasted that with what happened with Prairie Farms, a cooperative headquartered in southern Illinois with 700 to 750 members in Wisconsin, Minnesota, Michigan, Ohio and other Midwestern states. For their fiscal year ending September 30, 2020 that co-op reported profits of $90 million.

During a zoom call, Prairie Farms members asked why their co-op didn’t pay more back to the member-owners and they were told by management that “that’s the way it is,” Hardin said, after hearing from several angry Prairie Farms members who were in on the call. “The bottom line is that this is the farmers’ money,” he added, calculating that each member of the co-op could have stood to gain $120,000 to $130,000 if that money had been distributed to them.

One member of that co-op that he spoke with had had $50,000 taken out of his milk check as Producer Price Differential (PPD) in July and August alone and was not happy about it, Hardin said.

World is hungrier

Tough weather conditions in some parts of the United States have contributed to a scarcity of dairy quality hay in those regions, Hardin said; also, global demand for corn and soybeans will play a part in U.S. dairy production this year as it affects the price of production. “This is not a short-term run-up in grain prices,” he said. “The world is becoming a hungrier place.”

However, in the past growing season, Wisconsin farmers had a good year for producing quality crops of all kinds and that is reflected in the state’s growing milk production.

The cold snap that gripped the South, especially Oklahoma and Texas hit dairy farms in that region hard, he said. One cattle market he is in touch with in west Texas reported that instead of the average 100 cull dairy cows per week brought in from dairy farmers, they are now seeing 500 or more. Cows are coming in with frozen teats and all of the ills that happen when it’s too cold.

Pete Hardin, editor and publisher of The Milkweed, a national dairy publication,  says the U.S. dairy industry needs new rules for the federal milk orders.

Hardin said that the U.S. dairy industry needs new rules for the federal milk orders. “Last year dairy farmers lost an estimated $2.694 billion due to the de-pooling of Class III (cheese) milk and negative PPDs. They also lost $725 million due to the Class I (fluid) milk formula in the second half of the year,” he said.

“That’s $3.3 billion in lost milk income in the second half of 2020. Some farmers in California had negative PPDs in the $8 and $9 range. We need a new Class I formula based on the regional cost of production,” he said.

“In Wisconsin we know that 90 percent of the milk goes into cheese and 90 percent of that cheese goes out of the state. We need to disallow the de-pooling of milk and keep the money in the pool.”

Hardin also decried the fact that dairy promotion organizations, funded by dairy farmers, do very little to market higher-fat dairy products. The value of the cream in recent years has been the factor keeping farm-gate milk prices higher; and the higher-fat products in the grocery store are those that consumers are buying in greater amounts.

“Your dairy promotion groups are doing a poor job of promoting higher-fat products. Whole milk is the only beverage milk category seeing higher sales,” he added.

According to Hardin, only one-half of one percent of total promotion revenue is spent on butter, which is an increasingly attractive product to consumers, due to things like keto diets. “They have not promoted where the greatest value lies. That is an uptapped opportunity.”

While consumers prefer full-fat dairy products, it seems that only low-fat and no-fat dairy products are promoted, he added.