Scenic Central Milk co-op gains producers, based on philosophy
RICHLAND CENTER – “Change is a constant. It’s what we do with it that’s important,” Scenic Central Milk Producers Cooperative board president Tom Kearns told members as they gathered for this year’s annual meeting in Richland Center.
The milk price is changing in the right direction but fuel and fertilizer prices are changing negatively and will force farmers to sharpen their pencils. “Some changes force us to change. Don’t be afraid of it. It’s going to come.”
Terry Hanson, general manager, said the Pandemic Market Volatility Assistance Program (PMVAP) program funds had finally been received from USDA and disbursed to members by the co-op. The USDA had allocated $350 million for the program, which is intended to help farmers who were shorted by milk prices from July through December 2020 due to abnormalities in the federal milk pricing system.
Initially, those funds were to have been sent out by USDA last year but that didn’t happen. Once the agency sent the money to milk handlers, they had 30 days to get it disbursed to the farmers they work with. The funding is considered taxable income and farmers who were eligible received it through those milk handlers, rather than through the Farm Service Agency.
During the Scenic Central annual meeting held on March 2, Hanson told farmers that if they hadn’t yet received their check they should see it in the mail very soon. He explained to members that it was only for six months of milk and intended to help farmers whose milk prices were hurt by negative Producer Price Differentials.
Hanson said that how his board decided to use the pool of money was to divide it up equally among its members. “That’s how we operate,” he said.
He told members that right now milk supplies are very tight. “Through June or July I think milk is going to be short. There’s not a lot of spot milk.”
As some producers decide to exit the dairy business, their neighbors have been talking to Scenic Central about coming on board. Some of them have not even asked for a price comparison, he said, they just want to be part of a co-op with a different philosophy. Every board member at Scenic is a dairy producer who still milks cows. When a producer retires from dairying, they must leave the board.
Hanson said that since he’s been part of the co-op since 1999, it has had a good track record, “showing producers that we aren’t going to take advantage of them.”
In the past year Scenic handled a total of 707 million pounds of milk in total – about 58 million pounds per month. The co-op saw a big jump in milk in 2019 when a number of new producers came on board in groups, along with their milk hauler. Prior to the addition of those farms, Scenic had been handling less than 500 million pounds of milk per year.
The co-op has two regional areas – Scenic Central and Packerland, which is a region in northeastern Wisconsin. Hanson noted that the farms in that region are generally much larger. Some farmers who want to join Scenic are direct-ship, meaning their milk is chilled and goes into a semi-trailer.
Because there’s no agitator in those tanks, not all dairy plants can take it which limits his ability to market that milk, he said. Scenic’s philosophy has always been to find markets for milk before taking on producers to add to the milk supply that would need to be handled by the co-op.
He reported to members that they had $141 million in sales, which amounted to $19.958 per hundredweight and the cost of sales was $19.808 per hundredweight.
Net income was $134,724 in 2020 and was up to $179,195 in 2021. That was due in part to handling a significantly higher amount of milk in the most recent year.
Gross profit for 2021 stood at $1,067,096 and 93 percent of that was used to pay farmers base milk price and components price. Two percent was used for quality premiums and 3.4 percent was hauling charges.
Hanson talked about the match program Scenic has with producers who decide to allocate funds from their milk checks into a retirement account with Modern Woodmen. Patrons contributed $375,000 and Scenic contributed percentage matches of $250,000. Under this matching program there are now $5.7 million in Modern Woodman funds.
Scenic Central continues to carry no debt, which is one reason the co-op can operate the way it does. Those who work for Scenic work out of their homes and the only company expenses are a few cars and computers, Hanson said.
He told members that there was change coming in terms of the handling of milk samples. A lab the co-op had worked with in Dubuque closed as of the beginning of March and they would be switching to a lab called Fox Valley in Kaukauna, a lab which the Packerland region farms have been using for years.
Available marketing tools
Matt Tranel, with Ever-Ag, talked with farmers about marketing tools that are available. Current conditions are changing day by day or even hour by hour but there are still tools that can help farmers manage their risk, he said.
Some of those tools are futures and options. For dairy producers the Dairy Margin Coverage (DMC) offers good price protection and farmers should maximize their coverage under that USDA program, he said. He urged them to sign up for $9.50 coverage on their first 5 million pounds of production.
Futures contract on the Chicago Mercantile Exchange allow farmers to lock in a price at the market. For example, Tranel said, an April contract could lock in a price of $23 per hundredweight, however if the market rises they don’t capture it.
He explained that an option is the “right,” not the obligation to buy or sell at a predetermined price at any given time within a specified time period. An option is similar to insurance in that it has a level of coverage – a strike price. As insurance has a deductible, an option has a payment based on the current price minus the strike price.
Tranel said that there are other USDA programs that can be used by farmers to protect their prices. The Dairy Revenue Protection or DRP program for dairy is designed to insure against unexpected declines in the quarterly revenue from milk sales. It carries a 44 percent subsidy from the federal agency through its Risk Management Agency division.
The advantage is that the subsidy reduces the farmers cost to participate. The drawback to the program is that it is based on quarterly numbers which can vary widely and can determine whether or not there is a payout under the program contract.
The Livestock Gross Margin insurance plan for dairy cattle is a program that’s been around for a while and is making something of a comeback, Tranel said. It provides protection when feed costs rise or milk prices drop and can be tailored to any size farm. The gross margin is the market value of milk minus feed costs.
It is also operated through the USDA’s Risk Management Agency and one drawback has been that contracts can only be made on the last Friday of the month. “There’s a rumor that it might be changed to daily offerings which would be a game changer,” he said.
Tranel said farmers should quantify their risk and engage a plan, determining what tools are most appropriate in the moment. Diversification of what tools are used in that plan is important, he added. “You should also monitor that plan and make adjustments as necessary.”