Farmers have difficulty seeing better future in dairying in Wisconsin

Editor’s note: Pete Hardin, editor and publisher of The Milkweed, offered the following suggestions in a memorandum to Wisconsin’s state-appointed Dairy Task Force.

The vision that incubated Wisconsin’s dairy industry in the late 1800s and early 1900s was likely the greatest economic development project in this nation’s history. Our state’s dairy visionaries faced a landscape significantly denuded of virgin timber. And over reliance on wheat monoculture depleted the soils’ natural fertility.

Wisconsin’s natural and human assets were perceived as ideal for developing a dairy industry that would provide a viable economy, restore soils’ fertility, utilize our climate and moisture resources and create rural employment in dairy production and related industries (cheese, meat, leather, transportation etc.)  Six generations later, dairy remains a vital pillar of the state’s economy.

However, after nearly four years of abysmal farm milk prices and at least a 50% decline in the value of dairy livestock assets, many of our state’s dairy farmers have great difficulty seeing a better future. Thus, your challenge is to help guide our historic, “greatest economic development” to be future-appropriate. Towards that purpose, I offer a summary of issues and strategies to help restore profitability to our state’s dairy farmers – the base from which all additional wealth in our industry flows.

Direct cheese sales to consumers

No state enjoys a greater connection to a single food product than Wisconsin to cheese. The money and profits are in the cheese market place. Consumer Price Index data shows U.S. consumers pay upwards of $5 per pound for Cheddar at retail.  And other varieties may command far greater retail prices.

The current cheese marketing/pricing system does not return a fair share of the consumer dollar back to the dairy producer and cheese plant. From the back door of the cheese plant (where some cheese is already cut, wrapped, and priced into consumer packages) to the retail dairy case, a miraculous transformation takes place: Products’ value generally increases by at least 200 percent! 

Strategy: Wisconsin’s state government should conduct a feasibility study on the merits of creating a state-wide initiative to develop a “mail-order” cheese business that would sell 10-lb. packages of quality, Wisconsin cheese at prices ranging around $60-$70.  Order forms could be posted on-line, with consumers listing their choice of quality Wisconsin cheeses. (Example: 3 lbs. Cheddar, 2 lbs. Muenster, 2.lbs. Swiss and 3 lbs. Colby).

After subtracting out perhaps $14-$18 dollars for packaging and shipping costs, there would still remain $45-$52 for all other costs. That money may be divided equitably among participating dairy farmers, cheese plants and investors. Such a project would not impair existing mail order sales by Wisconsin cheese plants.

This project should be set up as a stockholder corporation with primary investors solicited from dairy farmers and cheese plants. Obviously, quality control and bio-security must be prevailing ethics in this type of business. Also, during the hot months of the year, mail order cheese sales would not be feasible, unless some better packaging were developed.

 An initial customer base could be solicited by creating a grassroots public relations campaign inviting Wisconsin residents to provide the names and addresses of their friends, relatives and former neighbors living out-of-state who like to buy quality Wisconsin cheese. The emphasis could be on saving Wisconsin’s dairy industry by returning more of the money to the farmers and cheese plants.

Basically, this type of project would keep in Wisconsin virtually all the miraculous, 200 percent (or more) value appreciation that takes place from the back door of the cheese plant to the retail dairy case. Wisconsin jobs would be created for employees conducting numerous tasks—from fulfilling orders to marketing and inventory management positions.

Repeat: The money and profits are in the cheese market place. Our current, extended dairy pricing/marketing system has devolved to a game of “keep away” (i.e., keep the money away from the dairy producer and the cheese plant).

Develop whey research, marketing effort

Whey is the untended stepchild of dairy product marketing. Whey proteins are perhaps the most valuable proteins in dairy. Whey yields are approximately 5.5 lbs. per hundredweight of milk processed into cheese, after the curds have been formed. Wisconsin produces roughly half as many pounds of whey as this state’s cheese output. The economic value of whey produced in Wisconsin is approximately one-eighth of the value of cheeses sold. (Estimating $1.60/lb. cheese and $.45/lb. whey).

Currently, dry whey prices at the Chicago Mercantile Exchange range in the “mid-40s” (cents per pound). However, the prices reported by USDA’s Agriculture Marketing Service’s weekly survey are in the low “40s”. Each penny move (up or down) in whey prices pushes USDA’s monthly Class III (cheese) milk price by 6 cents per hundredweight.

Virtually no industry-wide whey marketing initiatives are at hand. Whey products are widely used in many consumer nutrition products. Go to a “General Nutrition Center” store and you can find many dozens of products containing whey—sold at high prices per pound.

An effort by Wisconsin to boost consumers’ awareness of whey values would supplement the value of the nearly 90 percent of Wisconsin farm milk that goes into the cheese vat. What, if anything, is Dairy Farmers of Wisconsin doing to aggressively promote the use of whey?

Investigate niche markets such as Organic, A2 milk, Grass-fed and GMO-free.

All consumer food trends start from a niche, and sometimes grow and prosper. Dairy features several evolving niche markets—which merit greater respect from the state.

Organic dairy comprises about 5 percent of total milk production in Wisconsin, and about 8 percent of total Wisconsin farm milk revenue.  Dairy Farmers of Wisconsin conducts ZERO marketing efforts for organic dairy products.

Further, Wisconsin organic dairy producers are under tremendous financial duress due to highly-questionable supplies of “organic” milk produced in arid states. (Example: six “organic” dairies in Texas produce more “organic” milk than Wisconsin’s 450 organic dairy farms.) The State of Wisconsin should intervene with USDA, demanding an investigation of those “organic” mega-dairies and the impact of those supplies upon prices received by Wisconsin’s organic producers.

A2 dairy products are derived from dairy herds that exclusively contain A2A2 genes. The A2 Milk Company of New Zealand, Ltd. is the predominant marketer of so-called “A2” dairy products globally. A2 infant formula products have enjoyed growth rates in China of over 100 percent in each of the past three years.  Eighty-five percent of people of Chinese heritage are unable to consume milk without gastro-discomfort.

In Australia, A2 beverage milk commands slightly more than a 10 percent market share of all beverage milk sales, despite a 100 percent retail price premium. A2 milk and dairy products open up that vast potential market, as well as for non-Chinese persons in the United States who believe they are “allergic to milk.”

Non-GMO milk and dairy products are following trends established in sectors of consumer food marketing. A significant array of consumers are highly skeptical of genetically-modified foods.

Grass-fed dairy products are an evolving niche, relating to their higher levels of CLAs and Omega-3s. Why can a person find two brands of imported, grass-fed butter from Ireland in the Piggly-Wiggly store in Brodhead, Wis., but there are virtually no domestic grass-fed butter products available?

In the Research Arena

Milk from cows with Kappa-casein BB genes yields about 10 percent more cheese from the same volume of farm milk. There are three recognized variants of the Kappa-casein milk protein: A, B and E.  Based upon their genetics, dairy cows may carry variants of these genes: AA, AB, AE, BB, BE, and EE. Published research from Europe indicates that milk from dairy cows with the Kappa-casein BB genetic profile will yield 10 percent (or more) cheese from the same volume of milk as cows with AA traits. Research also indicates that that milk from cows with the EE trait is problematic for curd formation in the cheese vat. Unfortunately, some of the industry’s biggest-selling sires possess the Kappa-casein EE trait.

Strategy: It would be very simple for researchers at the University of Wisconsin-Madison to isolate milk from Kappa-casein BB dairy animals and conduct cheese-making yield experiments to determine the accuracy of prior research from Europe. If such research confirmed a 10 percent (or more, depending upon variety of cheese) yield gain in the cheese vat, an application of dairy genetics to encourage dairy farmers to breed for Kappa-casein BB traits would result in a tremendous efficiency for our state’s cheese plants.

Further, when such milk supplies were available, producers should receive premiums for milk that’s Kappa-casein BB. Most firms selling dairy semen break down the sire’s Kappa-casein traits.  In Wisconsin nearly 90 percent of our farm milk is destined for the cheese vat.  Bulls with the Kappa-casein EE trait would be best utilized as sausage.

Research alternatives to corn, alfalfa in dairy rations

Alternative crop programs might include a rotation of winter forages and dwarf sorghum.  These crops require inputs—seed, fertilizer and chemicals—that are less costly than those for corn and alfalfa.  An additional benefit: the soils stay covered most of the year.  Sorghum has an added benefit.  The root hairs contain a substance that kills corn rootworms. Thus, one year of dwarf sorghum will allow the farmer to skip two subsequent years of rootworm insecticide applications if corn follows a sorghum crop.

Environmental/agronomic advantages of composting dairy manure

One of dairy’s Achilles’ heels is the fact that ruminant manure stored in anaerobic (oxygen-free) environments generates methane—a serious greenhouse gas. Storage and treatment systems for manure, including ponds, lagoons—and even methane digesters—must be rethought for their environmental impact. In the case of manure digesters, the methane is burned to create energy. The by-products of methane combustion are carbon dioxide (another greenhouse gas) and water, plus minor amounts of far worse greenhouse gasses.

Strategy: Advantages of composting dairy manure are being reported. Dane County is conducting ongoing composting projects. Among the advantages are: Reduction in the moisture content and volume of manure which reduces the trips for land spreading, ability of the farmer to defer spreading until the soil conditions are more appropriate and improved response by crops (such as alfalfa) to nutrients in compost (vs. applications of fresh or liquid manure).

Cautious land-spreading of raw milk as a fertilizer

Dairy farmers possess a great fertilizer resource – raw milk. Research has shown that three to five gallons of milk per acre has a significant benefit for crop yields—and reduces the need for purchased fertilizers. Particularly when applied in the spring (when farm milk tends to be in greater surplus), approval of land-spreading of milk as a soil fertility booster would remove a small quantity of farm milk from the market and reduce input costs.

Problem: Currently, the Wisconsin Department of Natural Resources bans the land-spreading of milk as a fertilizer. In fact, in early 2017, when a few dozen dairy farmers in Wisconsin were facing no milk markets (due to their being terminated by Grassland Dairy Products), the DNR sought information on those farms from DATCP to make sure that no land-spreading of milk took place.

Strategy: A review of the science on land-spreading of milk as a fertility agent—and DNR’s policies that restrict that practice—are highly merited. Three to five gallons of milk spread per acre offer significant soil fertility benefits, with little, if any, environmental impact.

Convert WI’s Producer Security Program

Convert the state's Producer Security Program to a system of low-interest loans and expand it to include coverage for dairy plants and milk haulers.

Inevitably, financial failures will occur. For several reasons, including sales to out-of-state buyers, Wisconsin’s dairy plant security program is outdated and too narrow. Adequately securing Wisconsin’s dairy industry must go beyond the farm to include milk haulers and dairy processors.

Strategy: Convert Wisconsin’s dairy plant security program from its current status to offering low-interest loans to dairy producers, milk haulers, and cheese plants that have cash flow interrupted due to the failure of a dairy plant, cooperative, or dairy products buyer. The low interest loans might have terms from one to three years (at the discretion of DATCP, farmers and the parties involved in the failure). 

These payments would not be a grant from the state. Rather, the recipients of such loans would be obligated to pay back the funds. Further, any disbursements from a bankruptcy would be assigned to DATCP by parties receiving such grants, if the loans had not been repaid.

Adequate security for the dairy industry must go beyond the farm, to include dairy plants and milk haulers.

Water. Water. Water.

In recent years, some of the greatest gains in milk production come from states in arid regions of the United States, where water is drawn from aquifers to grow livestock feeds. That model is not sustainable for future decades. The aquifers are being rapidly depleted.

Wisconsin and the Great Lakes Basin will be the locale for expanded food production in the future—greatly due to available water and climate resources. However, the state’s repeated failure to safeguard our surface and ground water resources from pollution sourced from livestock and poultry operations promises a great disconnect between public health and public support for Wisconsin agriculture.

What are the future prospects for arid states’ dairy industries, two decades ahead, if draw-down of aquifers continues at present rates? How may Wisconsin’s water resources be better safeguarded?  Water issues should be reviewed by the Dairy Task Force—both as a future competitive advantage as well as for better safeguarding the quality/quantity of our surface and ground waters.

Dysfunctional federal dairy programs and areas of federal oversight

It’s beyond the scope of the Wisconsin Dairy Task Force 2.0 to change certain failing federal dairy programs. However, in a future vision of Wisconsin’s dairy prosperity, at the very least the Dairy Task Force 2.0 may suggest changes to federal programs that could be passed along to our elected federal officials and bureaucrats in Washington, D.C.  Such federal concerns include:

Federal milk orders: Nearly 20 years into a “revision” of a program originally cobbled together in the 1930s, the federal milk order is ill-serving Wisconsin’s dairy industry.  Numerous cheese plants in Wisconsin are shifting producers out of the federal milk order program, due to negative financial returns associated with the Upper Midwest federal milk order.  Federal milk orders were designed to safeguard adequate supplies of fluid milk to consumers.

Nearly 90 percent of Wisconsin’s milk goes into the cheese vat.  A modern federal milk order program should recognize two classes of milk and a small number of regional marketing orders. Class I should include farm milk processed into cheese, fluid and yogurt. All other uses of farm milk may be lower-priced Class II.  A common butterfat differential for Class I and Class II is needed. Further, an “upcharge” for nonfat dry milk and condensed skim milk processed into Class I would be necessary.

Irregularities at the Chicago Mercantile Exchange: At this moment, there are three trading irregularities (or, perhaps less judgmentally, “anomalies”) playing out at the CME. First, butter traders are in an uproar over a West Coast dairy cooperative’s failure to put the Kosher icon on butter sold at CME. Second, barrel Cheddar cash markets at CME have been groveling 15 cents to 25 cents below the weekly average prices reported by dairy manufacturers to USDA’s Agricultural Marketing Service. Third, whey prices at CME are lagging 10 cents to 15 cents per pound below the weekly manufacturers’ reported prices.

All of the above-cited, current/recent incidents skew the costs for dairy manufacturers and destabilize the system for pricing milk to Wisconsin’s farms. Irregularities at the CME are a matter for the Commodities Futures Trading Commission.