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The State of the Dairy Industry in 2020

No doubt you saw the images on your local news: Gallons of milk flowing out of holding tanks and trucks, going down the drain or being dumped into fields. This was milk that farmers worked hard to collect, process and store for delivery and shipment to customers—and it's yet another sign of how COVID-19 has wreaked havoc across the country.

In the wake of the pandemic, shortages in consumer staples at grocery stores, including toilet paper, cleaning supplies and personal protective equipment, were in the spotlight. However, COVID-19 has also had a tremendous impact across the food supply chain.

We spoke to dairy farmers on the state of their industry, as well as what consumers can expect moving forward.

A Rocky Few Months

The first half of 2020 has been a challenge for businesses across the country—and farms are no exception. With so many schools and businesses closed down, farmers were left with excess milk supply that had no where to go.

For instance, approximately 60 percent of the butter sold in the United States is shipped to restaurants. But with the country shelter-in-place, supply and demand changed, especially during the height of local and statewide lockdowns in March and early April. This reduction in demand caused many farmers to dump their milk.

Dumping milk is the process of disposing milk before it's sent for processing and turned into dairy products like cheese and butter. Milk has been poured down drains from tanks in holding areas, transferred to trucks and disposed into manure pits and loaded into manure spreaders and sprayed over fields. All these are ways to try to safely get rid of excess milk.

While it's not unheard of for farmers to dump milk during the year, it was the sheer volume of dumping during the spring that impacted the industry. Estimates from the Dairy Farmers of America put the numbers at approximately 3.7 million gallons a day. Furthermore, the International Dairy Foods Association cited approximately 10 percent of the nation's milk supply was without a home during this time.

Supply Chain Issues

The current food supply chain is built for large orders. That makes it difficult to pivot a fully industrialized processing plant to one that can cover smaller consumer needs. For instance, trying to revamp packaging from wholesale to consumer products so that goods can go to grocery stores instead of hotels can slow down the chain.

"I think demand has recovered and the supply chain has made the necessary changes to get the product into the areas where demand is the highest," says Greg Sabolik, who runs Bred & Butter Dairy in Minnesota. "Dumping milk was limited to a pretty narrow window of time [between March and April], and, to my knowledge, no one is still doing it."

As businesses slowly begin to reopen, demand for dairy is stabilizing somewhat from the early days of COVID-19. A report on dairy supply chains from CoBank found that restaurants offering take-out and limited in-person dining have helped tick up demand. Meanwhile, consumer spending in grocery stores continues to improve, as well; people are shopping more frequently in the dairy aisle of their local stores, with processed cheese and milk sales seeing an increase in April and May.

Farm Business as Usual

Not all dairy farms felt the impact in the same way, especially the mid-size and smaller family farms you'll find all across the Midwest.

Huey Boelen, a dairy farmer in Iowa with an active TikTok channel, hasn't seen much of a day-to-day impact in operations or demand due to COVID-19. "We are the only dairy left in the county, and luckily we didn't have to dump any milk," he says.

Boelen's farm has had steady calving—the process of calves being born—all spring, often with multiple new births each day. "We will have four to six calves most days, so our routine has not changed much. Our production has not decreased any during COVID-19. Cows keep making milk regardless of the world burning down or not."

Regardless of the global impacts from the pandemic, business doesn't just stop for farmers. Animals are still born in the spring, crops still grow and dairy cows keep producing their milk. The effort from American farmers to keep their farms running means consumers are still able to go to the grocery store and get the food they need, when they need it.

Prices Stabilize

Another area that's fluctuated over the past few months is pricing. "Milk pricing has been on an extreme roller coaster over the past three months," Sabolik says.

Milk is priced per a classification system set up by the federal government based on how it's used. Class 1 milk is what's sold as a gallon at your local grocery store; Class 2 includes ice cream and yogurt; Class 3 is cheese and whey; and Class 4 is butter and milk powders.

The price is based on what's called a hundredweight, which is cost per 100 pounds of milk, or just over 11 gallons. The United Sates Department of Agriculture, which tracks milk pricing, recorded that January 2020 Class 1 milk was priced at $19.01 per hundredweight. By May, it had dropped to just under $13 and in June it bottomed out at $11.42.

One potentially positive sign that the dairy industry is back on track is that prices are projected to rise. However, Sabolik says, "No one is really sure of what's driving these markets and if they are sustainable."

For the consumer, this means that, after a few months of low prices at the store, dairy products should soon return to pre-COVID-19 rates.

An Eye to the Future

Sabolik says many smaller farms are thinking about new operational approaches to compete with larger farms, including discovering ways to sell products directly to consumers. This, he believes, may help farmers add a layer of protection should they face another challenging business period in the future.

Dairy farmers across the Midwest have been working hard to ensure the health and safety of their stock. That day-in-day-out effort means that consumers have access to top quality, safe and fresh milk, butter and cheese—even in the middle of a global pandemic.