Signs that dairy markets may be stabilizing will come as welcome news for the industry.
The past three months since the onset of the COVID-19 pandemic have been a roller coaster ride for producers, who have worked to match frequent shifts in demand, and changes in how much they get paid for their milk, with the amount shipped out of their bulk tanks.
Why it matters: The quick changes in the milk market have been a lesson for dairy farmers in how to manage milk supply.
The P5 provincial marketing boards, including Dairy Farmers of Ontario (DFO), announced June 16 the removal of a hefty $20 per hectolitre penalty for over-quota shipping, effective July 1. This came on the heels of the removal on June 12 of a limitation on credit days, a tactic that eliminated significant leeway for shipping above quota. Both measures, along with a two per-cent quota cut, had been implemented in late April.
Blend prices for dairy producers across the P5 also slipped in March and April.
But those signs have not yet been consistent, and there continue to be some supply chain issues.
“Disappointed to see this at Woodstock Walmart on the same day we put our milk down the drain…,” posted one dairy producer on June 28 on a Facebook group maintained by DFO. Accompanying the post was a photo of a nearly empty dairy products display case.
The producer went on to explain their farm decided to discard milk at the end of the month rather than ship over-quota, but they might have made a different decision if the harsh penalties had been removed earlier.
The producer did not respond to a request for an interview.
The Lactanet milk quality and genetics data organization (formerly CanWest DHI in Ontario and Valacta in Quebec) has operated producer advisory services in Quebec for years.
Research Project and Technology Transfer Co-ordinator Julie Baillargeon polled her colleagues about advice offered to dairy farmers by Valacta.
An email response, translated from French, said “although the situation has moved in the right direction and demand seems to be returning to normal, it is too early to imagine that this crisis is behind us.”
The market will need to absorb inventories of butter and cheese built up by processors during the slowdown months of March and April. There’s also the unknown risk of a COVID-19 second wave leading to further processing and food-service slow-downs.
And, importantly, the Lactanet advisers cited the potential for altered consumer buying habits due to the pandemic’s mid- and long-term economic effects. “What will be the impact of the recession, which is beginning, on the demand for dairy products?”
Will total dairy sales drop, or will preferences shift from high-margin fine cheeses and yogurts, “in favour of more affordable categories?”
Dairy farmers have taken several measures to reduce milk volume in the wake of the late-March and early-April P5 announcements.
They included drying off cows early to create a longer dry-off period, culling more cows both at the beginning and end of lactation, switching from replacement formula to whole milk for feeding calves, feeding milk back to the milking herd as part of the total mixed ration, and tweaking feeding rations to pull back production.
Requests for comments from a number of Ontario dairy producers, regarding their farms’ responses to the COVID-19 upheaval, went unanswered.
Farm Credit Canada’s Principal Agricultural Economist Sébastien Pouliot, predicted that cost of production and revenue will continue to be affected for dairy farmers.
The total cost of production would decline for P5 milk producers by 44 cents per hectolitre in 2020, due mainly to falling prices for feed grains. Pouliot said, though, that this would likely be offset, and more, by a decrease in revenue.
“In net, margins will decline in 2020,” he said.
The Lactanet advisers polled by Baillergeon agreed with Pouliot’s assessment. They cited “lower sales revenues” due to decreased blend prices and the late May quota cut and over-quota penalty, “while keeping fixed costs at their pre-crisis level.”
In addition, the pandemic brought on increases in costs for preventative measures such as sanitizing milkhouses, and a more complicated process (for gaining) access to foreign workers.
Tamping down dairy costs
The result was much discussion about how to limit production, and limit costs.
Farm & Food Care Ontario hosted a webinar featuring Ontario Ministry of Agriculture, Food and Rural Affairs dairy specialists Cynthia Miltenburg and Marlene Paibomesai, on tackling longer dry-off periods and other production-limiting possibilities.
The goal was to make producers aware of any pitfalls in extending dry periods from the current average around 50 days to upwards of 60 or even as high as 90 days.
Altered dry-off periods should not, Miltenburg stressed, interfere with established feeding and care protocol leading into the critical three-week close-up period before calving.
Perhaps the biggest risk, she suggested, is cows putting on more weight than is necessary going into calving. This can lead to energy imbalances with the onset of calving and early-lactation milk demands.
“We’re going to see some challenges at maintaining optimal body condition score with these longer dry periods,” said Miltenburg.
A Lactanet resource said that turning off the tap on milk production is challenging.
“Know your animal inventory. Have a good understanding of future calvings and milk requirements, know the number of heifers that will enter the milking herd in the coming months, (and know the) number of cows in milk (and) dry cows.”
The Lactanet website suggested producers “stagger shipments (of cull cows) to auction and contact the transporter or auction before preparing for the cows to leave, to ensure they can be sold.” It also advised drying cows off in advance to ensure they arrive at the auction in good body condition.
In late July, Baillergeon said it appeared Quebec producers had heeded Lactanet’s advice — both to rely more on early dry-off instead of culling to respond to COVID-19’s effects, and to carefully plan any cull cow shipments.
“The slowing down of slaughterhouses has not been a real issue (for dairy producers) in Quebec,” she reported.
Check return over feed costs, says Lactanet. It said that farmers should “monitor feed costs and feed margin,” look at their milk-to-concentrates ratio, and evaluate the effectiveness of any feed additives meant to enhance production or protein levels.
Baillergeon stressed, however, that early dry-off was the top priority for Lactanet’s advisory service clients, with feeding more milk to calves and adding milk to TMRs seen as much less impactful on bulk tank volumes. Switching away from milk replacer, she noted, isn’t always an option, especially for those using automated calf feeders.
“A small survey conducted by our advisers with some of our customers confirmed that our advice has been applied,” she said, “and that the results were there” in terms of decreased supply into the marketplace.
The overall goal, though, has been to decrease short-term volume, while maintaining the capacity to move back into peak production when demand dictates — a goal which will likely be more complex to achieve.