Widespread shutdown order slams California dairy farmers, ‘You can’t turn off the cows’

Arlin Van Groningen stood a few feet away from his cows, worried about the future.

Two months ago, the price of milk products was headed toward a peak and then those same prices plunged into freefall. Now the impact of the new coronavirus was sinking in.

Exports overseas dwindled. Schools no longer needed so many milk cartons. Restaurants are not buying as much cheese. So Van Groningen, who owns the New Hope Dairy in Galt, started making more butter to soften his losses.

“It’s heavier butter now since the crisis,” Van Groningen said. “We’ve diverted about 30 percent of our milk into more butter.”

A third-generation dairyman, Van Groningen, 46, has seen his share of ups and downs in an industry accustomed to erratic price turns. The challenge of COVID-19 is different, he said, an economic imbalance that’s touching every part of the economy, including the milk business.

When the market for dairy products in schools, restaurants and abroad disappeared amid the lockdown it left behind a void. Farmers like Van Groningen moved to make butter but now that the dust has settled he’s learned that it may not be enough.

Creameries are telling farmers to cut back on the amount of milk they’re sending because they can’t find a buyer for it, said Anja Raudabaugh, chief executive of Western United Dairies, an industry group based in Modesto.

“The holdup and the challenge with the school lunch program and the restaurant sector shutting down are these creameries have not been getting the orders that they usually do,” she said. “They don’t want to take the milk.”

That means farmers will face potentially big losses by either pouring the milk out like many farmers are already doing on the Northeast. They can “dry” the cow off by no longer milking it or they can “beef” them.

“Almost every single farmer in California has been given orders to cut their production,” Raudabaugh said.

Massive recession coming

State and federal agencies have created some protections in the form of loans and a delay on taxes for small businesses. However, agricultural economists say the disruption may be just the beginning and that an expected price drop is on the horizon.

“Like every part of the food system, there are complications. The issue for milk is you can’t turn off the cows,” said Daniel A. Sumner, an agricultural economist and professor at UC Davis. “What’s becoming more of a problem is the slightly longer-term outlook where we have a massive recession (coming).”

Dairy prices are regulated by the federal government and fluctuate on the Chicago Mercantile Exchange. So the price of large quantities of milk, cheese, whey and milk powder is set based on data from the prior month, Sumner said.

In January, milk traded at nearly 18 cents per pound and by March the amount fell nearly five cents. Sumner said this suggests there is a price shock to come in the summer.

“The May and June futures markets for milk has collapsed,” Sumner said. “All the dairy farmers, so far their prices haven’t gone down yet because all these prices are set by looking in the rearview mirror. But they know it’s coming and they know it’s going to be really bad.”

Van Groningen was concerned enough for his 14 employees that he has applied for the U.S. Small Business Administration’s paycheck protection loan, but worries it’s only a band-aid solution.

“I’m going to use it to make sure I can pay my employees,” he said. “Those types of programs usually prolong the problem, unfortunately. We as an industry need to figure it out on our own.”

This story was originally published April 10, 2020 at 5:00 AM.