Dairy Supply Chain Remains Resilient
March 31, 2020
Dairy farmers and their upstream supply chain have been able to adjust and handle the current COVID-19 disruption to dairy markets, says Mark Stephenson, a dairy economist and director of the Center of Dairy Profitability at the University of Wisconsin.
Stephenson participated in a 25-minute podcast last week hosted by radio broadcaster Mike Austin and published by Dairy Stream. Keep in mind the broadcast came prior to the passage and signing of emergency COVID-19 legislation over the weekend.
While fluid milk sales through grocery stores are up, Stephenson notes that about a third of dairy sales normally move through restaurant and food service outlets. So stay-at-home orders across most states have affected out-of-home sales. In addition, many schools have closed. In normal times, school fluid milk sales account for 8 to 9 percent of fluid use. But even with schools shuttered, some districts are providing milk with meals they are providing students through pick-up or through school bus deliveries. Bottomline, it is simply too early to tell what impact all of this will have on fluid use, says Stephenson.
He also notes closure of restaurant and food service outlets is causing a big shift in cheese use. Normally, barrel cheese is a big user to single-slice and other commodity cheeses through quick-serve restaurants. While curb-side and drive-through sales continue, barrel cheese process plants are seeing a decrease in demand, he says.
The one bit of good news is that farmers used better prices in the fourth quarter of 2019 and the first two months of 2020 to shore up their equity positions. They used the better prices to pay off bills, pay down debt and raise levels of working capital back up, Stephenson says. “Banks are not panicking,” he says. “Most farmers are credit worthy.” But Stephenson is urging dairy farmers to re-calculate cash flow needs this spring, summer and fall. If they are short, they should immediately contact their lenders to secure or increase lines of credit to get them through the coming year. Stephenson is also reminding farmers they are not alone through this crisis. He is urging them to seek immediate help if they are feeling overwhelmed and don’t feel they can cope. “Help is available,” he says.