Dean Foods Drops Some Dairy Contracts


Producers search for options

Published in The Farmer's Pride March 15, 2018

More than 100 dairy farmers, around 20 of them from Kentucky, learned from a recent letter they would no longer have a market for their product come May 31.

Dean Foods, a Dallas Texas based food company, sent the letter dated Feb. 26 to independent producers in Kentucky, Ohio, Tennessee, Indiana, North Carolina, South Carolina, Pennsylvania and New York, according to numerous reports. In the letter, Dean’s terminates contracts with the producers and gives two reasons for the “difficult decision.”

First, the company notes that a retailer’s new Class 1 fluid processing plant is coming online in the region. The letter does not name the company but is obviously referencing a bottling plant built in Indiana by Walmart, a retailer that ended a contract with Dean Foods to bottle its private brand milk.

The letter also points to the steady increase of raw milk production at the same time milk consumption has decreased, resulting in an oversupply in the market.

David Sammons, who operates Forever Farms in Horse Cave with his wife, Bonnie, was one of Kentucky’s dairy producers to learn they would no longer have a market after May 31.

While producers are well aware that there is a surplus in the market, “Nobody expected this,” Sammons said.

Sammons said farmers have some time to make a decision and he hopes some opportunities will open up before the deadline.

One possibility he mentioned is a possibility that a cooperative would offer contracts to the dairies finding themselves without a customer, even though the price offered would be much lower than what was being paid by Dean’s.

Since then, however, the nation’s largest cooperative, Dairy Farmers of America, has said it will not be able to help.

DFA’s spokesman said the cooperative is facing difficult marketing environments as well and “unfortunately, don’t have a market for their milk at this time,” according to an article by Farm Journal.

Even if a co-op offers to help producers, Sammons said they would have a difficult decision to make. Cooperatives do not have to meet the federal order minimum price and with the current market surplus, producers would be selling at a loss even if they stay in the business.

“ You will have the opportunity to stay in the dairy business but it will be really painful,” Sammons said.

Even if a producer is able to ride out the low prices for two years, there is no guarantee the market will transition to a profitable margin, he noted.

“If you knew it was going to get better, you could take it, especially younger people,” he said. “Is there a spot for me two years from now in the dairy business? That’s what you really have to decide.”

Gary Rock, a producer in LaRue County, is also on the list of producers to lose their contract with Dean Foods. Rock, who lost his legs in a farming accident in 2013  then lost his milk barn in a tornado, is no stranger to adversity. He said this past weekend he is not ready to panic yet.

“In panicking, you make the wrong moves,” he said.

Rock blames Walmart for being the “kingpin of putting small businesses out of business,” but he also says that flaws in the federal pricing order are hurting the industry. He would like to see a base program across the nation that sets production quotas in line with market demands.

Because of the volatility in the dairy market, Rock said he has managed his operation as tight as possible to plan for difficult times. Even so, he mirrored Sammons words when he said, “Nobody expected this letter.”

“I never thought Dean’s would say, ‘There is no market for your milk,’” he said. “I expected if milk prices didn’t get any better, then the market would force you out.”

As producers consider their options, another painful factor is the price their cattle would bring if they were to sell out now. Sammons tells of one producer who recently sold his herd and top quality cows went for the same price as a cull cow.

“The guy…didn’t even watch them sell (because it was too painful),” he said.

Maury Cox, director of the Kentucky Dairy Development Council, is working with the Kentucky Department of Agriculture and the Governor’s Office of Agricultural Policy to reach out to producers who have lost their market. Dean Foods would not supply a list of producers but Cox said he believes the current total in Kentucky is between 19 and 22 producers. The Dean representative would not comment if more letters are coming to other producers, Cox said. He is aware of farms in Hart, Larue, Hardin, Nelson, Shelby, Henry, Oldham and Marion counties impacted by the loss of market.

“What I want to do is set up a network with those producers so we can communicate as things occur and happen,” he said.

Cox said they will seek new homes for producers with cooperatives already buying milk in this area and urged producers to not make quick decisions.

“Give us a chance; let the market settle,” he said.

For some producers who have considered exiting the business, Cox said they are looking at proposals to help them through the process.

“We are saying it’s not over. Don’t panic. Some people are going to find a market. Some people may not,” he said.

By Sharon Burton

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