Brad D. Keating, the senior vice president of Dairy Farmers of America Inc.’s Eastern Fluid Group, said DMS, the Northeast marketing arm of DFA, will terminate its agreements with 900 independent farmers throughout the Northeast to market and sell their milk in seven months. These independent farmers will either have to find their own market by Nov. 1, or join DFA, a national dairy cooperative.
Mr. Keating sent a letter to these independent farmers March 24 notifying them about the operational change.
“We don’t want them to be without a market,” Mr. Keating said. “Being without a market could be a business-ending decision.”
The revenue DFA earned from DMS selling independent farmers’ milk has been lower than the federally-regulated minimum payments DFA must make to those independent farmers, Mr. Keating said.
He said independent farmers must receive minimum payments based on the blend price average of different classes of milk, and the revenue DFA earned from DMS selling independent farmers’ milk was “inequitable” to those blend price-based minimum payments.
The blend price, Mr. Keating said, is created by using an average of prices from the Federal Milk Order for class I, class II, class III, and class IV milk.
“These are families that we’re talking about, but we can’t live with inequitable payments,” Mr. Keating said.
Douglas W. Shelmidine, co-owner of Sheland Farms in the town of Ellisburg and a DFA member, said members’ payments, which can be less than the blend price-based minimum payments at times, can change depending on market conditions and cooperative expenses, meaning independent farmers who join DFA would also follow this model.
“We share in the risks and rewards of being a part of the co-op,” Mr. Shelmidine said.
Mr. Keating said that during their first year of membership, independent farmers who decide to join DFA will have the option to not pay retained capital, or equity, and can withdraw any time during the year as long as they notify DFA 30 days in advance.
“We have a loyalty to these people,” Mr. Keating said. “We don’t want to put them out of business.”
Terminating contracts between independent farmers and DMS was not DFA’s first move to deal with the inequity between revenue and payments.
Earlier this year, Mr. Keating said DFA asked Federal Milk Order One’s Market Administrator Erik Rasmussen if it could partially depool portions of independent farmers’ milk, allowing DFA and independent farmers to earn revenue based on a manufacturing price for that depooled milk.
“By partially depooling, it allows you to pay the value of what you collected for that milk,” Mr. Keating said. “Unfortunately, there was a lot of opposition throughout the Northeast.”
The organization’s next option, after withdrawing its request to Mr. Rasmussen, was to depool all of the milk it received from independent producers, but Mr. Keating said their milk would have been given a lower class III or IV milk price rather than “share in the higher proceeds of a class I price.”
“That is too economically damaging,” he said.
Mr. Shelmidine and John R. Greenwood, owner of Greenwood Dairy and president of the St. Lawrence County Farm Bureau, said they agreed with DFA’s decision to terminate DMS agreements with independent producers.
Mr. Shelmidine and Mr. Greenwood, who also is a DFA member, said independent farmers using DMS have an advantage over DFA members because payments administered by cooperatives to their members could be less than the minimum payments independent farmers receive. Cooperative members have to supply equity to the cooperative and they have to help pay for dealing with oversupply, dumping and other expenses.
“For us to subsidize nonmember farmers is not fair when we’ve invested in the marketplace,” Mr. Shelmidine said. “Given the market conditions, I think it’s a necessary decision that has been made.”
Mr. Greenwood said he also felt DFA made the “correct decision” because allowing independent farmers to join DFA still provided them with a market.
“A lot of co-ops are not taking any (new) members,” he said. “Being an independent has been a risk lately because there is so much milk around.”