Cash-strapped cooperative reduces milk checks
RESTON, Va. (March 27, 2018) — The Maryland & Virginia Milk Producers Cooperative Association slashed advance milk checks to its farmers this month as it struggles with cash flow and the costs of reorganizing its business, a spokesperson said last week.
The cooperative reduced March 1 payments by $1.60 per hundredweight after it could not entirely cover the $25 million it was slated to pay its 1,300 producers, said Amber Sheridan, cooperative spokesperson.
Though the cooperative said it will make up the difference in its end-of-month checks, the cuts arrived at a vulnerable moment for the dairy industry as low milk prices and rising costs drive many farmers out of production.
“It comes down to cash flow and cash ability and having the money to pay those farmers,” Sheridan said. “We’re working with a credit facility that is very inflexible at this time … and we had to make the hard decision to reduce payments.”
Over the last several years, the cooperative has invested about $40 million into operations so it can sell more milk and boost market share, Sheridan said.
It expanded its processing capabilities and balancing capacity at its Laurel, Md., facility to better handle issues such as an annual spring flush that seems to start earlier and last longer than it used to, she said.
The cooperative has also developed a larger retail operation after losing some business from bulk customers, Sheridan said.
It used to only put about a third of its members’ milk through its own processing facilities.
The rest was sold off.
“We lost some of that business, and that made a big difference,” she said. “We really needed to find a way to put more milk through our own plants, control our own destiny and maintain our independence.”
To that end, the cooperative updated its Landover, Md., plant so it could distribute milk into “caseless,” rectangular jugs that can be stacked on top of each other and do not require cumbersome milk creates.
It appeals to certain grocers such as Costco and Sam’s Club, and the cooperative has one of only four plants in the nation that offer caseless milk, Sheridan said.
The cooperative has also been pushing more milk through its regional Maola brand sold at retail establishments from South Carolina to Maryland, she said.
“We have started to change our business model and we’re relying less on sales to processors,” she said. “We’re dealing more directly with customers.”
The cooperative is also nearing the end of a months-long negotiation to establish a new $75 million credit facility, she said, which should give the business sufficient cash flow and prevent future advance check cuts.
“We know that this was not the time (to cut advance checks). This is a very challenging time for our members. It was not an easy decision that we made, but it was one that had to be made. There was no avoiding it,” she said.
But conventional dairy farms across the country continue to shutter at a dramatic rate as several years of low milk prices squeeze farms into closure.
Last year, the cooperative had more than 1,400 members from Pennsylvania to Florida. Now, its membership is about 1,350, she said.
Kate Dallam, a cooperative member and owner of Broom’s Bloom Dairy in Bel Air, Md., said the cuts forced her farm to “do a lot shifting around to get bills paid” after the cooperative announced the check cuts. But more than that, she said the cuts worried her, particularly as the milk industry around her weakens.
“More than anything else, it’s a psychological thing because you’re already concerned about your co-op,” Dallam said. “There is a fear that your worst-case scenario is coming true, which is that you’re going to have to find some place else to ship your milk.”
Many of cooperative members will gather at annual meetings in Pennsylvania on March 27 and North Carolina on March 29. Sheridan said the cooperative expects to offer its members good news.
“We’re really coming through what has been a challenging time and turning the corner… and coming out of it with new opportunity for the coop,” she said.
1-800-634-5021 410-822-3965 Fax- 410-822-5068
P.O. Box 2026 Easton, MD 21601-8925