NMPF and IDFA jointly propose ‘Milk Crisis Plan’ for USDA. American Dairy Coalition and Minnesota Milk Producers have alternate proposal.
By Sherry Bunting, Farmshine, April 10, 2020
WASHINGTON, D.C. — In the face of potential dairy industry collapse in what many are calling a “mixed up supply chain” and “upside down market” due to the impact of the COVID-19 pandemic on every aspect of American life, the National Milk Producers Federation (NMPF) and International Dairy Foods Association (IDFA) came together to propose a “Milk Crisis Plan for USDA,” released Tuesday, April 7.
It is a top to bottom overhaul of dairy production, processing and government feeding programs, including a price program for producers to cut 10% of their production over the next six months as well as removing all restrictions from school lunch programs and the WIC program to allow consumer choice of milk, cheese, yogurt, etc. – including all fat percentages of milk!
Specifically, one element of the plan asks USDA to stop requiring 1% low-fat or fat-free milk for persons over two years of age in government feeding programs – including the WIC program and school meals (provided in or out of school) — even asking USDA to allow servings over 8 ounces per meal for schoolchildren. This means schools could offer whole milk (3.25% fat) and 2% milk at least for calendar year 2020, if the proposal is adopted by USDA.
These industry organizations representing dairy cooperatives and processors cite “collapse of the foodservice industry, export disruptions and massive economic insecurity” as the demand factors that are now colliding with a “seasonally rising milk supply creating a massive gap.”
Their proposal estimates milk supply exceeding demand by “at least 10% — a gap that could widen as supply increases to its seasonal peak and as ‘shelter in place’ conditions endure.”
The dairy industry is navigating a major upheaval as the supply chain tries to adjust to plunging foodservice and institutional sales at the same time that retail demand surges at grocery stores.
NMPF and IDFA state that this is leading to a lack of orders for finished goods, several processing plants cutting or stopping operations and in general leading to “cancelled milk orders.”
In addition to the significant and continuing dumping of milk in the U.S. — something that has also begun this week in Canada – reports are coming in about processors terminating or potentially terminating small co-op contracts; processors and cooperatives seeking voluntary supply reductions from their producers; and some even looking for ways to encourage producers to consider quitting dairy altogether.
Indicative of the collapsing dairy market is this projection in the NMPF-IDFA proposal stating that second quarter Class III futures averaged $13.14 Monday while Class IV were in the $11s. Using the Dairy Margin Coverage (DMC) formula, NMPF projects a milk margin over feed cost getting close to that $5 catastrophic margin, estimated at $5.80 for the second quarter of 2020 and $6.76 for the third quarter according to Monday’s futures prices for milk. The highest insurable DMC margin is $9.50.
The industry organizations also point out that, “There is financial stress across the supply chain, and with more than 10 million Americans already losing jobs, food banks are seeing significant increases in demand, a trend that will likely only intensify in the weeks ahead.”
The NMPF-IDFA proposal aggregates many different tools with the objectives of providing aid to dairy producers, easing financial liquidity risks across the supply chain, stabilizing the dairy commodity markets and filling food banks with dairy products and removing restrictions that would limit the availability of dairy products in USDA feeding programs.
As for the aid to dairy producers? NMPF-IDFA want to “tie producer aid to limits in their production.”
The NMPF-IDFA proposal regarding dairy producers asks USDA to “offset the steep decline in farm milk prices and encourage producers to reduce excess supply” which they say is the result of “demand disappearance.”
Specifically, the proposal seeks to pay producers $3 per hundredweight (extra) on 90% of their milk production IF they cut production by 10% below their March 2020 baseline over the next six months of April through September 2020. Payments during any of those months would be suspended if the average of Class III and IV prices in that month exceeds $16/cwt.
An alternate plan put forward by the Minnesota Milk Producers Association (MMPA) and supported by the American Dairy Coalition would provide aid to dairy farmers differently as a more immediate lump sum payment of $3 per hundredweight on 100% of each operation’s March 2020 baseline for three months (April-June), irrespective of market prices, and paid in April. MMPA’s Dairy CORE plan calls for reassess of conditions in June to see if another round is needed for the next three months (July-Sept). ADC and MMPA contend this approach would be more fair to all regions of the U.S., including seasonal grazing dairies.
American Dairy Coalition noted in a statement Wednesday that direct payments should not be conditioned on arbitrary, top-down, one-size-fits-all production cutbacks. The organization believes that if producers receive a needed large, one-time direct payment, milk handlers and processors would then be in a better position to implement their own marginal incentives to “right-size” their own milk supplies.
The NMPF-IDFA Milk Crisis Plan also calls for a Temporary Milk Disposal Reimbursement to compensate handlers for milk that must be disposed of because of supply chain disruptions resulting from the COVID-19 pandemic. This would provide coverage of milk at the USDA Class IV (or lowest value class) price for three months – April through June 2020.
NMPF and IDFA want USDA AMS Milk Marketing Orders to administer these programs through their audit functions.
Their proposal also seeks recourse loan programs to expand the availability of “working capital” for dairy processors. This proposed program would allow firms to carry heavier-than-normal inventories and reduce systemic financial risk associated with those heavy inventories they would carry. In addition to specialty cheese products that are often inventoried longer anyway for aging, the proposal wants this to apply to as many other products as possible, namely basic commodities.
Also in the proposal for processors is the request for forgivable loan programs similar to the ones for small (non-ag) businesses in the CARES program being administered currently through the Small Business Administration. To qualify, processors would have to continue to purchase milk from dairy producers and maintain their employee staffing.
The NMPF-IDFA proposal also requests the immediate purchase of substantial volumes of dairy products for feeding programs and the aforementioned end to mandates on low fat levels of milk in feeding programs.
In addition, the proposal asks USDA to allow producers to retroactively sign up for 2020 Dairy Margin Coverage (DMC) with no premium discount for the latecomers.
Other aspects of the proposal deal with how to “maximize the buying power of SNAP (food stamps) recipients” at a time when the nation face double-digit unemployment and reliance on SNAP is expected to increase. At the same time supporting that with continued purchasing of butter, cheese, fresh milk and powdered milk to the tune of $525.5 million.
I believe that there should be a long term solution for the milk surplus. They could try to encourage producer’s to sell cows to market for a decent price and not have capital gains tax on them if used to pay off debt to eliminate the amount of cows. I believe that would encourage people to retire and pay off debt and not have huge tax burden or worse bankruptcy. After that is done would need to stop any rapid expansion of dairy farms but that I don’t know how to go about unless some kind of quota system