Dairy data show shifting sands

Pa. production, cow numbers plunge into 2019

By Sherry Bunting, Farmshine, Friday, March 15, 2019

WASHINGTON, D.C. — The U.S. produced 1% more milk in 2018 compared with 2017 and did so with roughly the same “average” number of cows for the year. But there were 2,731 fewer U.S. dairy farms (-6.8%) selling milk during 2018 as the average number for the year fell to 37,468 according to USDA.

USDA is still catching up on its delayed milk production reporting after the government shut down earlier this year, the January 2019 figures were released Tuesday (March 12) along with the 2018 annual totals for production, cow numbers and licensed dairies. The data show shifting sands in the dairy industry even as producers, states and regions fight for their place in a consolidating pipeline.

The January portion of the report did show milk production up 1.3% over year ago after being only 0.8% higher in December. January cow numbers were down by 52,000 head, nationally, from a year ago, but up 2000 head from December.

Like a shot between the eyes, Pennsylvania came into 2019 with a whopping 25,000 fewer milk cows (-4.8%) producing 5.5% less milk in January compared with a year ago.

Licensed dairies, other 2018 data

In the 2018 portion of Tuesday’s report, it’s important to note that USDA describes its licensed dairy numbers as the “average number of dairy farms licensed to sell milk during the year, based on counts collected from State and other regulatory agencies.” This means the number of 2018 dairy farms nationally and by state is more along the lines of a rolling average for the year, not a tally of farms in operation at the end of the year for a tracking comparison.

Changes in cow numbers and production for fourth quarter 2018 vs. fourth quarter 2017 is more telling in terms of what it suggests about the rate of exits, consolidation and geographic shifts in the dairy industry. The figures continue to reflect big milk production and cow number gains with a stable number of farms in growing western states, stable production in the face of dairy farm exits and cow losses in some midwestern states, and falling milk production that directly mirrors farm and cow losses in most eastern states.

PA numbers concerning

For Pennsylvania, the figures are quite concerning as the state falls into this last category – right along with the Southeast. In fact, New York was the exception in the East, as the Empire State had stable production in the face of significant farm and cow losses.

Just 11 years ago, Pennsylvania was the fourth largest dairy production state. It then hung on to fifth place until 2016-17 when Michigan — and then Texas — pushed Pennsylvania to seventh.

USDA reports the average number of licensed dairy herds in Pennsylvania fell from 6,570 in 2017 to 6,200 in 2018. Again, this is an average number of dairy farms selling reported milk during the year, not an end-of-year number of remaining operations.

In July (2018), we asked the Center for Dairy Excellence for a handle on the number of licensed herds operating in Pennsylvania at that point in time. What we learned was that the state does not have a good tracking system for licensed herd numbers and that the state is working with the Pennsylvania Milk Marketing Board to get a better handle on these numbers.

The number we were given by the Center in July 2018 was 5,787 licensed dairy farms, but we were told that we “cannot compare this number to the USDA numbers because it is not the same data set.”

Still, the USDA notes in its report that it relies on state agencies for the numbers it uses to find the “average” number of licensed dairy farms state by state, for the year.

The difference between the number of dairy farms that exited the business in 2018 and the net number of dairies selling milk throughout the year is unknown in Pennsylvania.

Did Pennsylvania lose 370 dairy farms as the year over year “average” reported by USDA suggests? Or is that number closer to 700 if the state could provide end-of-year numbers for comparison?

End-of-year comparisons would be more helpful for policymakers to track the health of the dairy industry, whereas the average numbers reflect the type of information the industry wants to use in “sustainability” or “carbon footprint” claims because a certain level of milk production for the year would be produced by an average number of farms and cows during the year — not by just the number remaining at the end of the year.

Even using the USDA average for the year, Pennsylvania dairy farm numbers were down by 370 (-5.6%) and the average number of cows for the year was down by 6,000 head (-1%). Total annual milk production was 10.6 bil lbs (-2.1%) for 2018.

However, fourth quarter production in Pennsylvania was 4.6% lower than Q4 2017. This shows a deeper rate of decline, which was confirmed by the steep loss in cow numbers and production recorded for January 2019 in which USDA reported 25,000 fewer cows were milked in Pennsylvania, making 5.5% less total milk production for the state.

To put this into perspective, Wisconsin state officials estimate that over 700 dairy farms were lost in 2018, but the USDA report pegs the average number of dairy farms in the Dairyland State at 8500, down 590 (-6.5%) from 2017.

Production in Wisconsin, on the other hand, moved higher, reaching 30.5 billion pounds (+0.8%) for the year. The average number of milk cows in Wisconsin fell by 4,000 head (-0.3%).

With Wisconsin and Pennsylvania being the number one and two states for the number of dairy farms, the data differences are illustrative. While communities sustained high dairy farm exits in Wisconsin affecting community-wide dairy infrastructure, the state is still maintaining national average milk production growth and smaller losses in the number of cows relative to the losses in the number of farms.

This suggests that as farms exit the dairy business in Wisconsin, others have growth making up for it. In fact, January’s production in Wisconsin was up 2.9%, according to USDA, despite 5,000 fewer cows reported. That one is a bit of a head-scratcher.

In Pennsylvania, the situation is much different. As the Keystone State loses farms, the cows and production are leaving also. Those losses are not being replaced with in-state growth.

This means Pennsylvania’s entire dairy infrastructure is at risk, and we are seeing more dairy herd liquidations slated for this spring – just like last spring – both nationally and in Pennsylvania. The question is, will Pennsylvania’s ranking in the top 23 milk-producing states continue to decline or can it be stabilized?

Case in point, 2018 annual milk production for Texas was 12.8 bil lbs (+6.1%). That’s 21% more milk than the 10.6 bil lbs produced by Pennsylvania in 2018. Not quite two years ago, Pennsylvania was producing more milk than Texas.

Another comparison to be made here is with Minnesota. Ranked eighth and nipping at the heels of Pennsylvania. Minnesota saw the average number of licensed dairy farms fall by 230 to 2,980 (-7.16%) in 2018, and cow numbers fell by 5,000 (-1.1%). However, Minnesota’s annual milk production in 2018 was unchanged from 2017 at 9.87 bil lbs. Minnesota came into January with 1.6% more production, still down by 5,000 cows.

Northeast milkshed mixed

Back to the Northeast Milkshed, the USDA figures for New York show a similar pattern to Wisconsin and Minnesota as the average number of farms selling milk in 2018 was down by 280 (-6.3%) at 4,190 while cow numbers were down just 2000-head (-0.3%) and production for the year was stable at 14.88 bil lbs (-0.3%). Milk production in New York came into 2019 at levels 3.4% higher in January with 2000 added milk cows compared with a year ago.

Vermont followed a pattern more like Pennsylvania, with the average number of dairy farms selling milk in 2018 down by 90 farms (-10%) while the average number of cows was down by 2000 head (-1.6%), and annual milk production was 2.68 bil lbs (-1.8%). Vermont’s production stabilized a bit into the new year, with January’s production just 0.8% below year ago.

In Virginia, USDA reported 565 dairy farms (-3.1%) sold milk during 2018 with annual milk production down by 5.4% from 4,000 fewer cows (-4.5%). Virginia came into 2019 with a whopping 9,000 fewer cows producing 11.5% less milk in January compared with a year ago.

These data illustrate a couple of things. First, some cooperatives, including national footprint cooperatives like Land O’Lakes and DFA, are enforcing some type of base/excess or seasonal base penalties. In the case of Land O’Lakes, farmers in the East, namely Pennsylvania, have had three to four months out of each of the last three years where milk was penalized for being over base, and the base the company gives the entire eastern region as its individual base trigger has been reduced over those three years. Meanwhile, the members in Minnesota report they have not been penalized to-date.

The data also illustrate that as fluid milk sales decline in the East where Class I sales have been historically more relevant to milk handling, pooling and pricing, the “balancing” costs are reportedly increasing, and those costs are passed back to the farm level through more milk check deductions.

In some ways, the fluid milk market is diminishing to the point where it could be seen as a balancer for manufactured dairy products — even though that’s not the way the USDA Federal Order pricing works.

Coinciding with these market shifts is the rise in documented incidence of supermarkets being randomly short or depleted of available whole milk and cream products throughout the East and Mideast at intervals during all of the past 12 months.

Meanwhile, tolling agreements with cream separation facilities in the East, especially through Land O’Lakes, bring milk from as far away as west Texas to states like Pennsylvania, where the cream can go into butter and the skim is often what pushes the Federal Order One skim dumping requests. There are a number of methane digesters dotting the Northeast and Midatlantic landscape, and this dumped skim milk can put another drag on the Class I sales pool for the region.

Mideast dynamics interesting

Interesting dynamics are also occurring in the Mideast states of Michigan, Ohio and Indiana, where farm losses as a percentage of total farms were also steep in 2018, but milk production was comparatively stable.

Michigan had grown rapidly in 2014 through 2017. For 2018, however, USDA reported 230 fewer farms (-13%) selling milk while annual production was off by just a fraction of one percent (-0.6%) at 11.17 bil lbs. Michigan milked an average number of cows that was down by 3000-head (-0.7%) in 2018. And yet, Michigan came into 2019 with 6,000 fewer cows but 1.1% more milk in January compared with a year ago. Another head-scratcher.

Ohio lost 180 dairy farms on average in 2018, according to USDA, declining to 2200 dairy farms (-7.5%) while average cow numbers for the year fell by 6,000 head (-1.9%) and production fell to 5.5 bil lbs. (-1.5%). When comparing fourth quarter cow numbers in Ohio, 2018’s total was 10,000 head less than Q-4 2017. January 2019 production in Ohio was 3.8% below year ago.

Indiana’s production was 4.16 bil lbs in 2018 (-2.2%) with 95 (-10%) fewer dairy farms selling milk during the year and 3,000 (-1.6%) fewer cows. Indiana came into 2019 with 6,000 fewer cows and 3% less milk production in Jan. 2019 compared with a year ago.

Southeast slide continues

In the Southeast, Florida had 15 fewer dairy farms in 2018 and Georgia was down by 20. Annual production was down 4.6% and 4%, respectively, in 2018 with an average of 4,000 fewer cows milked in Florida and 2,000 fewer cows in Georgia during the year.

Kentucky had 60 fewer dairy farms selling milk (-10%), an average of 1,000 fewer cows being milked (-1.8%), and annual production fell by 3.2% in 2018, according to USDA.

In Tennessee, the picture was especially tough, but consistent across all categories of figures. Annual milk production in the Volunteer State was down by a whopping 8.5% in 2018, while the average number of cows was off by 3,000 head (-7.5%) and 20 fewer farms sold milk (-7.5%) during the year, according to USDA.

Western gainers gain big

On the growth side of the ledger, Colorado stayed unchanged in the number of dairy farms at 100, milked 14,000 more cows and produced 8.8% more milk during 2018. By January 2019, production was up by 6.7% over year ago. Kansas lost 10 farms but produced 6% more milk with 10,000 more cows in 2018. Kansas also came into 2019 with 6.2% more milk in January.

Texas came into 2019 with 18,000 more cows than a year ago in January, producing 7.3% more milk and South Dakota had 4,000 more cows producing 6.3% more milk.

Look for more milkshed milk math analysis when pricing and other data become available in April and May.

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Eastern dairy industry has value-add soul-searching to do

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Talking candidly about dairy markets and trade were market experts (l-r) Tom Wegner, Land O’Lakes economist; Tom Roosevelt, founder and owner of West Chester-based Roosevelt Dairy Trade, Inc; and Matt Gould, owner of Philadelphia-based Dairy & Foods Market Analyst, LLC. Photos by Sherry Bunting

By Sherry Bunting, published previously in Farmshine, November 30, 2018

BAINBRIDGE, Pa. – “There is a long list of demands coming from consumers with unprecedented opportunities for milk,” said Matt Gould, owner of Dairy & Food Market Analyst LLC, based in Philadelphia. “Consumer demands are the key, and they are willing to pay for them.”

That was the good news. Gould said that Pennsylvania has an image to capitalize on, and part of that image is family farms working close to the land and animals — the iconic Lancaster County Amish-made image — for example.

But by the end of the forum, it was clear that how the state of Pennsylvania — and the eastern states in general — can tap into value-added dairy opportunities will require both individual and collective soul-searching.

The not-so-good news was the main substance of three hours with three dairy market experts at the annual Professional Dairy Managers of Pennsylvania (PDMP) Fall Issues Forum on November 14 at the Bainbridge Fire Hall in Lancaster County.

Each expert, in their own way, painted a changing and sobering portrait of the dairy market landscape. Producers in Pennsylvania, and the eastern U.S. in general, are not located where commodity processing growth is occurring to serve rapid growth for export and foodservice markets, but instead, exist in a market where declining fluid milk consumption is dictating the terms and leaving mainly the option of slow growth consumer niche markets that take time to develop and must be “continually fed.”

The experts noted that even though the Northeast is down to 30% Class I utilization, 87% of fluid milk sales is water that is expensive to ship, so, in a sense, the albatross around the neck of eastern dairy farmers is the fluid milk market needing farms nearby consumers, but at the same time declines in fluid milk sales are pressuring those farms.

In fact, the experts characterized the East as mainly a fluid and specialty market for dairy. Not the news many wanted to hear since a recent Pennsylvania Dairy Study suggested the Keystone State is a good location for a new cheese plant, and the Port of Philadelphia was tagged in the study as a vehicle to potentially capitalize on export growth markets.

Tom Roosevelt, founder of Roosevelt Dairy Trade, Inc., West Chester, said that commodity processing expansion is mainly associated with export growth and that is all being centered on the West and Midwest.

“A new cheese plant is not my first thought for Pennsylvania,” he said bluntly.

In fact, all three panelists agreed that the Keystone State’s hope is in building niche markets, and they offered these strategies: 1) branding the state’s image, 2) improving milk components, 3) marketing to consumers who have an emotional connection to where their food comes from and how it is produced, and 4) altering production practices — such as Organic, non-GMO and animal welfare labeling — to meet those niche demands.

They also preached the need for greater efficiency and market discipline, that producers here will increasingly see base/excess programs and will need to be using risk management tools and futures markets to get a ‘flat’ price because a ‘flat’ price is where the industry is headed in the midst of volatile global trade factors.

All three experts indicated that the deepening national and global dairy crisis won’t get better any time soon, and that Pennsylvania has some additional long-term challenges if it wants to retain and grow dairy.

Billed as a session to take dairy markets and trade ‘beyond the spin,’ the forum discussion was brutally honest. While disheartening, the information about what is happening here in the context of what is happening elsewhere is important for constructive ongoing discussions in Pennsylvania and other eastern states about the future of their dairy farms that are key to agriculture infrastructure and state and local economies.

When asked about the potential to change how milk is priced, Roosevelt said that there is no question the CME is thinly traded, but that electronic trading has brought in more activity. He said the USDA National Dairy Product Sales Report that provides the product prices for milk pricing formulas, is outdated.

He and Gould agreed that substantial changes to Federal Order milk pricing are not likely to happen because the investments of large companies (think Walmart, Leprino, etc.) rely on a “stable regulatory environment to protect their investments.”

Adding value

Gould challenged Pennsylvania’s dairy industry to instead focus on “value-added” processing and marketing instead of focusing on making more milk.

Tom Wegner, economist with Land O’Lakes said that, “Three years of tough markets would seem to be due for a price peak, but I don’t want to give any notion that it will get better soon. That is the impact of long milk. We are long on milk, and that will probably continue for a while.

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Tom Wegner, economist with Land O’Lakes, shows global milk production patterns during the PDMP forum on dairy markets.

“Your production of components here is more important to enhance milk checks than anything else,” Wegner said.

Roosevelt was particularly candid: “It’s tough to look at this part of the country and think you’ll have dairy exports. The real benefit you have here is in value-added.”

He gave the example of conventional nonfat dry milk selling for 85 cents a pound when organic powder is over $4.00/lb. (The flip-side of this proposition is the very high feed costs and other costs for organic production in which consolidation is also happening, so those producers also are having tough times.)

“It is hard for you to compete on a commodity level,” said Roosevelt from his experience trading dairy commodities at a ratio of 60% domestic use, including animal and pet feed makers, and 40% exports, noting the export trade really began in the past eight years.

“We do a lot of business with Land O’Lakes and Maryland-Virginia,” he said, “but we don’t move hardly anything into export markets out of the Northeast. The fluid market dictates things here in the East compared with the West and Midwest, where cheese is king.”

Roosevelt said the Midwest, Southwest and West are where dairy plants are doing line extensions, and new plants are being planned and breaking ground.

Global volatility

“These companies and cooperatives are going after the commodity big-volume markets to China and Mexico,” said Roosevelt. “If tariffs take those markets out, then it will affect you here because that milk moves down the line. When those markets move product out of the U.S., that means less competition for you here.”

The export markets are deemed the growth markets, said the experts, because domestic demand is declining in some sectors and offers only slow-growth opportunities in other sectors.

With the growth-focused U.S. dairy industry fueled mainly by exports, the volatility of the global market has forced more of the industry to use the CME futures markets to get the ‘flat price’ they want in their quarterly contracts, according to Roosevelt.

“As traders, we trade off the market price and use the futures to convert that to a flat price,” he said. “I would urge you to look at the futures to get a flat price. It’s a tool that will be increasingly important to all of you because, whether we like it or not, we are in a global market and futures are a way to reduce that volatility.”

Roosevelt’s bottom line was for producers to be as efficient as they can and look for the market that “gives you the value, whether it’s artisan or organic.”

Wegner echoed the advice on being efficient. He said the largest farms have the advantage of stretching their economies of scale and taking a longer view in this long period of long milk.

He gave a history of Land O’Lakes with its butter production dating back to 1921 and the eventual merger with Midatlantic here in the East.

“We aggregate demand also,” he said, a nod to Land O’Lakes’ Purina. “We want more of our members to buy more of our products, not just sell us milk.”

Explaining Land O’Lakes’ market-back philosophy, Wegner said the cooperative has put tools together that include traceability and are trying to put production discipline tools into that mix.

“We come to our customers with a farm-to-fork approach and send that back through milk production for an end-to-end view,” said Wegner. “Being farmer-owned is a great part of our background as we continue to grow markets.”

While Pennsylvania’s average herd size is 90 cows, most of the producers attending the forum represented farms with 300 to 1200 cows. Some of the questions lingering in their minds were: How many niches does a dairy market have? And what will it take to develop those in-roads to cover more milk and spread those opportunities beyond the small farm-store label at the end of the drive?

While niche-marketing connects producers and their location and practices with consumers who develop that emotional tie, Roosevelt said the dairy commodity supply-chain has been developing its own sets of practices and programs.

Supply-chain realities

“Traceability is a huge part of our business, and it is as important on the feed side as the food side working with customers like Cargill and ADM,” he explained, noting the huge increase in paperwork following every product delivery. Not only are there certified analyses, date processed, how processed and lot numbers, but in the case of whey, the buyer wants to know what type of cheese process produced the whey because each one has its own profile. He gave the example of whey from Swiss cheese being whiter and higher in protein.

He noted they are getting questions about organic and non-GMO whey, which will produce even more paperwork, and that the traceability aspect is moving back the supply chain to the farm level.

Wegner also talked about traceability. While he didn’t mention it specifically, both Land O’Lakes and DFA are trialing block-chain technology to follow product digitally through the supply chain. Walmart is driving full traceability and moving toward block-chain technology.

“Walmart is one of our biggest customers for butter,” said Wegner. “Just think of the traceability challenges of mixed loads with hundreds of producers.”

The National Milk Producers Federation FARM program was described as a way of consolidating groups of producers into blocks that are being evaluated to use approved practices.

“Members want to know ‘what’s in it for me?’’ said Wegner, “but the reality is that the FARM program contains a lot of the things we have to do to be part of the market.”

Not only are domestic commodity dairy sales being driven by large fast food chains that want to be sure a farm-level animal welfare issue, for example, doesn’t damage their name, the export markets have this concern as well where brands are involved.

Wegner noted that Pizza Hut is launching a new restaurant every 18 hours, globally, and the Yum brand, which includes Pizza Hut and Taco Bell, are opening new restaurants every 8 hours across the globe. He said that 80% of the menu items at these restaurants include dairy. They secure cheese from the U.S. and are concerned about capacity and traceability over the next three years.

For example, Leprino has 80% of the market share for U.S.-produced mozzarella, said Wegner, and their growth is more concentrated in states like Michigan, Colorado, New Mexico and California.

Trickle-down effect

With the commodity production for export and large chain foodservice sectors growing — and served mainly by the Midwest and West — Roosevelt maintained that this export growth is still very important to the East because “the benefit trickles down from the West.”

He said that, “The value of growing exports, for you, is that you will have less competition coming from the Midwest and West.”

What can alter that picture — overnight — is the impact of trade tariffs and trade wars with the top three countries for off-shore dairy trade, in order: Mexico, Canada and China.

He said the tariffs have had an incredible effect on lactose trade. Those customers can go to Europe. “There’s plenty of lactose in Europe and they are quick to fill the gap with a lower price,” said Roosevelt.

Another big trade item is permeate, which is 70 to 80% lactose with some protein left in. There are fewer global competitors in this market, but when the tariffs hit, product was “in the water” and fourth quarter contracts were being negotiated, resulting in buyers and sellers splitting the extra costs and new contract offers coming in on lower bids.

The bottom line on these two commodities, according to Roosevelt, is less market for U.S. lactose and a lower price on U.S. permeate.

As for nonfat dry milk powder, it goes all over, but primarily to Mexico, Canada and China, in that order. The “new NAFTA” and the trade war with China, combined, can have an impact on all three export destinations for nonfat dry milk.

Mainly, Roosevelt’s point was that trade uncertainty can create changes “overnight” that affect dairy, and that tariffs are bad for agriculture, in general, because they “create inefficiencies that stop the normal market dynamics from taking effect.”

Like every other economist at every other meeting, Wegner talked about how Europe “really put on milk” when the quotas were removed. He admitted that he was among those who didn’t believe it would happen. But it did. And this extra milk, said Wegner, resulted in stockpiled powder that drove prices down globally.

With some intervention and drought conditions affecting Europe, the EU’s growth this year was only 1.4% instead of 2.5%. But a 1.4% growth in Europe represents far more milk than the same percentage of increase in the U.S.

Growth challenges

Wegner explained that the U.S. is growing milk production at roughly 1% per year now, but that equates to 2 billion additional pounds of milk annually. At the same time 600 million fewer pounds are going into bottles for Class I sales.

“That is what is challenging our system,” he said. “We are seeing the cows come out of the system, but better cows are going back in. For things to get better, a lot more cows need to come out.”

With Land O’Lakes having a national footprint, Wegner observed the challenges of more milk coming on in some of the largest herds in the nation. While California is not growing year-on-year, Texas and the Southwest states are growing rapidly.

He noted that even though Michigan’s growth slowed this year, “Michigan is the poster-child for the hazard of growing ahead of the market,” said Wegner. “They doubled their production from 5 billion pounds in 2000 to over 10 billion pounds by 2018, and this drove their price $2 below everyone else because their milk has to move around.”

Wegner touched on the recent Pennsylvania Dairy Study and its finding that a new cheese plant or other new processing capacity could reduce hauling costs for producers and add value to farm level milk pricing.

“New processing is easy to do, but what do you do with the additional product?” he suggested. “We take a market-back approach at Land O’Lakes because if we don’t sell it or eat it, the product gets stored.”

Wegner called cold storage cheese stocks “very high” and he said that butter stocks were “a little higher than they need to be.” (Note that the USDA cold storage report the following week showed a record-high draw-down in butter stocks that may have improved the butter storage situation.)

Wegner also said that Mexico’s retaliatory tariffs, if they remain in place until a new trade agreement is signed, are already stagnating U.S. cheese production into storage – cheese that had been going to Mexico. (Cheese exports were down 9% compared with a year ago in September.)

The bright spots, he said, are the dairy ingredient markets. “But the Class III market, right now, is a dog.”

The Class IV market is improving as Europe works through its mountain of powder, bit by bit. That powder is getting close to two years old, and Wegner observed that the U.S. is selling fresh powder at a price advantage to buyers who want fresh.

Looking at some of the specific market impacts of the trade tariffs, Wegner stressed the “woefully underestimated” tariff-mitigation payments by USDA to dairy farmers, and all three experts agreed that these tariffs, and more that will potentially kick-in January 1st, are having very negative impacts on the U.S. dairy supply chain.

When asked how these impacts could be blamed for the lack of a price recovery when U.S. dairy exports have been record-high for January through September (most recent figures), the response was that producers should not expect higher export levels to improve farm-level prices because these export markets are largely “market-clearing” commodity markets.

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PDMP executive director Alan Novak opens the discussion to questions from the 60 dairy producers and industry representatives gathering at the Bainbridge Fire Hall on November 14 for the Professional Dairy Managers of Pennsylvania’s (PDMP) Fall Issues Forum focused on dairy markets and trade.

Also driving milk production and processing west are the incentives western states provide for new plants, new dairy operations, and growth of existing businesses. For example, the I-29 corridor of the Dakotas is an area that has lots of capacity, is building more, and has dairies, like Riverview, adding cows in a big way.

Indiana and Michigan are other examples of states becoming big dairy suppliers via Select Milk Producers and Fair Oaks. Colorado’s growth is fueled by Leprino, and Texas has multiple growth influencers, including line extensions by Hilmar.

Taken together, the U.S. has grown milk production by 17 to 18 billion pounds of annual production over the past five years, according to Wegner. That’s like adding another Pennsylvania and Minnesota to the nation’s milk load. Wegner said that boils down to 50 million more pounds of milk per day moving in the U.S. compared with five years ago.

Wegner also talked briefly about Land O’Lakes’ base/excess plans. “This is our way of putting some discipline into the discussion, which goes to our market-back approach,” he said. “We moved a lot of milk from our milkshed this year, and that long milk has a cost. At the same time, he noted that Land O’Lakes has been stripping and dumping milk here, that its producers are assessed to pay for that.

“We worked with DFA (Dairy Farmers of America) and DMS (Dairy Marketing Services) on this step to do cream salvage,” he added.

Land O’Lakes’ view of investing in processing is that the products have to be able to move along the value chain in order to produce more of them.

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What will become of, us?

sunsetbarn.jpgGovernment’s cozy relationship with dairy lobby is problem no. 1

By Sherry Bunting, reprinted from Farmshine, October 19, 2018

These are tough times. The strain of a fourth year of flat-lined milk prices is wearing thin on dairy farmers and those who serve them.

And the folks inside the Beltway don’t get it.

Wait, maybe they do.

The Farm Bill has yet to be passed, the mid-term elections are over… and the question continues to be asked: What can be done about the fact that family dairy farms are dropping like flies?

This question has been asked and answered for the better part of three years and the whole decade before that… and still we find ourselves repeating the same words falling on the same deaf ears, pleasant nods, and ‘sincere’ handshakes.

Where does Washington go for the answers? The dairy lobby. In fact, members of Congress will say that nothing gets done without getting National Milk Producers Federation on board.

What’s the deal for the future? A better ‘welfare’ program for small farms to window-dress the rapid and deliberate consolidation that is running rough-shod over their markets and using the Federal Order and other regulated pricing mechanisms to do it.

For years, a decade or more, grassroots dairy farmers have told their legislators to please work on repairing the damage government has already done to dairy farming.

They’ve pleaded with those inside the Beltway to heed the truth on the decades of flawed dietary guidelines and to right the wrongs in our nation’s school lunch program and other institutional feeding programs that are forced to follow these flawed guidelines.

But alas, instead of real change, we get more of the same, while the dairy lobby cheers and applauds over a tiny change allowing schools to serve 1% lowfat flavored milk instead of the prior Obama-era mandate of fat-free.

Meanwhile, nothing changes for regular milk in schools. It’s been fat-free and 1% for a decade now, and we have lost a generation of milk drinkers and stand to lose even more, and all the while our school kids fight increased obesity and diabetes rates, and we wonder, why?

Heck, you can’t even sell whole milk as a fundraiser during school hours, and you can’t give it away to schoolchildren during school hours due to these dietary rules that –according to those who have done a decade of scientific investigation of the research –show are actually not healthy rules for our children in the first place.

Plus, we have the FDA, having looked the other way for more than 10 years, now talking about milk’s standard of identity within a greater framework of “modernizing” standards of identity to “accomplish nutritional goals” — goals that are guided by flawed government dietary guidelines.

Instead of acknowledging the past wrong and immediately setting it right, the FDA adds comment period after comment period to try to read the minds of consumers. They want to know if consumers understand what they are buying when they buy fake milk.

The short answer? survey after survey shows that an overwhelming majority of consumers are, in fact, confused about the nutritional differences between real milk and the imposters — some consumers even believe there is milk in the not-milk ‘milk’.

Meanwhile, more time passes. Farmers are asked to wait. Be patient, while more damage is done by counterfeit claims that steal market share from dairy milk’s rightful place.

And then there’s the regulated milk pricing. What are the odds that any member of Congress will heed the past 10 years of requests for a national hearing now that California has enthusiastically joined the Federal Orders? That was the death nell of more of the same.

“It’s a free market,” say the legislators, regulators and market pundits.

“It’s a global market,” they add further.

No folks. It is a regulated market, and believe me when I tell you, the USDA and the major national footprint cooperatives operate this regulated market in lockstep.

Processors can’t access the administrative hearing process, unless they are cooperative-owned processors.

Farmers can’t access the administrative hearing process, except through their cooperatives.

Ditto on the above when it comes to voting. Bloc voting on behalf of farmers by their cooperative leadership seals every deal.

At a meeting a few months ago in the Southeast with USDA administrators that was intended to talk about multiple component pricing, farmers brought forward their grievances about bloc voting and their concerns about how milk is qualified on their Orders to share in their pool dollars.

What was USDA’s official response? The same response we hear over and over from legislators. “You vote for your co-op boards and they vote for Federal Orders.”

The Federal Orders were implemented in the 1930’s to keep milk available to consumers, to keep producers from being run-over. Today, these Orders are used to move milk from expanding consolidation areas to regions that have small and mid-sized family and multi-generational dairy farms located near consumer populations and competitive markets.

This is not a size thing. This is not small vs. big thing. This is structural change thing that is happening in the dairy industry at an increasingly rapid rate while the lifeblood is sucked right out of our culture of dairy farming.

troxel-sale-2The storm is brewing. Since the beginning of this year, the financial experts have told us that one-third of producers are selling out or contemplating an exit from dairy, that another one-third are not sure where they even stand, and that another one-third are moving forward with plans for expansion within consolidating industry structures.

The thought occurs to me: When the other two-thirds of producers are gone, what will become of that one-third that is still moving forward expanding, undeterred? What will become of the fabric from which their progress emerged? What will become of the next generation with hands-on experience, passion and love of dairy? Who will be raised on a dairy farm in the future? What contributions will be lost when dairy becomes only a business and no longer a business that is also a lifestyle? Who will be the support businesses? How will our communities change? Will all of our dairies in the future be academically run? What will become of our cow sense, our deep roots, our sense of community?

What will become of, us?

GL 4736For years we have heard “there’s a place for every size dairy in this industry.” That phrase is how we get small and mid-sized farms to advocate with consumers about modern farming so they will accept a more consolidated dairy farming picture.

Now that we are reaching this point, will we hear the large consolidating integrators say the same in reverse? Will they slow down, push pause, and realize there IS a place for the diversity of farms that make this industry the shining star it is and could be?

While at World Dairy Expo in Madison, Wisconsin in October, the strain of now a fourth year of low prices was evident. Attendance “felt” lower even if the official numbers don’t totally reflect it.

Show entries were down. Traffic among trade show exhibitors was interesting and steady, but ‘off’ and ‘different.’

Dairy farmers are struggling. Large, small, and in between, these times are tough, and clear answers are elusive.

Dairy farmers remain paralyzed by three things:

1) the inability to have an effect on their circumstances or seat at the decision table;

2) lack of understanding of an incredibly complex regulated market; and

3) the innate desire to trust the establishment that handles their milk because they are too busy milking, managing and caring for cows, not to mention the land, to handle the milk marketing themselves.

Just think about this for a moment. In the past four years, National Milk Producers Federation has created and implemented the F.A.R.M. program where someone can come in and put you on a list for a subjective heifer bedding evaluation, where more is being not asked, but demanded, while at the same time, the pay price from which to do more is declining.

The milk checkoff programs continue to focus on partnerships. All kinds of efforts emerge to give away milk and dairy, and meanwhile supermarket wars by large integrating retailers push milk further into a commodity corner from which all imposters can brand their ‘more than’ and ‘less than’ marketing claims.

What we learned at some of the seminars at World Dairy Expo is that nothing will change in the milk pricing system, that it’s a free market, a global market, and that the best Congress can do is improve the margin protection program and other insurance options so farmers have the tools to deal with it.

I’m here to tell you that as long as this remains true, no farmer should be ashamed to use these tools even if it means receiving taxpayer dollars because it is the government’s actions and inaction over a decade or more that have created the problems in milk pricing and marketing today, and furthermore, the government shows no sign of wanting to let go of its stranglehold on dietary guidelines, how it enforces dairy’s standard of identity in fraudulent labeling, nor how it conspires with the dairy lobby — made up of the nation’s largest cooperatives — to regulate pricing in a way that further consolidates the dairy industry.

And by the way, all of the rhetoric on trade and NAFTA and Canada’s supply management system and Class 7 pricing has been nothing more than a smokescreen.

wGDC18-Day1-56Trade is important, but again, we have reached a point where 2018 is seeing the demise of dairy farms at rapid rates while exports continue to set new records. As of Oct. 5, 2018, U.S. dairy exports for the first 8 months of the year (Jan-Aug) accounted for a record-setting 16.6% of milk production on a solids basis. That’s the largest ever percentage of the largest ever milk production total – more of the more – in the history of the U.S. dairy industry’s recordkeeping.

In fact, traders will be the first to tell you that “more exports” don’t translate into “better farm milk prices” because the export markets are largely commodity clearing markets and they are fueling expansion of commodity processing in areas of the U.S. where it is easiest to export to Asia and Mexico. A global supply-chain is in the works.

The exports, in fact, are diluting the Federal Order pricing at the same rapid rate as declines in consumer fluid milk consumption, putting severe pressure on eastern markets in particular.

Meanwhile, the eastern milk markets are extremely tight on milk. This information is sourced to cooperative managers and the independent USDA Dairy Market News. Plants are seeking milk and not receiving it. Trucker shortages are complicating the problem. State regulated pricing mechanisms, such as in Pennsylvania, still interfere, making milk cheaper to bring in than to use what is here. In some Federal Orders to the south, this is also the case because of how their pools are administrated.

We are seeing the vicious circle of self-fulfilling prophecies. Producers who want to operate 50 cow, 100 cow, 300 cow, 500 cow, 1000 cow, 1500 cow dairy farms in the eastern U.S. within a day’s drive of the largest population are in jeopardy. They have lost their location advantage but continue to deal with the disadvantages. As milk tightens they are not seeing their premiums return, instead some farmers report getting docked by their co-ops for not making enough milk, or they are socked with incredible hauling rates because their milk was hauled out while other milk was hauled in.

What can Congress do? Hold that national hearing on milk pricing. Give farmers a seat at the table apart from the company-store. Learn what is happening. See government’s role in it.

Dear Congress, if you really want to know what to do, look in the mirror.

Before it’s too late, please right the fundamental wrongs government has done to our dairy consumers and dairy farmers as it controls what fat level of milk kids are permitted to drink at school, how milk is priced, how milk is marketed and how milk is allowed to be advertised and promoted with farmers’ own money – while at the same time still turning a blind eye and deaf ear to loss-leading supermarket wars that operate off the backs of farmers and the processing industry’s pillaging of milk’s market share with nondairy imposters.

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