U.S. Ag Secretary Perdue: Small farms face difficult times

Posted on October 5, 2019 by Agmoos

U.S. Secretary of Agriculture Sonny Perdue (right) and Wisconsin Secretary of Agriculture and Trade Brad Pfaff field questions and take in comments at dairy town hall meeting early Tuesday morning on the official first day of the 53rd World Dairy Expo in Madison, Wisconsin. Photo by Sherry Bunting

By Sherry Bunting, Farmshine, Friday, Oct. 4, 2019

MADISON, Wis. – Grabbing the headlines from a town hall meeting with U.S. Ag Secretary Sonny Perdue during the opening day of the 53^rd World Dairy Expo, here in Madison, Wisconsin, was a comment the Secretary made about the viability of small family farms.

He was asked whether they will survive. To which he answered, “Yes, but they’ll have to adapt.”

In fact, the Secretary said that the capital needs and environmental regulations that impact farms today make it difficult for smaller farms to survive milking 50 to 100 cows.

“What we’ve seen is the number of dairy farms going down, but the number of dairy cows has not,” said Perdue. “Dairy farms are getting larger, and smaller farms are going out.”

But in additional discussion, Perdue said that consumers want local products. He said that marketing local, even without the buzzwords, can be done successfully to bring value to farms.

He noted two things about dairy farms. First, they can’t be sustainable without profitability and second, he described the dairy industry as prone to oversupply.

Picking up on these comments, recently retired northwest Wisconsin dairy producer Karen Schauf said Farm Bureau is looking at the Federal Milk Marketing Orders and how make some adjustments on the milk pricing.

“But what we really need to do is balance supply and demand of dairy products much closer,” she said. “I would ask if you would support a flexible mandatory supply management system to help producers keep that supply and demand in closer relationship.”

Perdue asked if she wanted the short answer or the long answer, stating that when his children want a quick answer, it’s always “no.”

Schauf replied, “Mr. Secretary, I just want you to think about it.” The subject went no further.

At another point in the questioning, a Wisconsin producer observed the disheartening price levels and said last year was a record high level of exports, while prices to farmers were worse than this year and worse than 2017.

He noted that exports hit 17.6% of milk produced, and settled out at 16% last year, which is a record, but his milk price averaged $14.60. He went on to say that, “our exports are off 2% this year, but I’ll probably come close to an average of $17 on my milk price.” He also noted that National Milk Producers Federation recently put out a press release stating 2015-18 as record years in domestic dairy consumption.

“This is all good,” the dairy farmer said, “but in Wisconsin we are losing 2.5 farms per day and I think the call centers are full with distressed farmers calling in, so beyond trade and some of these things you promote at the federal level, what can we be looking at so we never experience another five years like this?”

Perdue thanked the producer for his facts and said it is amazing that things “can be good and yet feel so bad.” He acknowledged that dairy has been under the most stress, and he said that the 2018 Farm Bill did “exactly the right thing” with the new Dairy Margin Coverage. He pointed out that this coverage is specifically in place for smaller dairy farms.

“Milk prices are cyclical, and I think we’ve met that trough, and things will improve for 2020,” said Perdue.

Referencing the 2% milk on the table in front of him, Perdue said: “You pretty much know what happened to milk in our schools, with the whole milk and the accusations about fat in milk. We hope to get some benefit, maybe, from the Dietary Guidelines this year, which drive a lot of this conversation.”

Noting that USDA “is leading” the Dietary Guidelines along with Health and Human Services, the Secretary said: “We have a great panel and they will bring together the best scientific facts about what is healthy, wholesome and nutritious for our young people and our older people and all of us, so we’re looking forward to that.”

On trade, the Secretary was hopeful. He cited the recent trade agreement with Japan, but did not have exact numbers for dairy, just that it will be beneficial for dairy. On China, he was optimistic and said progress is being made, but that it has been important to take this stand because they have been “cheating” and are “toying with us.”

One area he mentioned in regard to trade with China is that U.S. agriculture has become too dependent on “what China will do.” He said the administration is really working on trade with other nations in the Pacific and elsewhere that do not represent such large chunks as to disrupt or distort markets as they come in and out of the game. This has held true for dairy exports from the U.S., which are rising in so many other parts of the world.

On the USMCA, Perdue said the outcome will depend on whether the Speaker of the House brings it to the floor for a vote. “It will pass both caucuses, but it has to come to the floor. We hope to see that happen by the end of the year, that distractions won’t get in the way,” said Perdue.

The town hall meeting covered a wide range of other questions and comments, and often, the answer to the toughest questions was “it’s complicated and we’ll be happy to look into it.”

On the Market Facilitation Program, several had questions about why alfalfa-grass is not included as a crop, just straight alfalfa. Perdue explained that alfalfa is a crop exported to China and that the crops in the eligible crops for MFP payments have to be “specifically enumerated.”

As with other questions, he emphasized the local FSA Committees who implement some of the more subjective pieces of these programs that farmers can appeal to their local committees if they’ve been denied.

In the prevent plant flexibilities for harvesting forage, Perdue said USDA is looking at this as perhaps something to be made permanent – the ability to harvest forage on prevent plant acres in September rather than waiting until Nov. 1.

Paul Bauer from Ellsworth Cooperative Creamery focused his comments on the spread between Cheddar blocks and barrels on the CME and how this is deflating the price paid to dairy farmers – especially in Wisconsin – but also across the U.S. because of how it affects the Class III pricing formula.

“For the last four years, the spread between blocks and barrels has been greater than 12 cents. Historically, the spread has been three cents or less per pound for the prior 50 years,” he said, noting that the spread at the end of the previous week stood at just shy of 35 cents per pound!

“The common thought is that this bounces back to a normal range, but it doesn’t,” said Bauer, noting that last year’s average spread cost dairy farmers 60 cents per hundredweight on their milk price. “Those farmers who ship to barrel plants, such as Ellsworth Cooperative Creamery, were affected by $1.20/cwt on their milk price due to this wide spread.

He noted that last week’s 34 ¾ cent spread between blocks and barrels cost dairy farmers $3.40/cwt, which is 20% of their base price.

Acknowledging that this is a complex issue, Bauer asked the Secretary if USDA will take the first step and admit there is a problem instead of “rolling their eyes because of the complexity.”

“This is unfavorable to our farmers and unfair to our producers,” said Bauer, explaining that all dairy products are priced off the block-barrel on the CME, ultimately.

“It’s important to get it right,” said Bauer, explaining that it is a problem when the industry can build barrel inventory to create this divergence in block / barrel prices on the CME, which in turn suppresses the price they pay to producers for the milk used in a multitude of other “modern” products.

“Barrel production comes from 16 plants (nationwide), and represents 6% of the nation’s dairy supply, and yet has had a 58% of the impact on all producers’ milk checks,” said Bauer. “When the system is out of sync, that negative value affects us all.

“It’s time for USDA to formally take action and for the data to come to light that are influencing the market,” said Bauer.

He explained that the system is there to protect farmers and local buyers but is now being influenced by foreign cooperatives that keep one product – barrels – in oversupply in order to keep milk prices lower for products that are priced off the higher blocks in short supply.

Bauer said the secrecy of buyers and sellers on the CME protects this practice. “It’s time to update the system to keep up with modern times to protect our farmers and our food supply also in terms of quality and safety.”

Secretary Perdue drew laughter when he asked Bauer: “Would you repeat the question?” But he took it in and asked for a written copy of the question to look into it. Perdue said that concerns are often raised about the Federal Milk Marketing Orders.

“They are a fairly complex issue, but we’d be happy to investigate. The government’s role in general is to be the balance between the producer and the consumer and ensure no predatory pricing practices,” said Perdue, “while not interfering with commerce and contracts.”

He gave the example of the fire at the Tyson beef plant in Holcomb, Kansas and the staggering loss to cattle prices since that fire over a month ago that have resulted in packer margins at an unprecedented $600 per head.

“We saw a spike in the delta – the difference between the live cattle price and the boxed beef price at historic highs, and we are investigating that, to make sure there was no pricing collusion,” said Perdue. “I’ve asked those packers to come in and give me their side of the story. That’s the role of USDA.”

Pete Hardin of the Milkweed asked about the cell cultured meat, citing a publicized comment by the Secretary last summer pointing to the value of this science. Hardin asked if any studies have been done on the safety of this technology.

Perdue did not know if any specific studies have been done, and he confessed to trying an Impossible Burger, adding “There’s now one restaurant I no longer attend.”

He stressed that these products cater to people who aren’t eating meat anyway for whatever reason, and he said: “In the end, consumers will be the ones to choose.”

Picking up on this in a separate question about how dairy and livestock farms can remain viable with all of the imitation products competing for consumers, the Secretary observed that, “As farmers we are independent and like to sit behind the farm gate and produce the best, most nutritious food in the world at the lowest cost anywhere in the world, but we’ve never told the story.

“It’s up to every one of us to speak out locally and statewide and federally, nationally in that area and tell the story of what’s happening. No longer can we hide behind the curtain,” said Perdue.

“There’s a growing movement about knowing how you do your job, what’s in the milk, how the animals are treated, and there’s no going back from that. We have to engage with consumers. We have to tell the story loudly and proudly.”

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Dairy mis-leaders call for unity, bring on misery

Posted on July 24, 2019 by Agmoos

By Sherry Bunting, Farmshine Op-Ed, July 19, 2019

Dairy producers find joy in the big and little things in life on the farm, working with family, raising children on the farm, building or continuing a family business, seeing the sun rise and set as they work, producing wholesome milk they take pride in, helping a cow have her calf, watching that calf grow and develop, planting tiny seeds, watching a crop grow.

We know personal stress on farms is at an all-time high, amid price and weather pressures. There is some optimism returning as last month’s milk checks were a bit better, and the futures markets fueled some optimism before hitting the see-saw again. Also, the first round of dairy margin coverage (DMC) checks have been received or are in the mail. (Signups for 2019 DMC end Sept. 20).

But despite the return of some optimism, stress continues to build on our dairy farms because the hole that has been dug is so deep, the ground to make up so vast, and the future sustainability of family farm businesses more challenged by the industry’s control of how they operate.

My thoughts here are based on personal meetings, phone conferences, emails and other communications with young farm families operating small herds and multi-family operations with very large herds.

In my various work and volunteer efforts as a freelancer — I visit a lot of dairy farms.

Even though milk prices are gradually rising, net mailbox prices are flat and costs are going up, eating into the price gains. Forages are tight, weather is an added burden, farmers are utilizing new strategies, adopting progressive practices, improving their business management – and yet, their farms and families are fraying over the question of whether to stay the course or sell the cows and leave it behind.

Many are taking on other work and adding to their already long days with efforts to bring in income to support the farm.

Communities are feeling the long fingers, and farmers and related agribusinesses are supporting each other as best they are able. The levels of farm community unity have probably never been higher in this regard: People are coming together to promote milk through voluntary efforts, to support their neighbors, and to reach out to each other as friends and colleagues.

The industry leaders say the dairy industry must be unified. They say it is wrong to challenge the path of the industry because doing so is “depressing and divisive” and “brings more stress onto the farmers.”

Don’t challenge the system, they say, because this creates negativity and stress when farmers need to stay positive and united. This, I’ve been told by leaders.

Questions and challenges are not meant to divide or stress our farmers. The stress is already there. It may not always be spoken, but it is there, and it is visible.

This stress cannot be painted over with pretty colors.

Stress on dairy farms today is rooted in the way this industry and various milk pricing and nutrition policies have economically failed our farmers (and our consumers), especially since 2008.

To talk about the industry’s path — to discuss and debate marketing decisions made with producer dollars — does not mean one is being divisive. This is America where ideas and challenges can still be discussed and debated, and where leaders can be questioned and held accountable.

How much more divided can an industry become than to see marriages, families, businesses, dreams fractured from the undue stress of not only a tough deal on the milk pricing but perhaps even more concerning, the increased levels of control that this same system puts upon our farmers, and how they manage their farms, as a condition to keep their milk contracts?

This loss of independence and loss of their ability to control the ‘controllables’ is of utmost concern. If we ignore these trends — in an attempt to be passively non-divisive — does that make the issue or problem go away? Certainly not.

Rapid streamlining of the dairy industry is underway, at least in part because this is the path charted in 2008 by the DMI Innovation Center for U.S. Dairy and the U.S. Dairy Export Council working via memorandums of understanding with USDA Ag Secretary Tom Vilsack who is today a DMI leader as USDEC president and CEO and instrumental in the Innovation Center for U.S. Dairy.

Both USDEC and the Innovation Center are primarily supported by the mandatory checkoff paid by dairy farmers; but they also partner with food supply chain companies that work on proprietary products, ideas and concepts for the expressed purpose of growing the dairy sector globally.

The industry leaders tasked with spending the farmer’s 15 cents per hundredweight say raising exports to 20% (last year was 16%) is the key for a growing dairy industry.

Most notably, Vilsack reported in May that, “2018 was a record year for U.S. dairy exporters with export volume up 10% from the prior year. Simply put, exports support the growth aspirations of the U.S. dairy sector.”

Nowhere in his statement, or the entire blog post at USDEC, did Vilsack mention the dairy farmers who pay his salary. He mentions the dairy exporters and the dairy sector, but not the dairy producers.

Are exporters and sectors paying his salary of $750,000? No, not really. A small portion of USDEC is funded by ‘industry’ memberships, and importers pay a smaller checkoff, but the bulk of the agency and its CEO Tom Vilsack are funded directly from government-mandated dairy producer checkoff funds.

Where are the statements about a promotion agenda that seeks to return a fair price and livable income to those producers paying the agenda-makers salaries?

At various meetings last year where milk markets were discussed, dairy traders stated that exports do not raise farm-level milk prices. Interestingly, 2018 exports were higher than 2017 while 2018 prices paid to dairy farmers were much lower than 2017.

The direction of the dairy checkoff is toward growth of the dairy sector globally, at all costs, and yet the U.S. dairy farmers are paying the bill for this, with USDA having very close control of it.

This goal has been positioned to farmers as an all-out race to gain global market share before other countries do it, without a methodical approach or review on the impact to domestic markets and producers along the way.

This global agenda is also steering the sustainability frameworks and alliances DMI’s Innovation Center is forming that will control more aspects of management at the farm level in the future.

In recent proof of conversations between farmers and checkoff staff and board members, questions about Innovation Center projects, alliances and partnerships were passed off as though the board receives its information on these projects on a “need to know” basis. A board member stated in these exchanges that they are not concerned with seeing every detail of a proprietary project because DMI’s attorneys and USDA’s attorneys know the details, and the board trusts the staff.

(I have served on boards elected by citizens. Trust in staff is critical, but so is transparency of projects paid for by a checkoff — the same as a school tax.)

For some, a call for unity means don’t ask questions. For others, it means get informed and start mobilizing a grassroots unifying effort.

In a copy of non-executive February DMI board minutes received by Farmshine, a strategy is detailed by the Farmer Relations and Consumer Confidence Committee. According to the minutes, a key discussion at the February 19-21 board meeting was stated as “farmer engagement around checkoff value is more important than ever before.”

A key bullet point was for national and local checkoff board members to “focus on the movable middle.”

Another bullet point of the discussion in the minutes is that DMI is “learning from the checkoff Facebook page and regional media coverage (Farmshine) reinforcing that you do NOT continue to engage with those detractors that cannot/will not be moved.”

While Farmshine was still seeking answers to questions and had not yet published the DMI chair’s letter of response (published Feb. 21), DMI had already taken a position in its Feb. 20 board discussion to “not engage” with detractors, mentioning Farmshine parenthetically by name in this category.

According to the minutes, the rest of the DMI board discussion on this topic centered on the need to “reach out to those farmers who see/hear from the unmovable detractors” (that would mean Farmshine readers as per the above). According to the minutes, “ways to reach the movable middle” were discussed.

So, while organizations chart a course for unity and reaching out to a movable middle, dairy farm families are focused on finding ways to move forward on their farms and to unify and inform their communities.

Even though our legislators are taking notice of the growing crisis — and some sincerely care and are trying to do something — these stopgaps and investments are a drop in a very large bucket. Those drops are appreciated, but there are big things to tackle that require courage when it comes to the needed changes in nutrition rules, checkoff rules, promotion rules, labeling rules (and also lack of standard of identity enforcement), complex milk pricing rules (while processors and co-ops are readying a proposal for their make allowance increases as soon as prices improve a bit), not to mention rules that impact the cost of doing business every day on the farm.

As dairy farm families keep moving forward, finding ways to do more with less, working longer hours with less help, taking on off-farm employment and finding other revenue streams to pay their bills — They are consequently burning the candle at both ends and incurring more stress.

The stress on farms of all sizes can be overwhelming and is felt by even the best operators.

We do need unity, yes, but the question farmers are asking themselves is: Who will be part of dairy’s unified and globalized future? They deserve to know the direction the organizations they fund are taking their product, their market, and the industry they have supplied with wholesome milk for generations.

We can do better than this in America where agriculture truly is our backbone. Without strong farm families, all else fails eventually, including our liberty and security as a nation.

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Global dairy thoughts Part 5: First half 2018 butter, milk, cream imports climbed!

Posted on January 7, 2019 by Agmoos

Timelines show how domestic dietary guidelines, Obama/Vilsack school milk rules and ramped up low-fat and fat-free dairy promotion through GENYOUth and FUTP60 all laid the groundwork for declining Class I fluid milk sales to pave the way for flat pricing and increased exports (now coincidentally under the industry leadership of former Sec Vilsack). Then consumers learned the truth and began coming back to whole milk and butter and full-fat cheeses even while the government turns a deaf ear in regards to the rules about feeding our schoolchildren. So what did U.S. companies and cooperatives do to keep that milk price flat enough for the export market this year? They imported more butter, milk and cream in first half 2018!

By Sherry Bunting, originally published in Farmshine, September 7, 2018

BROWNSTOWN, Pa. — Let’s take a look at the overall global dairy trade balance of the U.S.

In gross numbers, the balance is positive, showing the U.S. is winning new market share on the side of exports over imports. But this tells only part of the story, ignoring the potential milk market impacts of substantial increases in imports of milkfat at this critical time during the first six months of 2018.

In June 2018, Global Dairy Thoughts Part 3 and Part 4 covered some of the Federal Order pricing impacts of rapidly expanding exports alongside a diminishing Class I utilization. While per-capita milk consumption has steadily declined since 1980, the total packaged milk sales held their own due to population growth.

That is, until we hit 2009-10, when the third and fourth layers (see Chart 1 above) were added to the lowfat-push — that consequently pulled total fluid milk sales into the bucket at the same time that exports began their rapid ascent.

Expanding export utilization hits Class I utilization with a double-whammy: Smaller piece in a bigger pie, even if consumption losses are stabilized. We’ll revisit that in a future part of this series on dairy policy and logistics.

In looking at imports and doing trend comparisons for farm milk prices, fluid milk sales, total exports, total imports and the large increase so far this year in imports of butter and butteroil as well as steady increases in imports of milk and cream (condensed, non-condensed, liquid, powder, sweetened, unsweetened), there are some correlations. (Chart 2 below)

From 2005 forward, the national average all-milk price moved in patterns concave to the corresponding imports of butter/butteroil and milk/cream on the timeline. While the totals are not huge, we all know what “a little more” can mean on the supply side when it comes to milk prices.

In the first-half of 2018, for example, the U.S. imported 12% more butter and butteroil and 11% more condensed milk and cream, according to the European Commission’s Milk Market Observatory published August 14, 2018. (Charts 3 and 4 below)

While the U.S. Dairy Export Council (USDEC) reports that first half 2018 dairy exports of milk powders, cheese, butterfat, whey and lactose topped 1.14 mil. tons to set a new record-high – up 20% from year ago, some interesting things were also happening on the import side.

Even though the USDEC data dashboard continues to show total imports accounting for a flat line at 4% or less of the milk supply on a solids basis, while exports accounted for 16.8% in the first six months of 2018, there are some interesting aspects of the import picture related to ‘what’ and ‘when’.

According to the August 14 EC statistical report ranking top-10 importers and exporters of various dairy commodities, the U.S. ranked third in butter and butteroil imports, up 12% from year ago and not far behind China (1) and Russia (2) during the first half of 2018.

The U.S. also ranked fourth in imports of condensed milk and cream – up 11% compared with a year ago.

When butter substitutes, containing over 45% butterfat, are included in the butter and butteroil import total, as documented at the U.S. International Trade Commission (USITC) import monitoring website, the U.S. butter/butteroil total rises by more than 200% during the past three quarters (Sept. 2017 through June 2018) compared with the same nine months a year ago.

While half of the butter and butteroil imports came to the U.S. from EU countries, a majority of the other half came from Mexico, according to the USITC website listings under various Harmonized Tariff Schedule (HTS) codes.

In the condensed milk and cream category, 8% of U.S. imports came from the EU, according to the EC report.

Sifting through the tedious lists and multiple codes and combinations at the USITC website, it appears the U.S. imported quite a bit of condensed milk and cream from Mexico, a little from Canada (though less from Canada than a year ago), and the remainder from sources scattered around the globe — even China.

For the past nine months, Sept. 2017 through June 2018, the condensed milk and cream, unsweetened, category of imports was up 44% in powder or granular form compared with the same period a year ago, while milk and cream imports, unconcentrated, unsweetened, and still in liquid form, were up 22%.

Imports of sweetened condensed milk and cream were up 7% and mainly from Mexico.

Of course, the U.S. remains the top importer of casein and caseinates, even though those imports were down 15% from a year ago during the first half of 2018, according the EC report.

Doing the math on milk protein concentrate (MPC) imports for the nine months from September 2017 through June 2018 listed at the USITC site, MPC imports in both the 0404 and 3500 HTS codes, combined, were down 1.3% compared with the same period a year earlier.

On the other hand, imports of milk protein isolates (MPI) were up 31% from Sept. 2017 through June 2018 compared with the same three quarters a year ago.

Looking further into other categories, imports of “textured protein substance, including dairy” were up 40% for the past nine months compared with a year ago.

In the significant dairy-containing “food prep” categories — including infant formula and having various percentages of milk solids and butterfat — imports were up 7% during the past nine months compared with a year ago. In this particular category, including confectionary products containing significant milk solids, Canada was a primary source, along with EU countries as well as some of these imports coming from Chile and other South American countries.

Process cheese product imports were up 46% during the past nine months compared with a year earlier.

While U.S. imports of ice cream were down relative to year ago, the total when combined with import categories in other HTS codes for “edible ice containing dairy” tallied an import total that was up collectively by more than 200% over year ago during the past nine months.

To read Parts 1 through 4, click these links: Part 1, Part 2, Part 3, Part 4

And stay tuned for this series to continue as 2019 trends develop abroad and on the homefront.

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Global thoughts Part 4: As exports grow, who benefits from ‘new math’?

Posted on January 7, 2019 by Agmoos

By Sherry Bunting, originally published in Farmshine, June 7, 2018 and examines the utilization of domestic Class I fluid milk vs. exported commodities during the worst three months of pricing at the beginning of 2018, but the trends show how FMMO pricing no longer provides the value to farmers for their milk as exports increase. Read Global Thoughts Part One, Part Two, and Part Three.

BROWNSTOWN, Pa. — U.S. dairy exports posted record-high 2018 first-quarter volumes (see Chart 1), representing 17.3% of U.S. milk utilization on a milk equivalent basis, according to the U.S. Dairy Export Council (USDEC). (Note, the average Jan. through Oct. was 16.3%, still a record high.)

This, against the backdrop of Class I milk utilization falling to 29% of Federal Order pooled milk but just 18.9% of total milk production in the first quarter of 2018 (Chart 2).

In fact, Federal Order pool reports for first quarter 2018 showed Northeast marketings 1.8% below year ago as pool receipts fell due to reduced production. At the same time, other FMMO pools recorded declines in pool receipts, which USDA confirmed by email were largely due to shifts in pooling or strategic despoiling to prop up Class I utilization percentages. (For example the pooled first quarter receipts in the Appalachian Order were up 6% while down 5.5% in the adjacent Mideast Order.)

The total “official” U.S. Class I utilization for 2017 was 26.1%, down nearly 10% from 35.9% in 2009, according to USDA figures.

However, the Northeast Market Administrator’s most recent bulletin (April) observed that the real percentage of total U.S. milk production used for Class I fluid sales in 2017 was just 22.3%!

Bob Younkers, chief economist for the International Dairy Foods Association (IDFA), analyzed fluid milk trends, reporting in February that the 2017 fluid milk losses, alone, represented 20 million fewer pounds (2.3 million fewer gallons) of milk sold daily – nationwide – in 2017 vs. 2016. In addition to the blow dealt to producer milk checks, Younkers points to how the fixed costs of bottling increase when spread across fewer gallons of milk sold.

Coming into 2018, not only have first quarter Class I sales declined 1.5% compared with first quarter 2017, the Class I utilization percentage fell by even more — down 2.5% below year ago — in part because exports grew to this new first quarter record of 17.3%.

Left unchecked, the current math trend shows that as U.S. exports reach the goal of 20% set by the U.S. Dairy Export Council (USDEC), the percentage of milk utilized in export sales will very soon equal and surpass Class I utilization as a percent of total milk production.

Who benefits from this new math?

If the current classified pricing system — and its Class I regulation — must continue, perhaps the growing export utilization should have its own class formula tied directly to export pricing and representing growth milk in the U.S. system so that the other 80% of milk pricing can be more stable and reflective of serving that large anchor-base of domestic consumption?

Survey the experts on this idea and they’ll tell you an export class for U.S. milk pricing is a non-starter because of trade agreements and WTO. But trade agreements are being renegotiated and others in the global markets have mechanisms in play.

Perhaps instead of going after Canada’s export class implemented because of expanded production due to higher consumer demand for fat, the U.S. could learn from what’s being done north of the border with this pricing mechanism to match exports prices and products to growth milk that goes into products strictly for export?

This is not an idea that goes against free trade, but one that recognizes the U.S. as a free-trader in need of fair trade leverage for producer pricing.

The U.S. must be competitive enough to have its products arrive at other ports, so that it can remain competitive enough to keep other products from arriving at its ports — where a large market for dairy already exists. In Part Three, we looked at some of the product differences.

But there’s another catch to this romance with export markets. They can be unstable and unpredictable, and while we make more of the globally significant products today than in 2008, our product mix and flexibilities are different than other successful exporting nations.

Would an export class allow pricing of growth milk — a percentage of the nation’s production or a percentage of production in high growth areas — to be aligned to the fluctuating global markets for globally-significant products with a margin to attract necessary investments in manufacturing flexibility and innovation? Such alignment could, at the same time, allow a more stable and profitable base price for milk going into dairy products for domestic consumption?

After all, we are increasing exports to levels that are approaching the falling Class I utilization percentages and yet NONE of the globally-significant products and/or prices are even used in the arbitrary U.S. Federal Order pricing formulas, to which location differentials are added to ensure the Class I price is always higher (more on this when we tackle logistics in a future part of this series).

As dairy exports become the new epicenter of U.S. marketing, a different light is cast on these regulatory pricing structures.

Let’s look at the differences between global and domestic pricing and trading platforms.

For starters, price announcements to dairy producers in New Zealand are based on the actual value of global sales with producers buying shares of processing capacity for the quantity of milk they expect to produce. As milk falls short or exceeds those pegs, payout announcements are adjusted based on the relationship of the production to the sales.

In Europe, producers also see milk prices that reflect the value of what is sold not a formula like in the U.S. that leaves key products, prices and markets out of the math equation.

While Europe’s quota system has ended, the EU commission intervenes with purchases. Processors more nimbly shift between products to adapt to market changes. And if they miss in their projections — as they did in the shift to making more powder when the Russians stopped buying cheese and butter due to the economic sanctions — the EU commission intervened to buy and stockpile that powder to a degree that still is blamed for suppressing the global market for powder and holding back the U.S. milk price recovery.

In addition to differences in pricing, there are big differences between global and U.S. price discovery and trading platforms.

While the CME daily spot market in Chicago went electronic last year, the Global Dairy Trade (GDT) biweekly internet auction has always been an electronic platform.

The GDT engages more buyers and sellers, offers contract sales that are near-term and forward-looking to create what is essentially a 2-month ‘spot’ price, according to Bialkowski and Koeman’s November 2017 study at the University of Canterbury New Zealand of spot market design in relation to the success of futures markets.

They explain the GDT biweekly auction is a vehicle for Fonterra to market 30% of its production and to provide a global exchange for other sellers like Dairy Foods of the U.S. and Arla of Sweden.

The GDT auction includes many products and ingredients — from bulk cheese and butter to whole milk powder, skim milk powder, anhydrous milkfat powder, buttermilk powder, lactose powder, milk protein concentrate, rennet casein and occasionally sweet whey powder. Whey protein concentrate is another globally-significant product, which the U.S. makes and exports a lot of – but that price is never considered in the FMMO classified pricing scheme either.

By contrast, the CME futures markets provide a hedging opportunity for Class III and IV milk and futures markets for the four Federal Order pricing commodities: Cheddar, butter, nonfat dry milk and dry whey. The CME also operates a daily cash “spot” market primarily for three of the four Federal Order commodities – butter, Cheddar and nonfat dry milk.

The CME trades only those specific Federal Order commodities. It is thinly traded with few buyers and sellers, although volume has increased 1 to 3% in the past year since the change to an electronic trading platform.

As a spot market for hedging, Bialkowski’s analysis described the CME cash market as one that is less well-designed because daily ‘spot’ prices are market-clearing and used retroactively in government pricing formulas, with a pricing delay built in, while GDT auction contracts offer pricing points for delivery one to four months forward.

The biweekly GDT prices are always based on actual sales because all product offered is sold. And those sales are weighted to calculate a weighted average for each product as well as an overall weighted performance index for the dairy trade.

The CME spot market, on the other hand, pegs its daily spot prices on the activity occurring in the final moments of its 15-minute daily trading session.

As we saw on a few occasions earlier this year, a CME trading session had multiple loads change hands at specific prices, but the daily spot price was determined by a lower last-minute offer.

Access to the market is also different. CME traders must simply have product to sell and meet payment and delivery terms to buy. The GDT, on the other hand, has a more controlled process where buyers and sellers are vetted and approved by Fonterra of New Zealand because they run the platform.

How will the U.S. dairy industry adapt to competitively manage export growth and volatility? Are changes needed in the mix of commodity pricing and milk utilization formulas that govern the regulatory pricing structures?

If industry leaders want to focus on export market growth and bring home the message that dairy farmers must accept lower prices “because we are in a global market,” then why is the government involved in regulating prices on the shrinking piece of the expanding pie (Class I) and calculating component value from just four commodities while ignoring the globally significant products and their mostly higher prices?

This is new math and it is not adding up.

A national hearing with report to Congress would help examine new thinking and take a closer look at current regulatory pricing schemes. How is price regulation affecting milk movement and location? Do these schemes return enough component value to the farms? Are the arbitrary make allowances creating winners and losers? Would truly free market forces do a better job? Or if classified pricing is here to stay, should we be aligning milk growth in the U.S. with export market growth and price it accordingly?

In Part Five, we’ll look at U.S. dairy imports and why volume is not the only important factor.

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‘It’s getting real, and we’re not alone’

Posted on November 24, 2018 by Agmoos

Unsure of future, Nissley family’s faith, community fill gap as dairy chapter closes with sale of 400 cows

By Sherry Bunting, Farmshine, November 16, 2018

MOUNT JOY, Pa. — Another rainy day. Another family selling their dairy herd. Sale day unfolded November 9, 2018 for the Nissley family here in Lancaster County — not unlike hundreds of other families this year, a trend not expected to end any time soon.

After 25 years of building from nothing to 850 dairy animals — and with the next generation involved in the dairy — the Nissleys wrestled with and made their tough decisions, saying there’s no looking back, although the timetable was not as they planned because the milk price fell again, and some options for transitioning into poultry came off the table.

The Cattle Exchange put up the tent, and the community came out in-force to support the Nissley family and their sale Friday. Throughout the weekend, they heard from people who bought their cows, telling them they’ll take good care of them. While many went to new dairy homes, a third of the cows at dispersals like this one have been going straight to beef, despite culling a good 10% of the herd in the weeks before the sale.

They began culling hard the past few weeks and on Friday, Nov. 9 offered 330 remaining milk cows and over 80 springing heifers. The Cattle Exchange put up the tent, and the community came out at 10 a.m. to support the family and — as Mike Nissley put it — “watch a life’s work sell for peanuts.”

Breeding age heifers are being offered for sale privately and the young calves, for now, are still being raised on another farm as they would sell for very little in these trying times.

As we talk outside the sale tent in the cold November rain, the cell phones in the pockets of Mike, Nancy (left) and Audrey are sounding off with outpourings of support. Know that the smiles through brushed back tears are because of the loving care of others, the family’s faith in a loving God, and the knowledge that they took great care of their cows.

Mike and his wife Nancy aren’t sure what the future looks like, but they are surely feeling the prayers, calls and texts of their friends, family, and community getting them through it.

Both Mike and his daughter Audrey Breneman have loved working with the cows, saying the sale felt like a funeral — “the death of a dream” — standing in the light rain outside the sale tent while the auctioneer chanted prices dipping into the $500s and $600s, even struggling shy of $1000 on a cow making 90 pounds of milk with a 54,000 SCC.

Later, a smile crossed his face, hearing the auctioneer stretch for $1700. “That one’s good to hear,” he says, as they headed back into the tent to watch springing and bred heifers sell.

While Daniel Brandt announced their number-one heifers, bids of $1600 and $1700 could be heard on some.

“It was a privilege to make the announcements on those 425 head, and I was impressed with the turnout of buyers, friends and neighbors as the tent was packed,” said Brandt after the sale. “The cows were in great condition and you could tell management was excellent.”

Mike gave Audrey the credit.

Before the rattle of cattle gates and the pitch of the auctioneer began, Audrey addressed the crowd with words that make the current dairy situation real for all who were there to hear them:

“We would like to welcome you to the Riverview Farms herd dispersal and thank you each for coming. Today feels a bit like attending my own funeral where we bury a piece of me, a piece of my family, and a piece of history, where we say goodbye to a lifestyle, to a way of life, to a lot of good times and many hardships as well. But I stand before you today proud to present to you a herd of cows that will do well no matter where they go.

“This isn’t the end for these ladies, nor is it the end for us. I’ve had the privilege of managing the herd for the last 15 years and though we may not have done everything perfectly, we’ve done a pretty darn good job of developing and managing a set of cows that can be an asset to your herd. Everything being sold here today is up to date on vaccines. Any cows called pregnant has been rechecked in the last 10 days, Feet have been regularly maintained and udder health was always top priority. We culled hard over the last few weeks and have only the cream puffs left as the auctioneer Dave Rama says.

“Though it feels like the end, it’s only the beginning of the next chapter, and we’re excited to see where God leads us next. Our milk inspector said once: it’s not a right to milk cows, it’s a privilege, and that’s exactly what this herd of cows was, a privilege.”

Her sister Ashlie’s husband Ryan Cobb offered a poignant prayer. The youngest grandchildren not in school, watched until lunchtime as the selling went through the afternoon, and the cattle were loaded onto trucks in the deepening rain at dusk.

As the sale progressed, a solemn reflection could be seen in the eyes of neighbors and peers. To see a local family sell a sizeable herd leaves everyone wondering ‘who’s next’ if prices don’t soon recover.

“It’s getting real,” says Mike. “Everyone is focused on survival, but we can see others are shook, not just for us, but because they are living it too.”

He has spent the last two years fighting to protect everything, including his family, “but now I surrender,” he says. “It feels like failure.”

There’s where he’s wrong. There are no failures here, except that the system is failing our farmers — and has been for quite some time — leaving good farmers, good dairymen and women, to believe it is they who have failed, when, in fact, they have almost without exception succeeded in every aspect of what they do.

Nancy is quick to point out that without Mike’s efforts and the family’s faith, “we wouldn’t have gotten this far, but now it’s time to see where God leads us next.”

The dairy chapter closed last Friday for the Nissley family in Mount Joy, Pennsylvania, but they are looking forward to where God leads them next. Mike and Nancy Nissley are flanked by daughter and herdswoman Audrey (left) and son-in-law and feed manager Matt Breneman and son Mason and daughter Ashlie (right) and son-in-law Ryan Cobb.

“Never have we felt the love and support like we have now from our community,” Audrey relates.

Nancy tells of a group of 20 who met at the farm for a meal the night before: “They prayed with us and rallied around us and supported us.”

Mike feels especially blessed. “We’ve had people just come over and sit in our kitchen with us,” he says. “People say ‘we’re here for you.’ People I never met are reaching out to tell me ‘you’re not alone, you’ll get through it, and there’s life after cows.’”

His bigger concern is that, “The public doesn’t fathom what the real struggles are out here. They have no idea where their food comes from and what it takes to produce it, the hours of work, of being tied to it 24/7/365. As farmers, we don’t have the resources or the time to correct all the misinformation when everyone believes what they see on social media.

“They go in a store and see milk still sold at $4.75/gal. The ice cream mix we buy for our ice cream machine costs the same as it did in 2014, when farm milk prices were much higher. DFA and Land O’Lakes report big annual profits. Where does the money go? Where did our basis go? It used to be $3.00 and now it’s barely 50 cents. There’s not one area to fix if the system is broken,” Mike says further.

“When you really look at this,” he says, “it’s amazing how little farms get for the service they provide, but if the public doesn’t know or understand that service, then they won’t expect the farmers to receive more and will actually make it harder for the farms to do with less.”

The Riverview herd had good production and exceptional milk quality. Making around 25,000 pounds with SCC averaging below 80,000, Mike is “so proud of the great job Audrey has done. Without that quality, and what was left of the bonus, we would have had no basis at all,” he says, explaining that Audrey’s strict protocols and commitment to cow care, frequent bedding, and other cow comfort management — as well as a great team of employees — paid off in performance.

But at the same time, with all the extra hauling costs and marketing fees being deducted from the milk check, the quality bonus would add, but the subtractions would erode it.

He notes further that a milk surplus doesn’t seem to make sense when the bottom third — or more — of every herd that sells out is going straight to beef.

The Nissleys are emerging from the deepening uncertainty that all dairy farm families are living right now in a country where we have Federal Orders for milk marketing, and yet we are seeing an expedited disorderly death of dreams at kitchen tables where difficult decisions are being made.

Trying to stay afloat — and jockeying things around to make them work — “has been horrible,” said Nancy. She does the books for the farm and has a catering business.

Financial and accounting consultants advised holding off the sale for the bit of recovery that was expected by now. But it never materialized, and in fact, prices went backward.

“The question for us became ‘how much longer do we keep losing money hoping that things will get better?” Audrey suggests. “We had to start figuring our timeline.”

She has been the full-time herd manager here for 15 years since graduating from Delaware Valley University with a dairy science degree. Husband Matt has been the full-time feed and equipment maintenance manager.

Cows have been part of Audrey Breneman’s life as long as she can remember. “They are part of who I am,” she says. Graduating from Del Val with a dairy science degree in 2003 and working full-time for 15 years as herdswoman at then 400-cow dairy farm started from scratch by her parents Mike and Nancy Nissley, have given her options as she moves forward after the sale of the family’s dairy herd.

She loved the cows. Their care was her passion, and the herd record and condition reflected this. But even the strongest dairy passion has limits when tested in a four-to-five-year-fire of downcycled prices.

“It’s too much work to be doing this for nothing,” she says.

With two young children of her own, Audrey could not envision doing the physical work, the long hours, with no sign of a future return that would allow her and her husband to invest in facilities, equipment and labor. How many years into the future could they keep up this pace, continually improving the herd and their milk quality, but feeling as though they are backpeddling financially?

These are the tough questions that the next generation is asking even as their parents wonder how to retain something for retirement, especially for those like Mike and Nancy who are still a way off from that.

We hear the experts say that the dairy exits are those who are older and deemed this to be “time,” or that the farms selling cows are doing so because their facilities have not been updated, or because they don’t have a next generation interested.

These oversimplified answers seek to appease. The truth is that in many cases — like this one — there is a next generation with a passion and skills for dairy farming.

The problem is the math. It doesn’t add up.

How are next generation dairy skills and passions to take hold when the market has become a flat-line non-volatile price? There are no peaks to go with the valleys because the valley has now become the price that corresponds directly with the lowest cost of production touted by industry sources and policymakers when talking about the nation’s largest consolidation herds in the west — and how they are dropping the bar on breakevens.

How are the next generation’s dairy passions to take hold when mailbox milk checks fall short of even Class III levels in much of the Northeast where farms sit within an afternoon’s drive of the major population centers

In Audrey’s 15 years as herd manager, there have been other downcycles, but they were cycles that included an upside to replenish bank accounts and hope. The prolonged length of the current downcycle brings serious doubt in the minds of young dairy producers about a sustainable future, but are the industry’s influencers, power centers and policymakers paying attention?

Cows congregate in the two freestall barns and in the meadow by the road as a holding area during the Nissley family’s sale of the dairy herd Friday while the milking team milks for the last time in the nearby parlor.

Like many of her peers transitioning into family dairy businesses, the past four years have been draining. Much depends upon how far into a transition a next generation is, what resources they have through other diversified income streams in order to have the capital to invest in modernizing dairy facilities and equipment.

Without those capital investments, these challenging dairy markets combine with frustrating daily tasks when there is insufficient return to reinvest and finding and securing sufficient good labor also becomes an issue.

As difficult as it is for the Nissley family, they are also concerned for their family of employees. The herd’s production and excellent milk quality are very much a team effort, they say, and the team of milkers pictured with Audrey (l-r) Manuel, Willie and Anselmo were busy Friday with the last milking at Riverview as cows came through the parlor all day ahead of their sale and transport.

The Nissleys are quick to point out that as hard as this has been for their family, it is also hard on their family of employees. They, too, are hurting.

“This is what I wanted to do all my life. It was our dream when we were married. I had a love for it and Nancy had a love for it,” says Mike, whose dairy dream was ignited by visits to his grandfather’s farm. Nancy grew up on a farm too, but the cows were sold in the 1970s.

The couple worked on dairy farms in the early years and saved their money. In 1994 they started dairying on their own farm with 60 cows. In September 2007, they moved to the Mount Joy location and began renovating the facilities for their growing herd.

Cows have been part of Audrey’s life as long as she can remember. “They are part of who I am,” she says, adding that she is glad to have her dairy science degree, along with the dairy work ethic and experience. “Here we are selling the cows, and I have opportunities to consider that I may not otherwise have. That degree is a piece of paper no one can take away from me.”

As the Nissleys closed this chapter Friday, they turn to what’s next. Nancy says she looks forward to being able to do things together they couldn’t do before while being tied to the dairy farm. As to what they will do on the farm, she says “God has not steered us wrong yet. Yes, it’s scary, but we also have faith that He is in this.”

Mike and Nancy Nissley aren’t sure what the future looks like, but they say they are feeling the prayers, calls, texts and support of friends, family and community. That’s what is getting them through these days.

Mike has also gained new perspective. He observes that for any dairy family that has a future generation with a long-term goal, it makes sense to stay in and try to ride this out. “But if you have any question about that long-term goal, have the tough conversations about your options.

“It’s easy to lose perspective. For the last two years, I lost my perspective because I was so focused on survival. That’s what I take away from this, the importance of getting perspective. We are first generation farmers. We started with no cows 25 years ago and have 850 animals today. It’s hard to see it all dismantled and be worth nothing. But we’re not second-guessing our decision.”

Talking and praying with friends and acquaintances, Mike believes that, “We go through things, and we can’t let it drag us down but use it for God’s glory.”

Under the milky white November sky spilling rain like tears, he says that while the sale “feels like the death of a dream, I know I’ve been blessed to have shared this dream with my wife and to work alongside our daughter and to see the great things she was able to do with this herd, for as long as we could. I’m thankful for that.”

The sale started at 10 a.m. Over 400 cattle were loaded in the deepening rain at dusk as the dairy chapter closed at Riverview Farm, Mount Joy, Pennsylvania, and two generations of the Nissley family said there’s no looking back, only forward to where God leads them next.

New PMMB consumer rep sees dairy crisis from outside-in

Posted on October 1, 2018 by Agmoos

Dr. Carol Hardbarger is digging in and looking at all angles of PA dairy crisis.

By Sherry Bunting, from Farmshine, Sept. 7, 2018

HARRISBURG, Pa. — Solving problems, bridging gaps, making connections, bringing different interests together – these are skills Carol Hardbarger, Ph.D. has been using throughout her career in education. Today, she brings a unique combination of skills and background to the Pennsylvania Milk Marketing Board (PMMB). She was appointed by Gov. Tom Wolf in May and confirmed by the Senate in June.

“It is a tremendous honor for this to come at the end of my career, to be asked by Governor Wolf, to meet with Senators during confirmation, and to have this opportunity to do something for the state and the dairy industry I love,” Hardbarger said in a recent interview with Farmshine at the PMMB offices in Harrisburg.

She reflects on that call from the Governor’s office, telling her she had been nominated and asking if she would serve. She promptly began looking at the information on what the PMMB does.

“There is a crisis in the dairy industry,” says Dr. Hardbarger. “Oftentimes, when there is a problem, there is a solution that can be obvious to someone looking at the problem from the outside, to go back to what the objectives are of an organization or project at hand, looking at what has been done and why it hasn’t worked.”

She talks about the smaller steps that may be missed in trying to get to an end goal.

“That’s how my brain is wired,” the intense, but easy-to-talk-to Hardbarger says with a smile. She is a big-picture thinker with an obvious knack for process details.

In every job before retirement, she was brought in to help solve a problem and was able to deal successfully with those situations.

The dairy industry issues go well beyond the regulatory aspects of the PMMB. As the board’s consumer representative, Hardbarger seeks a broader role in marketing and advocacy that is refreshing.

She has rolled up her sleeves to dig in, confessing that she loves an intellectual challenge.

Her intention to spend one day a week at the PMMB offices in Harrisburg, quickly became two days a week and has now evolved into a full-time 40- to 50-hour work week.

Hardbarger serves on the board with dairy producers Jim Van Blarcom of Bradford County and Rob Barley (chair) of Lancaster County. They are also putting more time in their roles.

“That’s okay,” she says. “In order to accomplish what the Governor and Senators have communicated, that level of time and organization is necessary.”

She spends her time combing through records, meeting with government and industry entities, opening lines of communication, and being helpful to staff, which has been reduced in recent years by unfilled retirements.

Hardbarger sees external communication and a visible, accessible board on “advocacy things” as vital for developing the relationships that lead to solving problems.

She started the PMMB facebook page and twitter feed (@PAMilkBoard), as well as an email newsletter to legislators and industry that will eventually broaden to consumers. She also helped organize upcoming listening sessions. There is no need to pre-register or pre-submit comments, and the board urges those who can’t attend to send comments electronically to ra-pmmb@pa.gov.

The first listening session was held Sept. 26 from 6 to 9 p.m. in western Pennsylvania. The second will be Oct. 16 at Troy Fairgrounds in northern Pennsylvania, and another is being planned for southeastern Pennsylvania, potentially in Lebanon in November.

In the office with staff through the week, Hardbarger says Pennsylvania’s dairy industry is lucky to have these individuals, who are “highly capable and dedicated in jobs that are not easy.”

On the road forward, she sees a starting point is identifying where there is agreement.

“We have to start with what we all agree are issues to address. Otherwise, we are just putting on band-aids,” says Hardbarger, explaining that such a “holistic approach” is a way for deep-rooted past, present and future issues to be addressed for the long-term.

“I have some concern as I listen to the various constituency groups in the dairy industry — the farmers, the dealers, the retailers, the consumers — that when they speak, for the most part, I hear a lot of individual agenda,” she relates. “I believe strongly that we must be able to look at the agendas of all the groups and somehow integrate them to come up with solutions and prioritize them.”

When Hardbarger talks about “systemic solutions,” as she did in her Senate confirmation hearing, she means the longstanding parts of the system that are “built into how the industry operates.”

She gives the example that some are talking about “temporarily suspending” the minimum milk price, which would require changes in the law.

“We told the Senate that we want to look at some legislative items and see what makes sense for 2018 and 2019,” says Hardbarger.

Another example is some want the over-order premium to end.

“They believe it is not working the way it needs to,” she says. “We are not hearing many suggestions to raise the over-order premium. It will be interesting to see what comments and ideas we get at the upcoming listening sessions.”

The challenge is, according to Hardbarger, “how do we blend a holistic approach to a problem and how it developed systemically over the years with legislation and regulation that was implemented in a time very much different from today.”

She says the board is taking a neutral approach as they look at impacts.

“There are some misconceptions about what the board can and cannot do… so I hope the newsletter and outreach will develop good lines of communication with the legislature while correcting misconceptions and give us the ability to come back to the Assembly with information they need,” Hardbarger relates. “We obviously have the two laws we are responsible for with the associated regulations. But as our name implies, we are ‘marketing.’”

Through facebook and twitter, Hardbarger posts things she sees every day of interest to dairy. The newsletter will eventually include a calendar, an information piece from the chairman, questions and answers by staff, and the school nutrition aspect will be discussed.

Asked why the PMMB’s facebook and twitter profile picture is the PA Preferred logo, Hardbarger responded simply: “We want to promote Pennsylvania dairy products.”

She gave the example of a recent step — sending information to retailers and processors on how special milk promotions can legally be done, and suggesting such promotions be linked to PA Preferred milk.

Hardbarger says she wants PMMB’s communications to be an information clearinghouse between the industry and the legislature and ultimately the consumer.

In developing her role as consumer representative, she is already pursuing relationships with consumer groups and civic organizations to provide information about the nutritional benefits of consuming dairy products and what the industry means to Pennsylvania and its communities.

For example, Hardbarger has already reached out to school nutrition officials with ideas about how milk and dairy are nutritionally assessed within the USDA meal profile for school breakfast, lunch and after school programs.

“If milk and dairy products were separated from the nutritional analysis… we may see schools offer more milk and dairy in the morning and after school programs without having to fit into a total nutrition analysis,” she suggests, adding that this idea is being provided to Representative G.T. Thompson, who sits on the Congressional workforce and education committee as well as to U.S. Senators Pat Toomey and Bob Casey.

“We are also communicating with USDA on this issue of getting whole milk (unflavored) in the schools along with now flavored 1% milk,” she said.

PMMB also sent official comments to the FDA docket to enforce and uphold milk’s standard of identity, and sent emails encouraging others to do so.

Hardbarger understands the nutritional tightrope schools walk to serve foods and milk that students enjoy and will consume. She is aware of the steady drumbeat of scientific studies showing dairy as a complete protein and complete source of vitamins and minerals children today are lacking, as well as the positive dietary revelations about whole milk and full fat dairy, especially for children.

She remembers her youth and spending much time on her grandparents’ dairy farm in northern Maryland, of making and consuming everything from homemade cottage cheese, butter and farmers cheese to whipped cream pies.

And she reminisces about doing just about every chore on that diversified farm, pointing out a decades-old framed photo of her son as a child milking one of four Jersey cows the family kept at that time.

While her career has been in education and technology, she is quick to point out that she has been around farmers and agriculture all of her life.

“There is a passion people have for this life, this business. And the dairy industry is vital to the economy of our state and a big part of what defines us, of who we are,” the proud mother and grandmother two-generations removed from dairy farming explains.

Since her first day on the PMMB in early July, Hardbarger has encountered “no real surprises” but a fuller understanding of issues that have swirled for years.

What surprises her is “the differences of opinion among constituent groups and their differing opinions about what needs to be done,” and seeing how far the industry is from dealing with differences over coffee and a handshake.

“Now we have groups with lawyers and CPAs and very strong individual agendas,” Hardbarger observes. “That has surprised me. I wasn’t aware of how fractured it is. This is an observation, not a criticism, because each constituency has a business interest to protect.”

From staff development to planning a staff retreat, to emailing staff for their ideas, Hardbarger says the momentum is “forward,” even though it’s “frustrating” to learn that state bureaucracies do not move as quickly as desired and there are regulations for literally everything.

“We can’t” are words she does not like to hear.

“There are very few things in this world that cannot be done. It may be that we need to do them in a different or particular way,” says Hardbarger. “We have to fix this dairy crisis, and we can, if we get all the players involved.”

Toward that end, Hardbarger says her next goal is to have the PMMB work with other agencies in forming a “rapid response team” for dairy.

“We hear stories about how a vital bridge can be fixed within 40 days… how the state government made it easier to deal with regulatory processes and provided waivers to make something happen, fast, because it was economically feasible to do that,” she says. “Pennsylvania has a Dairy Development plan… and we need the same ‘rapid response’ in dealing with our dairy crisis.”

Looking ahead, she is most hopeful that, “We can get a working group together of one or two representatives of each constituency group… and start hammering out solutions to our problems, to talk honestly face-to-face about the issues and come up with a few solutions that will work, and that my time here will be productive.”

Adds Hardbarger: “The most rewarding thing so far is the people I’ve met. There is nothing like coming into the office in the morning and seeing smiles and enthusiasm among the staff and having positive responses and feedback from Senate and House staff, to see us moving in a direction.”

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PHOTO CAPTION Hardbarger9825

Retired education and technology expert Carol Hardbarger, Ph.D., of Newport, talks about the dairy crisis and her role as the new consumer representative on the Pennsylvania Milk Marketing Board during a recent interview at the PMMB offices in Harrisburg. She says the Bonnie Mohr painting behind her is a favorite reminder of youthful days spent on her grandparents’ dairy farm. “It also reminds me that the number of dairy farms throughout Pennsylvania help define who we are as a state,” she says. Photo by Sherry Bunting

‘This is the face of the dairy crisis’

Posted on April 3, 2018 by Agmoos

(Author’s note: Look for an update here soon about developments since this town hall meeting on 3/19. As of 3/31, in eastern Pennsylvania, 9 Lebanon County dairy farms have been picked up by Harrisburg Dairies, 2 have been picked up by a cooperative and 2 have decided to exit the dairy business, leaving 2 Lebanon County farms and 11 Lancaster County farms still seeking a market. In western Pennsylvania, 4 of the 16 farms have been picked up by Schneider’s Dairy based in Pittsburgh, leaving 12 still needing a market for their milk.)

Emotional town hall meeting in Lebanon, Pa. draws over 200 people urging contract extensions for Dean’s dropped dairies

By Sherry Bunting, Farmshine, March 23, 2018

LEBANON, Pa. – “Family is a treasure for all of us here, and we have a family crisis concerning our dairy farms,” said Randy Ebersole, a local car dealer whose family has been part of the Lebanon community surrounded by dairy farms for generations. He moderated a “Save Pennsylvania Dairy Farms” town hall meeting about the 26 Lebanon and Lancaster County dairy farms that received 90-day milk contract termination letters from the Lebanon Swiss Premium plant owned by Dean Foodd on March 3.

The meeting drew 200 people to the Expo Center Monday (March 19) and was covered by three television stations and a host of other media.

State representatives Frank Ryan, Russ Diamond and Sue Helm also attended and spoke about their commitment to work with farmers on solutions.

Jayne Sebright, executive director of the Center for Dairy Excellence also attended, mentioning the Center’s resources for counseling and support as well as a joint venture with the Pennsylvania Dairymen’s Association to launch a “local and real milk” promotion by June Dairy Month.

Pa. Ag Secretary Russell Redding was not present, but Sebright said he will be sending a letter to Dean Foods in support of an extension of terminated contracts for 42 Pennsylvania dairy farms, the 26 in eastern Pennsylvania and 16 shipping to Dean plants in western Pennsylvania.

“This is the face of the dairy crisis. This is not fake news. This is real,” said Ebersole of the panel of three producers, a nutritionist, a veterinarian and a feed mill manager who shared their stories of the impact to the farms whose milk contracts will end May 31, 2018. This represents about half of the Lebanon plant’s daily milk intake.

The message of the town hall meeting was simple: Don’t blame or boycott Dean Foods because there are still another 40 local farms who did not get letters and are supplying the Swiss plant in Lebanon. But do, write, call or email support for a contract extension for these terminated farms until fall or winter.

And yes, drink more milk and eat more dairy products, especially locally-sourced dairy, knowing how it supports healthy bodies and healthy communities.

All told, Dean Foods ended marketing agreements with over 100 farms in eight states as the company says it adjusted its milk volume because of a supply and demand imbalance made worse by the trend among retailers, namely Walmart, to vertically integrate into bottling their store brands and compressing the supply-chain with consolidated intakes and wider distributions.

The emotional 2-hour meeting revealed community support for these farms by those who recognize how these farms touch many of its jobs and businesses.

Yes. A legacy is on the line here. And there were plenty of youth among the 200 attendees, many of them from local dairy farms where the future is uncertain due to the current dairy economics and especially for those in the families whose farms have been blind-sided by these 90-day termination letters.

One after another, people voiced their concern that 90 days is not enough time to find a new market at the worst time of year, ahead of spring flush, nor is it enough time for these families to unwind their businesses by selling cows, assets, even their farms and their homes to settle their lifetime investments in a way that allows these farm families to find a path forward.

“You will not find a more dedicated and hard-working people than dairy farmers,” said Ebersole. “They have invested their money, their time and their lives developing their herds and their businesses. We understand the world is changing, and that we are not an island, but what has not changed is the expectation of fair and reasonable treatment.”

A local pastor asked a blessing on the meeting and referenced Psalms 139 where David asks God ‘search me… and know my heart; test me and know my anxious thoughts. See if there is any offensive way in me and lead me in the way everlasting.’

The parallels of this passage to what these farmers are facing were obvious in the emotion that followed as each of six panelists told their stories and as others attending lent their support and as 8-oz chugs of Dean’s TruMoo milk and trays of cheese from the Lebanon County dairy royalty were enjoyed.

No one blamed Dean Foods.

Producers talked of a good relationship with the plant. They talked of how the letters completely turned their worlds upside down. They talked of how they have called eight to 10 other milk buyers in the region, none of them stepping up to accept new milk.

“Our cows are like our children,” said Kirby Horst of Lynncrest Holsteins, which has produced milk for the Lebanon Swiss Premium plant for 60 years across two generations. “The thought of 90 days and no market for our milk and no place for our cows to go… the thought of looking out at the pastures and not seeing the cows … I don’t know if I can handle that.”

The affected producers and the businesses that serve them stressed that with a little more time, they could do what is best for their families.

“Just like all the 26 farms affected in this community, our minds are missing right now,” said Alisha Risser. She and her husband have been shipping their milk to the Swiss plant for 17 years. She described how they worked full time jobs and saved and rented a barn before purchasing a herd and then building a dairy full time on their farm in 2001, when they began shipping milk to the plant in Lebanon.

“We have been lucky to have our passion be our job every day and to share this with our kids,” said Risser, her voice tinged with emotion as she described how her husband and youngest son bounce ideas off each other about the cows and the crops. “Our children wonder what future we have now. This is such a feeling of helplessness.

“We are proud of our milk that we produce on our farm, and we are proud of the Swiss Premium milk in our community,” she added. “We are just asking the community to support us with letters to Dean Foods to provide a contract extension until fall or winter.”

As milk pricing, promotion, regulatory environments and dietary guidelines are sorted out in the coming months, these farms are left without a milk market, without an opportunity to compete, to survive.

“God is always faithful, and we know we will be okay in the end, but an extension would allow all 26 farms here to make decisions for our families and our futures,” Risser said.

Ebersole added that, “These farms have developed their cow herds over a long period of time. They are rooted in our community. It’s not like a car dealership where you can just go to the Manheim Auto Auction and get in the business of selling cars.”

Indeed, a legacy is on the line in Lebanon and Lancaster Counties, as in other communities similarly affected.

“I am not sure how we are going to handle this going forward. We have put all we have into the farm. Nothing will settle like it should,” said Brent Hostetter, who received his letter a week after the other farms on his milk hauling route were notified. Hostetter and his wife have been shipping to the plant for 19 years.

“Our kids love the farm. It has been going three generations, and now I am not sure how we can see a fourth,” said Hostetter. Like the others, he said a contract extension would give them some time to figure things out.

He also encouraged the public to “support our Pennsylvania farmers” to buy local milk and to look at the plant codes.

Rick Stehr, a nutritionist and owner of R&J Consulting, directed some of his comments to the significant number of youth in the audience, saying that these farms are where the next generation learns morals, values, work ethic and the joys and failures of life.

“This is worth fighting for,” said Stehr, “worth fighting all together for.”

He noted that for every 9 milk cows in Pennsylvania, one job is supported in the related business infrastructure. In Lebanon County, alone, one job is supported by six cows. The impact is deep if these cows and farms are lost, he said.

“Each cow here produces $14,000 in revenue for our community,” said Stehr, “16% of U.S. dairy farms are located in Pennsylvania where the average farm size is 80 cows. We are not California or New Mexico. We are located well within a day’s drive from 50% of the U.S. population. It seems our location would be pretty good, and yet this is happening.”

The emotion was palpable as Stehr and others offered to do whatever is needed in terms of counseling and assistance through this.

Alan Graves, manager of Mark Hershey Farms, a prominent feed mill in Lebanon County, said 80% of the mill’s feed business is dairy.

“We have been in business 45 years and employ 55 people in this community,” said Graves. “This day is about the producers and how they affect everything else in our communities. Our mill employees and their families rely on these dairies for their jobs. We don’t make business projections for 90 days, we are out a few years in our projections.

“The extension these producers are asking for is a fair request,” he added. “They have spent their lives improving their cows and improving the product they produce. The thought of taking that away in 90 days is almost unjust.”

Ebersole described the community impact this way: “These folks write out checks to other businesses in our community. There has to be a check coming back the other way. In 90 days that will all stop.”

Dr. Bruce Keck of Annville-Cleona Veterinary Service talked about how the public is unaware of what has been happening over the past 30 days and the past 10 years of consolidation and change. He asked the three television stations represented to raise awareness.

“We want to bombard Dean Foods with letters and emails and phone calls,” he said.

“These dairy farmers are so invested in cows and equipment that they can’t just quickly turn around,” said Keck, who has worked with local dairy farmers as a veterinarian for 25 years and took over the practice started by his father in 1961. He understands the family business dynamics.

“Without an extension, these families will be forced to sell their herds, and even their farms, for a fraction of their worth in this environment,” said Keck, “and that will trickle down to affect truckers, nutritionists, equipment companies, feed mills, veterinarians and more. This is like asking a loaded tractor trailer to turn as fast as a speeding car. It’s not enough time.”

To communicate support for the farms facing 90-day termination of contracts, call Dean Foods at 214-303-3767, email dairydirectsupport@deanfoods.com, or mail a letter to Dean Foods, 2711 North Haskell Avenue, Suite 3400, Dallas, TX, 75204.

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Brent Hostetter, Lebanon County dairy producer: “I am not sure how we are going to handle this going forward. We have put all we have into the farm. Nothing will settle like it should.”

Alisha Risser, Lebanon County dairy producer: “We are proud of our milk that we produce on our farm, and we are proud of the Swiss Premium milk in our community. We are just asking the community to support us with letters to Dean Foods to provide a contract extension until fall or winter.”

Kirby Horst, Lebanon County dairy producer: “The thought of looking out at the pastures and not seeing the cows … I don’t know if I can handle that.”

Randy Ebersole, local car dealer and panel moderator: “This is not about blaming or boycotting Dean Foods. Please do the opposite, fill yourselves up with these dairy products.”

Dr. Bruce Keck, Annville-Cleona Veterinary Service: “Without a contract extension…This is like asking a loaded tractor trailer to turn as fast as a speeding car. It’s not enough time.”

Rick Stehr, R&J Consulting: “This is worth fighting for…worth fighting all together for.”

Alan Graves, Mark Hershey Farms: “These producers have spent their lives improving their cows and improving the product they produce. The thought of taking that away in 90 days is almost unjust.”

Rep. Sue Helm: “A group of representatives are writing a letter Dean Foods. We want farmers to stay in contact with us.”

Rep. Russ Diamond: “We wanted to get Pennsylvania milk into Pennsylvania schools but have been told that with the product stream in Pennsylvania, this is hard to do. This Pa. Milk Marketing Board issue is a hard issue to get to the bottom, and people get very protective of it.”

Rep. Frank Ryan: “Keep faith first and foremost and your sense of humor and talk with your bankers. This is emotionally draining and people want to run from it. There is a solution and we need to work together to find it.”

Bernie Morrissey, retired agribusinessman: “Dairy farmer Nelson Troutman got me involved in this nine years ago, and I have given up my retirement to work on this issue because it’s important to our farms. No matter who buys your milk, this is all connected… There are over 25 milk contracts from outside dairies selling milk in Pennsylvania while you guys are under the Pa. Milk Marketing Law. You have been shafted.”

Mike Eby, chairman National Dairy Producers Organization and former Lancaster County dairy farmer: “The media are our friends. We can work with the media to advertise our product in ways the (check off) promotion programs can’t.”

Dairy at a crossroads Part 2: Blinders off, seek help to navigate

Posted on March 12, 2018 by Agmoos

Fig. 1 from the farm financials in the Pennsylvania Dairy Study shows average annual rate of return on assets 2011-16 for Pennsylvania small, medium and large (over 500 cows) farms compared with a 3-state average (NY, MI, WI) for small, medium and large farms. The Center for Dairy Excellence confirms that producers of all sizes are calling to have Dairy Decision Consultants come out to help them figure out how to move forward and lower their cost of production or the best scenario for exiting the dairy business.

By Sherry Bunting, Farmshine, March 2, 2018

BROWNSTOWN, Pa. — Every avenue of approach to a four-way crossroads comes with a temporary stop or yield and the need to know whether to turn one way or the other, double back, or drive forward. Staying put is only an option for the time it takes to know which way to go.

For dairy producers at this turning point, not one of these options can be exercised without knowing the farm’s cost of production and its equity position to decide upon a direction for what’s ahead.

Difficult discussions are being had around farm kitchen tables across the country. Seek out the help that is available to navigate, say dairy lenders and consultants interviewed recently by Farmshine.

“Don’t internalize too much or to try to do it on your own. Don’t be afraid to reach out for help,” says Dale Hershey of Univest Bank and Trust. “Don’t wait to raise your hand until after it’s too late. There are people out there, good people, who can give advice and ways to do this at little or no cost.”

Competitive cost of production is shaping the future of the dairy industry. While we hear about the multi-owner multi-site dairies with nearly 100,000 cows and a very low cost of production, size does not dictate the ability to compete.

“It is being achieved here. We have 100-cow dairies and 1000-cow dairies with very competitive cost of production,” says Mike Peachey of Acuity Advisors and CPAs.

He explains that the Northeast has historically had a higher cost of production for a variety of reasons.

“We have been saved by having higher premiums for our milk, but as those premiums erode, the competitiveness of our operations is exposed,” says Peachey. “It comes down to how well-managed a dairy operation is — regardless of size — and how competitive we can get in cost of production.”

“We used to have a milk price advantage in Pennsylvania. That is gone,” adds Mike Hosterman AgChoice Farm Credit business consultant. “We are less than 25 to 50 cents difference to New York, when it used to be $1.00.”

They both see a wide range in cost of production among dairy farms that can vary by $2 to $3/cwt.

“There is easily a variance (in profitability) from bottom to top of at least $1000 per cow, so it really is segmented by thirds,” says Peachey. “We have a top third with a very competitive cost of production, a middle third hanging in there and a bottom third making tough decisions that carry a lot of emotion.”

“So much of the difference comes back to debt, especially for younger farmers,” says Hershey. “Dairy is tough to get into, and the biggest thing is how you come in. Those beginning farms won’t survive without capital or backing from family. We will have some startups this year, but fewer than other years.”

In this business of large capital investments, Hosterman observes debt per cow creeping higher.

“If you go back 10 years, debt was just under $3000/cow. As milk prices go through these wild swings, the trendline was still slowly increasing so producers could afford that increase. Now the price is leveling out while debt per cow can be over $5000 or $6000,” he reports.

“As lenders, we’re all stepping up to help these producers, but we may not have the capacity to help them all.” He notes that refinancing options, different debt structures, and FSA loan availability are some options.

While the fundamentals of future dairy demand and proximity to consumers in the eastern U.S. would suggest a key place for small farms here, Hershey is realistic about the hand being dealt.

DPAC(farmbill)9261(ExtraPhoto) “To be in this for the long haul, we have to look ahead and know what we’re dealing with,” he says, wistfully reflecting upon growing when his father made a good living with 40 registered dairy cows.

“That model is pretty tough to cash flow right now. I see a return to where we were 40 years ago, where farms here had different things going on, multiple income streams, seeing more farms diversify to strengthen their positions,” says Hershey. “If producers are solely dependent on their small dairies, it will be very tough unless they have a very low cost of production.”

Key advice? “Bring a team in around you.”

“Dairy producers are managing expenses and monitoring cash flows, budgets and cost of production throughout the year. They are bouncing ideas off their advisors and consultants to be more competitive,” says Mike Firestine of Fulton Bank. He was recently recognized by American Bankers Association with the Bruning Award for dedicated leadership.

Extension educators also report they are receiving very high interest from dairy farmers wanting to do financial analysis because of varying degrees of stress already experienced over the past three years.

As for Acuity, Peachey regularly looks at clients’ positions around four key areas: cost of production, percent equity, profitability and cash flow, providing information and context for discussions about where they stand, what is their competitive position and where they think they are going to be not just now, but a year from now.

Because things change from year to year due to many variables, including weather and markets, Peachey says it’s important to be monitoring all the things that go into that “cost of production stew,” including milk quality, good internal herd growth, good milk components and feed conversion.

Armed with a team approach, and the numbers, they can uncover how well the animal husbandry is being managed, the breeding program, pregnancy rates, heifer replacement programs, milk production, especially components, and milk quality.

“Done well, these things add up,” says Peachey. “Small farms can counteract some of the competitive disadvantages on the cost and income sides, by having their good management in all these areas add up.”

This becomes cumulative math. For each year that one dairy is not as competitive as another on cost of production (COP), the impact compounds.

For example, a $50,000 annual difference between two similarly-sized farms adds up to half a million dollars over a 10-year period that’s either not in a bank or being reinvested in the operation to stay competitive or being used to pay down debt to put the farm in a better financial position to weather these storms – to provide the liquidity and working capital to get through it, according to Peachey.

Continual monitoring of the COP and doing annual year-ahead budgets are key, Peachey points out, because “guarding cash flow is very important right now. Producers are really scrutinizing capital expenditures with an understanding of what is a need and a want. They are focusing on investments and management decisions that reduce cost of production beyond the initial payback.”

He notes that cutting costs is tricky: “If reduced feed costs means reduced milk production, for example, it ends up contributing to a tailspin when a cost-cut reduces top line revenue.”

“Some guys may sell off some assets and use proceeds to reduce debt,” says Hosterman, citing sales of mountain ground, extra timber, and selling heifers. “Heifer numbers have increased so much on dairy farms that selling extra heifers is not a bad option to generate some cash,” he says.

In fact, some farms are opting to sell quite a few heifers. Even though prices are not the best, these sales contribute to cash flow, which is critical. Some farms are breeding to beef breeds and producing a dairy beef cross for the feeder market. Again, not a big price, but the cost of the breeding is less, and the calves generate cash flow as well as cost savings. Such strategies require careful thought so as not to jeopardize the position of the herd for the future.

Knowing the farm’s COP provides the information to make these types of decisions.

If the farm’s COP is not competitive, the question is, can it become competitive? Is the farm within striking distance of getting to a competitive COP? If the answer is ‘no’, there may be tough business and family decisions to make, according to Peachey.

He says it is also very important to evaluate the farm’s equity position, to sit down with the lender and look at the way the farm’s debt is structured.

“If the farm still has a strong equity base to restructure things to provide cash flow relief, it should be paired with an assessment of the farm’s COP and what can be done to improve it,” says Peachey. “How much runway do you have to work with? Knowing this is helpful for a restructure, but the airplane still has to get off the ground.”

In other words, equity for restructure provides the runway and working toward a competitive COP elevates the plane before it reaches the end of that runway.

It’s critical to go through the budgeting process, says Peachey, “to understand your cash burn rate for the coming year, to know if you have the working capital and liquidity to absorb this and if you have the broader equity base to recapitalize those losses. If I lose x-amount, can I put that on a 3-year note and pay it off and still be okay?”

Peachey equates the breakeven to a Class III price and looks at it from both the intermediate and long-term perspectives. For the short term, he sees the goal being a Class III breakeven of $15 to $15.50, so if the farm’s basis is $2 over Class III, that equates to a breakeven of $17 to $17.50 in other discussions or venues.

He cautions that, long term, the marketplace is going to demand a lower COP with Class III breakevens down to $13 and $14.

Hosterman concurs: “Some of our best farms are achieving a COP under $16.50 right now, so they can get by at a $14 Class III price, but the bottom third still needs a Class III price of $17, and the average producer needs a $15 or better Class III price to break even.”

“It is being achieved here,” says Peachey. “We can do it, but it gets back to all of the other little things that add up to how well the operation can be managed. When we know our COP, we know the weak spot in our model and can figure out how to compensate for that and find where the opportunities are.”

Hershey has received numerous calls from producers wanting to do these projections and breakevens to navigate the road ahead, and he cites Dr. Kohl’s four cornerstones of success — plan, strategize, implement and monitor. “We are pushing that, more than anything, that farmers who are struggling can ask for help.”

There is high praise for what the Center for Dairy Excellence and Penn State Extension offer to improve producer competitiveness to also improve the state’s competitiveness in dairy.

“The resources, educational opportunities and ways to connect folks are greater than ever,” says Peachey. “We have a strong infrastructure and a lot of good things in place.”

Other states have similar extension and organizational services. Seek them out.

Look for more in future editions of Farmshine as we continue this dairy crossroads conversation with producers, industry participants and leaders in the East… and beyond. The next installment will move into the policy realm with a look at the critically acclaimed film “Forgotten Farms,” produced in New England, and a panel discussion about our nation’s food policy centering on the burning question: why has dairy largely been left out of the local food movement? And what is being done about it.

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Ag Moos

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Dairy at a crossroads Part 2: Blinders off, seek help to navigate

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