Will DMI’s transformation strategy leave dairy unrecognizable?

It was lights-camera-action… but there were barely 25 people, over half of them media and checkoff representatives, attending the DMI ‘tanbark talk’ on dairy transformation at the World Dairy Expo. On the big screens, joining virtually, was Bob Johansen, an author and strategist talking about “the VUCA” world. He was hired by DMI to work through scenarios of the future to arrive at the transformation model. On the stage from left are Dwyer Williams, DMI chief transformation officer; Tom Gallagher, outgoing DMI CEO; Lee Kinnard, a Wisconsin dairy producer; Peter Vitaliano, NMPF vice president of economic policy and market research; and Eve Pollet, DMI’s senior vice president of strategic intelligence. Taking notes at a table in the foreground — seated to the left of the camera man and light-show operator — is Jay Hoyt, a New York dairy producer who challenged DMI’s “bright” transformation picture saying nothing will be bright about the future for dairy farmers, if we can’t provide and promote cold, whole milk to children.

By Sherry Bunting, Farmshine, October 15, 2021

MADISON, Wis. — A picture of the future of dairy was painted with a boastful sort of “insider” arrogance by dairy checkoff leaders on the second day of the World Dairy Expo during DMI’s ‘tanbark talk’ on transformation. It left me both shocked and uninspired, exasperated.

The very next day, a message of light and inspiration was presented in a meeting hosted by American Dairy Coalition (ADC), talking about inspiring loyal consumers as part of a discussion on the viability of America’s dairy farms in the face of rapidly launching confusion via plant-based and lab-grown lookalikes.

Without necessarily challenging DMI’s assumptions about Generation Z and the “future” of dairy, ADC’s guest speaker, a consumer-packaged-goods expert, painted a different picture. From the marketing surveys shared, it appears that future consumers, those under 23 years old today, are much more apt to be brand loyal than their Millennial parents. 

That’s the hope and light DMI left out of their presentation. DMI is taking their “knowledge” of Gen Z in a different direction.

The question is: Who is inspiring loyalty to milk, whole milk, real milk, real dairy, real beef, real animal protein? Not DMI.

DMI wants to take your checkoff dollars down into the darkness of the gaming world. Their guest speaker and futurist collaborator talked about the Gen Z gamers, the immersive learning, the tik tok generation.

One comment made me cringe. “It’s something parents and grandparents don’t like, but it is good for dairy,” said futurist Bob Johansen about the dark world of gaming that has, in his opinion, claimed the perspectives and choices of the next generation.

Repeating the platitude of “meeting consumers where they are”, the DMI presentation left this reporter in a bit of a shock. Do we really know where consumers are? Who is telling us these things and what is it really based on? So much more enlightening was the next day’s presentation about “inspiring loyalty” by reminding consumers about “what they love.”

I believe most dairy farmers want to inspire consumers to what’s real in life instead of being sucked into the unreal and confusing world of gaming.

Where are my thoughts going and what did you miss in the DMI panel at Expo? Not much, really. I heard the DMI dairy transformation strategist suggest that she “likes saying milk has 13 essential nutrients,” but that she thinks it will be so much “cooler to identify, annotate and digitize the 2500 to 3000 metabolites in milk and then be able to pair them to products and brands in the personalized app-driven diets of the future.”

That’s right folks, DMI paints a picture of future diets digitized by apps and algorithms to match up to the individual metabolic needs and desires of consumers. In other words, they won’t really know WHAT they are consuming, just a mix-and-match of elements as presented by global processing corporations that are “all-in” for this future of food confusion.

DMI is in the self-fulfilling prophecy business. They aren’t meeting consumers where they are. They aren’t inspiring consumers to be better, eat better, and enjoy dairy. They are touting USDA dietary policy to the point that even their fellow GENYOUth board members and collaborators are, in some cases, promoting the competition.

Case in point this week, chef Carla Hall, a longtime board member of GENYOUth, who DMI leaders have touted over the past 10 years, is right now running Youtube videos teaching consumers “how to go plant-based without going vegan.”

And guess what? Hall is targeting milk for the ousting. She promotes almond, oat, cashew etc ‘milks’ and guides consumers on how to replace real milk with these fakes in their diets, their recipes, their lives.

When a Facebook post about Hall’s milk-replacing Youtube videos was posted by a New York dairy producer asking “why is this person on the GENYOUth board?” another dairy producer responded wondering if she really was on the dairy-farmer-founded and primarily funded GENYOUth board.

Yours truly, here, replied on Facebook with a simple “yes she is” accompanied by a link to the listing of GENYOUth board members and a screenshot of the page showing Carla Hall among the GENYOUth board member list. Within a couple hours of my comment on that post, I got a notice from Facebook telling me I had “violated Facebook’s community standards.” They called my comment “fraudulent spam” and deleted it!

Yes, my reply was deleted, and I was warned that if I continued my violation of Facebook’s community standards, action would be taken against me.

Wow, I thought, that’s out of left field, isn’t it? I simply showed the truth with a link and a picture that the plant-based beverage promoter is, in fact, on the GENYOUth board.

Yes folks, DMI wants you to believe that your future viability as dairy farmers relies on playing nice with the plant-based and lab-grown lookalikes – blending in with them – and losing your identity.  After all, they say, just be glad your milk has 2500 metabolites that can be digitized and annotated!

They want you to believe that the gaming industry is “good” for dairy while acknowledging that it’s not so good for kids. They want you to partner in that world of unreality and confusion instead of being an inspiration of clarity and a champion for what’s real.

My question is: Do we want to be a beacon of light and inspire Gen Z? Or do we want to stoop to the level of this dark space to “fit in” or “be cool”.

In that space, are those teens and young adults even listening to our story? Or are we being drowned out by the bells and whistles of gaming as it sucks them in and drags them down. The entire gaming world is full of ambiguity and confusion, but this is what DMI and its futurist say the world is going to be, that it is a VUCA world, and we must accept it.

VUCA stands for volatility, uncertainty, complexity and ambiguity. It’s a sort of catchall phrase for what we all know. Yes, the world is crazy out there!

In that talk, DMI leaders said they hired futurist Bob Johansen to help them look at four models for the future of dairy from a range of possible scenarios. They chose the transformation model, and that is how they are transforming checkoff dollars.

“Accept it,” they say, Mr. and Mrs. Dairy Farmer, you must accept that ambiguous messaging is the name of the game for the future of dairy, one that assigns the attributes you are selling in a mix-and-match environment.

Farmers have been dealing with VUCA forever. We’ve long understood that markets are volatile, the future is uncertain, the industry is complicated, and yes, the world and its direction are certainly ambiguous.

However, must dairy farmers accept and enbrace this ambiguity in the messages they send to consumers about the milk they produce?

Must they tow the line of 3-a-day fat-free and low-fat dairy as the only message of clarity because that is the edict written by USDA in its Dietary Guidelines?

Should they be pursuing the digitization of 2500 milk metabolites as the way to pair dairy with certain brands and products to fit personalized diets and ignore the backdrop of confusion about what real milk and dairy are?

The first rule of marketing 101 is that ambiguous messages don’t work. They leave the impression that there’s nothing special about one choice over another.

But that’s the point for the multinational global corporations, some of which make up the pre-competitive work of DMI’s Innovation Center for U.S. Dairy.

They call it innovation, but it is really subjugation – the act of bringing farmers and consumers under domination and control.

They are asking dairy farmers to give away our precious wholesome true message about milk – especially whole milk — so that processors can mix and match protein sources as they see fit.

Of course, they tell us this is for sustainability’s sake and for saving the planet by keeping diets within planetary boundaries, but we all know the score: It’s about corporate profits and control of food… and land.

We knew that already, didn’t we? The dairy transformation strategy is to be the protein that processors choose to include by being the low-cost producer. 

DMI isn’t interested in promoting whole milk or the nutritional value of whole milk as a superior choice. This is obvious no matter how ardently the outgoing DMI CEO Tom Gallagher repeats the mantra that DMI championed the return to full-fat dairy and whole milk. 

He said this again during the World Dairy Expo discussion when New York producer Jay Hoyt stood up to say none of this “bright” transformation future is going to matter if we can’t promote and provide cold whole milk to kids. Gallagher’s response was that no one would be talking about whole milk if DMI had not been the leader on the full-fat dairy research and whole milk message. (What did I miss?)

The transformation strategy of DMI is to be a versatile, low-cost commodity that can be separated to blend and fit and filter its way into dozens of new products, that it has 2500 metabolites that can be digitized and annotated and then selected for personalized diets offered on iphone apps, that it ‘meets Gen Z where they are’ in the immersive learning world of gaming.

This is a game for sure. But who wins?  Certainly not dairy farmers or consumers.

The transformation strategy has no place for promotion of 100% real whole milk and dairy, nor a clear message about what milk is, what it does for you. No place to remind consumers about why they love milk because they’ve helped over the past decade parrot USDA’s propaganda so that Gen Z doesn’t even know they love milk because they weren’t given whole milk – until grassroots promotion efforts started turning those tables.

If we all stand by and twiddle our thumbs — letting the global corporations make the decisions, control the narrative, bow to activist triggers, and define ‘where our consumers are’– by the time DMI and friends are done with dairy, it will be unrecognizable, without a clear message about the real milk diligently produced on our dairy farms.

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Positive insights on domestic milk promotion: ‘There’s hope. We have work to do.’

By the end of the 3-hour discussion on milk marketing and future viability of U.S. dairy farms, hosted by the American Dairy Coalition on Sept. 30, over 40 people — producers and others from east to west — had flowed into the Monona Room at World Dairy Expo and an estimated 30 people attended online.

By Sherry Bunting, Farmshine, October 8, 2021

MADISON, Wis. – A new and different – essentially vigorous — paradigm in milk marketing and promotion was the focus of an American Dairy Coalition discussion in Madison on Sept. 30th during the 54th World Dairy Expo in Madison, Wisconsin.

Bill Gutrich, senior director of food industry engagement-USA with Elanco Animal Health shared his insights and experience having spent his career in the consumer-packaged goods sector for global brands like Coca Cola, McDonalds and Samsung before coming into animal agriculture three years ago.

“We have a great product and producers do a great job, but we need to increase domestic dairy consumption, specifically,” said Gutrich to an in-person audience of over 50 people (flowing in and out of the Monona Room of the WDE Exhibition Hall). Another 30 people attending virtually online.

The ADC event attracted dairy producer thought leaders from east to west and generated follow up discussion and good questions. ADC CEO Laurie Fischer said the discussion is a starting point and hopes to see allied industries that are committed to animal agriculture join in on the bandwagon to shift the milk message, the animal protein message, in the face of the accelerated barrage of new plant-based and lab-grown lookalikes.

“We need a group such as yourselves to help us move forward,” said Fischer. “We are in this together.”

Using IRI data from DMI, Gutrich sees opportunity in targeting the largest group of most loyal customers — milk-only households — along with the next largest sector of households with both milk and alternatives to remind them why they love milk. ‘Own the why’ instead of getting caught up in the ‘hows’ and ‘whats’ and processes and blends that respond to criticisms from the smallest and least loyal subsets of consumers. 

One statistic Gutrich shared that was quite revealing is that 51% of total sales in the milk section are fluid milk, but only 33% of the retail milk space is devoted to milk. On the other hand, he said, 9% of total sales in the milk section are plant-based non-dairy alternatives, but almost twice the space — 17% of the milk space is devoted to non-dairy alternatives because there are so many varieties.

With so many different brands and variations of non-dairy alternative products coming onto the market and ramping up rapidly, this supply chain effort is essentially crowding out real milk in a manner that is not consistent with true consumer demand.

Likewise, the anti-animal activists are small in number but loud in advocacy. In effect, the gap between perception and reality on messaging as well as shelf-space vs. sales is that smaller sales, smaller numbers flood milk’s space and take positive attention away from milk, but this is not necessarily by consumer choice.

If Gutrich had a magic wand, he’d likely look to make milk competitive in the total beverage market, to reframe the competition and look at milk’s share of all drinks instead of share of the milk aisle. For example, consumers love cold whole milk, so if the message puts that first, then already it is connecting with the most loyal sets of consumers and connecting to their ‘why’ to build growth from that solid point.

When innovation focuses mostly on sustainability, then fewer resources are devoted to getting the message right in connecting with what consumers want.

Bill Gutrich, senior director of food industry engagement for Elanco Animal Health had a positive and hopeful message about focusing on domestic consumption and shifting the milk message to “inspire consumer loyalty to animal protein.”

Gutrich’s insights and discussion are consistent with his role with Elanco engaging the food industry and connecting the food chain. He talks to companies and purveyors, and from those conversations, it’s clear, he said, the people attacking animal agriculture are from the outside, pushing in. They don’t want animal ag to exist, but these are not the people we need to connect with to build loyalty to animal protein.

As the son of a police officer, Gutrich said his personal mission is to elevate the level of respect people have for farmers, much like the efforts elevating respect for our country’s veterans and law enforcement.

He said it comes down to “inspiring consumer loyalty to animal protein.”

Having worked around talented marketers outside of animal agriculture, Gutrich said he has come into the animal protein sector seeing “how we market our beautiful, incredible products to consumers.

“Every dollar starts in the hand of a consumer over the counter,” he said, describing how good marketing starts with the ‘why’, not the ‘what’ and the ‘how.’

“What are the emotional needs you need to connect with?” he wondered aloud. “They will buy the why.”

Using a borrowed analogy of the Craftsman drill, he said the ‘what’ is the buyer wants a hole. The ‘how’ is the drill. But the ‘why’ is they want to do it themselves.

The ‘why’ is what wins customer loyalty and offers the potential for a premium, Gutrich explained, noting that the key is to identify the ‘why’ and attribute it, and then “own it. That’s what great brands do.”

For Starbucks, the ‘why’ is the whole coffee-drinking experience. For Mountain Dew it is the ‘energy.’

In the dairy sector, Gutrich gave the example of Sargento Cheese, where the ‘why’ is ‘The Real Cheese People.’

“What did Kraft do?” he asked. “They labeled their cheese ‘made without hormones.’ What does that have to do with my ‘why’?”

These types of labels introduce something scary to consumers, and it has been proven in surveys and market research that these claims have little to do with their ‘why.’

“What this actually does is undermine their trust in the brand and the category,” said Gutrich, “and in the long run it’s bad for both. People want to think about serving a rich protein food, and we’re talking to them about hormones.”

Good marketing talks about consumers. Bad marketing talks about products and processes, according to Gutrich.

“Loyalty is a feeling,” he said, explaining a successful strategy communicates with consumers about the why, not so much about the process, the sustainability. Yes, sustainability and processes need to be handled, but that’s not connecting with consumers on an emotional level about their ‘why.’

“Own your consumer’s ‘why’, don’t let your critics determine your ‘why,’” he said. “All great brands have critics, but they handle the criticism separately, and keep marketing to why people love them.”

Gutrich gave some vivid emotional-connection examples: “Don’t you love how butter melts on your raisin toast or your cold milk on your cereal?”

In another non-ag example, he showed how Michelin tires own the safety-why, Goodyear owns performance. They keep their whole message consistently on their consumers’ ‘why.’

“Protein is hot,” said Gutrich. “Why aren’t we owning protein?”

The peanut butter brands own protein, and people believe peanut butter to be higher in protein than it is.

“We own protein,” said Gutrich about animal agriculture. “But instead of owning it, we create confusing talking points about the ‘whats’ and the ‘hows’ instead of owning the ‘whys.’”

Gutrich noted that supermarket scanner data show how consumers vote with their dollars, but when producers are told that they must ‘own’ sustainability because 85% of consumers want to see it and want to prioritize climate impact in their food choices, the question becomes, how were those questions asked?

When consumers are questioned with an ‘aided awareness’ style of questioning, of course they will say yes. But that percentage drops to 9% when the question does not include ‘aided awareness.’

Among consumers under 23, the Generation Z, Gutrich shared surveys showing this generation to have a higher overall level of brand loyalty (68%) compared with millennials (40%).

“There’s hope,” said Gutrich.

On fluid milk sales, specifically, he observed the well-known saga of sales decline over time, and the steep decline since 2000, but he has a different perspective on it.

“The dairy industry did this to themselves with over 10 years of ‘buy my milk with no hormones,’” he said. “Instead of focusing on your consumer’s ‘why’, the industry opened this chasm of 13% for milk alternatives to climb in.”

He analyzed domestic consumption figures from 1950 to the present, noting that domestic consumption is the issue, and it’s where the focus most likely should be. When domestic consumption growth is put beside U.S. population growth, the sales growth ultimately shows that dairy has “lost its share of stomach.” This is looking at domestic data only, excluding export sales.

“Ultimately, this means we have work to do,” said Gutrich. “How do we get back to the 1950s?”

Well, there’s no time-machine; however, he had a positive message about this, stressing that the non-dairy alternatives “are not going to take us down. Milk is in almost 95% of households. Let’s worry about our own sales growth and not worry about the alternatives.”

Breaking out the percentages, Gutrich showed that 94% of households include milk, 42% have both milk and alternatives, 3% are exclusively plant-based, and 52% are exclusively milk.

A successful brand would look at that breakdown and say: “We want to grow our loyal customers and go after the people that are closer to the ones that love milk. We want to remind them why they love milk so much.”

But instead, there are all of these triggers in the way and all of these other conversations that move the message away from the consumer’s ‘why,’ – away from the ‘why’ of the loyal or closest to loyal consumers fluid milk can build from.

“If we can continue to do better on these triggers like animal welfare, environment, carbon footprint, that’s fine, but we make it worse by talking a lot about it,” he said. “Get the marketing right. It’s about balance. The packaging dynamics are also amazingly important.”

To be continued



Senate Ag subcommittee hearing on milk pricing: Agreement that Federal Orders need reform, but how? That’s the billion-dollar question

By Sherry Bunting

WASHINGTON, D.C. — Federal Milk Marketing Orders, their purpose, performance, problems and solutions — including a recent change in the Class I fluid milk pricing formula — were the focus of a Senate Ag subcommittee hearing on ‘Milk Pricing: Areas of Improvement and Reform” Wednesday, Sept. 15 in the Capitol.

“We are in the midst of a modern dairy crisis, magnified by a Class I pricing change in the 2018 Farm Bill. The pandemic and economic downturn are not the only causes of this problem, but they did exacerbate it. This system cannot adapt to market conditions and thus is not fairly compensating our dairy farmers. The formula change is a symptom of larger problems in a system that is confusing, convoluted and difficult to understand,” said Gillibrand Wednesday.

She recounted the more than $750 million in producer losses when looking at the previous Class I fluid milk ‘mover’ formula that used the higher of Class III or IV manufacturing milk prices and comparing it to the current formula that uses an averaging method plus 74 cents.

The hearing was a first step Sen. Gillibrand had previously indicated in a press conference last June, when the full extent of dairy farmer financial losses was becoming known.

As the hearing got underway, Gillibrand observed that from 2003 to 2020 there has been a 55% decrease in the number of dairy farms in the U.S.

“We are using an almost 100-year-old system with the last reform 20 years ago, where dairy farms are not operating as they were then. We need to put the power back in the farmers’ hands.” said Gillibrand.

The power to make the issues known was in the hands of three dairy farmers making up the first panel — Jim Davenport, Tollgate Farm, Ancramdale, New York; Christina Zuiderveen, Black Soil Dairy, Granville, Iowa, and Mike Ferguson of Ferguson Dairy Farm, Senatobia, Mississippi.

This was followed by a panel with Dr. Chris Wolf, ag economics professor at Cornell University, Dr. Robert Wills, president of Cedar Grove Cheese and Clock Shadow Creamery, Plain, Wisconsin, and Catherine de Ronde, vice president of economics and legislative affairs with Agri-Mark cooperative based in Massachusetts with members in New England and New York.

One thing everyone agreed on, in differing degrees, is that reforms are needed in the Federal Milk Marketing Order System.

Testifiers agreed that a key purpose of the FMMOs is to make blended payments more equitable between producers supplying different classes and uses of milk.

All three producers agreed the FMMO system should continue, although they shared differing ideas about how reforms could improve it.

There was also agreement that the new Class I ‘mover’ formula is not adequate for changing and uncertain markets. They agreed that using the USDA rulemaking process is the way to make such changes to be sure all parties are heard.

However, the current change in the Class I ‘mover’, implemented in May 2019, was made legislatively during the 2018 Farm Bill, not through the USDA hearing process.

Ferguson, a 150-cow dairy producer in Mississippi said he supported bringing back the previous ‘higher of’ method while a longer-term solution can be considered through the USDA hearing process. He noted periodic reviews of the adjuster could also be helpful, and that the situation should be addressed in the short term.

He explained that the Southeast producers across FMMOs 5, 6 and 7, produce about 45% of the annual fluid milk needs of their growing population, and when supplemental milk has to be brought in, those Southeast producers pay the price to get it there. That was very difficult and costly when class pricing inversions happened last year for a prolonged period of time.

Davenport, milking 64 cows in New York observed that the Class I price was aligning better in the past few months, but “we’re not out of the woods yet,” on Covid-19, he said.

“The FMMO system has served farmers well but needs adjusted to reflect current product mixes and market swings,” said Davenport, adding that the fluid market is very important for smaller sized dairies and regional supply systems. He proffered the hope that Class I, long-term, could be stabilized by basing it on something other than the volatility of cheese, butter and powder prices.

“The rulemaking process USDA uses will work, it just takes time,” he said, adding that the Class I price should reflect how hard it is to supply the fluid market.

Zuiderveen, whose family has dairies totaling 15,000 cows in Iowa and South Dakota, said FMMO pricing for milk of the same quality should align and foster innovation and competition instead of consolidation. It should also be transparent and promote a nimble industry that can respond to changes, she said.

“Distortions can cause the system to become unglued,” she said, noting that if producers can’t anticipate which classes will participate in the pool and don’t know how that will drive their milk price, then they can’t manage their price risk effectively, losses become compounded, and this discourages risk management.

Zuiderveen and others noted a variance as wide as $9 per hundredweight was experienced in mailbox milk prices from region to region and neighbor to neighbor at intervals last year.

“That creates a sense of helplessness among producers,” said Zuiderveen.

Dr. Wolf noted multiple reasons for the negative PPDs and milk check losses under the new formula, including declining Class I fluid milk sales and increased milk components, but said the two biggest reasons for milk check losses under the new formula compared with the old formula were the large volumes of de-pooled milk that reduced FMMO pool funds as well as the Class I change itself.

Wolf explained multiple factors in the wide divergence between Class III and IV. A primary one was government purchases being tilted to cheese during that time. “This large divergence in butter and cheese prices meant that the Class I milk prices were lower than they would have been under the former pricing rule,” he said.

Ferguson noted that the government cheese purchases were intended to support dairy producers as well as the public during the pandemic, but it ended up having a “devastating effect on our fluid market,” he said, noting that a more balanced approach may have helped.

Through difficult times in the past, price alignments were more stable in large part because of the ‘higher of’ method keeping the Class I price above the blended price so no matter what was purchased, all farmers, supplying all classes of products, benefited more equitably.

Under the current formula, the pandemic cheese purchases helped support dairy producers, but also led to distortions that contributed to large differences in milk prices at the farm level.

Dr. Wills was the only processor testifying. He said the survival of dairy depends on being able to evolve on these pricing issues. “Farmers are only better off if the premium (shared in the FMMO pools) exceeds the value of other classes, and that’s inefficient,” he said, adding his opinion that FMMOs have outlived their purpose.

“The redistribution makes it appear that all farmers are winners, when the evidence shows pricing equity is being lowered,” said Wills. “I fear for the future of the dairy industry. The federally administrated milk pricing now functions opposite of its intent, resulting in higher prices for consumers and lower prices for farmers. It responds slowly, encourages inefficient trucking and promotes consolidation.”

Wills also mentioned the wave of competition from an array of plant-based and blended products as well as cellular agriculture and bio-engineered analog proteins, none of which are included in the FMMO pricing structure.

Wills brought home the reality for rural communities when small and mid-sized farms are lost. Near the end of the hearing, he responded to a question from Senator Roger Marshall (R-Kansas) asking what are his farmers’ biggest concerns, what do they talk about when he sits down with them for coffee at a restaurant?

“My farmers tend to be smaller producers,” said Wills, president of two Wisconsin cheese companies supplied by 28 dairy farms. “They are concerned about having continued access to markets as the industry continues to consolidate. Even in Wisconsin, where we have more competition than most places, it is hard to find homes for those dairies that are cut loose from big plants.”

As consolidation accelerates, he said, there is a trend toward plants not wanting to make multiple stops. “The impact of losing all of those producers … that 10% per year loss (over time) just hollows out our communities. There’s not a restaurant in town anymore to have coffee at,” said Wills. “We lost our hardware store, our grocery store. A lot of it has to do with our rural communities being hollowed out. The ability to maintain those small farms is also important for our communities.”

On program safety nets and risk management tools, Dr. Wolf noted that the Dairy Margin Coverage program has a very positive impact on small producers vs. large producers, and that the Dairy Revenue Protection and Livestock Gross Margin are aimed at bigger farms. He said farms with those programs in place were “in a better place” last year.

However, elsewhere in his testimony and in that of others, the risk management difficulties during the unusual price inversions were also mentioned, when the Class I pricing change was exacerbated by pandemic disruptions creating those misaligned conditions.

As for simply nationalizing the FMMO pooling rules or making them more rigid, Zuiderveen said this would lead to more processors staying out of the pool, and Wills said de-pooling is the pressure relief valve processors need.

With a nod to pricing delays that affect the transparency in sending market signals through the FMMO system, Wills said he found out that week (Sept. 13) what he will be paying for the milk he bought on August 1, and his producers who sold that milk to him were also just finding out what they would be paid. That’s six weeks after shipping the milk.

Wills said this kind of inefficiency makes it difficult to plan and compete in business.

Another positive to come out of the hearing was when Davenport brought up legalizing whole milk in schools, to which Chairwoman Gillibrand, Senator Marshall, a doctor, and a few other members of the Senate Subcommittee gave hearty verbal support.  

Here is the link to the recorded Senate Ag subcommittee hearing https://www.agriculture.senate.gov/hearings/milk-pricing-areas-for-improvement-and-reform

Look for more in a future Farmshine.

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Danone’s Horizon confirms it will drop its 89 Northeast organic dairies (ME, VT, NH, part of NY)

By Sherry Bunting, Farmshine, August 27,2021

DEERFIELD, Mass. — Danone confirmed it will drop 89 Northeast Horizon Organic dairy farms by this time next year. The global corporation headquartered in France had purchased WhiteWave — including Silk plant-based and Horizon Organic milk — from the former Dean Foods five years ago.

Receiving the letters in late August are the Horizon Organic family dairy farms in Maine (14), Vermont (28), Washington County, New York (17) and the balance located in New Hampshire as well as Clinton, Franklin, and Saint Lawrence counties, New York.

Producers in the affected Northeast region say they saw this coming, but no one expected it to be this fast and this impactful in a region such as the Northeast where the organic milk market has had a long and growing following among consumers and some of the first organic transitions were with Horizon more than two decades ago.

Organic producers in the region also say the commoditization of their product faces the same consolidation trends as conventional dairy farms, in part due to the inconsistent interpretation of organic standards by certifiers and the delayed publishing and enforcement of certain rules by USDA.

Vermont’s Agency of Agriculture, Food and Markets, as well as Senator Patrick Leahy are looking into the situation. Maine’s Governor Janet Mills and Ag Commissioner Amanda Beal also announced state support for these farms and the state’s overall dairy industry through a stakeholders working group with short- and long-term strategies.

For its part, Danone is unequivocal in saying it is focusing on buying milk from new partners that ‘fit’ its ‘processing footprint.’

“Danone is offering a 180-day notice, or farms can sign onto a one-year contract with no contract option after that. Apparently, the farmers who contract for the year can leave with 30 days’ notice if they find another market,” writes Edward Maltby, executive director of NODPA in a bulletin as the news broke August 22.

That’s a big IF.

Other of the region’s organic processors are not known to have much extra capacity to pick up new organic milk shippers. Even conventional milk buyers are mostly not taking on new dairy shippers with several still enforcing base programs and penalties on existing shippers in the Northeast. (However, during the second half of August into September, overall milk supply in the Northeast and Midatlantic has been reported by USDA Dairy Market News as “extremely tight.”)

Maltby notes that this round of contract terminations are mainly in New England and do not extend past four counties in New York (extreme northern and eastern New York) and do not include Pennsylvania. He and other sources indicate Danone is setting an arbitrary line for milk to come from farms within a 300-mile radius of the plants that process it, so as they shift their manufacturing footprint, the farm footprint incrementally shifts as well.

Is this the future of unsustainable ‘sustainability’?

Month after month, the Northeast Federal Milk Marketing Order statistical bulletin shows handlers bringing in milk — including and especially organic milk — to FMMO 1 from the Midwest and Southwest United States. In fact, large quantities of conventional and especially organic milk come into the Northeast in tankers and packages every month from as far away as Texas and Colorado.

Danone issued an emailed statement to NODPA late Tuesday (Aug. 24) that confirmed the rumors and the numbers.

“We greatly value our relationships with our farming partners and did not make this decision lightly. Growing transportation and operational challenges in the dairy industry, particularly in the northeast, led to this difficult decision. Eighty-nine producers across the northeast received this non-renewal notice. To help facilitate a smooth transition, we are offering each producer the opportunity to enter into a new agreement for us to purchase their milk until August 31, 2022 to provide additional time and support,” Danone stated in an email response to NODPA.

“We will be supporting new partners that better align with our manufacturing footprint,” the company statement continued. “We are committed to continuing to support organic dairy in the east, and in the last 12 months alone, we have on boarded more than 50 producers new to Horizon Organic that better fit our manufacturing footprint. This decision will help us continue providing our consumers with the products they love.”

Danone’s statement indicates it is still committed to organic dairy in the East; however, on July 29th, during its earnings call with investors, Danone announced its plans to offer new versions of its FAKE-milk brands with what they say will be “improved taste and texture” later this year (2021).

Furthermore, Danone built the nation’s largest fake-dairy plant in Dubois, Pennsylvania, where it makes plant-based non-dairy substances marketed as “yogurt,” certain soft cheese lookalikes and, yes, fake-milk beverages will be produced there also.

When the fake-dairy plant opened in Pennsylvania in February 2019, Danone officials linked it to their global goal “to triple our plant-based business by 2025.”

Toward that end, during Danone’s July 2021 earnings call, Shane Grant, co-chief executive officer of Danone and CEO of the North America division, said: “The opportunity we see is really the challenge of that (plant-based) convention. We know that in key plant-based markets like the U.S., 60% of consumers are not in the (milk) category. We know the barrier is primarily product taste and texture. We will launch against this opportunity new dairy-like technology under Silk NextMilk, under So Delicious Wondermilk and under Alpro Not Milk.”

Danone also reported to investors its net income jumped 5% in the first half of 2021.

NODPA’s Maltby observed in a Farmshine interview this week that the discriminating higher-price-point consumer of organic milk is a prime target for imitation brands. He noted that organic milk has been “very price stable” on the retail shelf at $4 per half-gallon for the past decade.

“Even now, at a $27 to $29 pay price for (organic) producers versus a prior pay price of $35 or $36, the retail price has remained the same, indicating some room for growth,” said Maltby.

In fact, organic milk sales volume has been inching higher over the past few years, and during the Coronavirus pandemic, when all whole milk sales grew dramatically, organic whole milk sales volume grew by an even higher percentage in volume gains. Plant-based imitations grew on a dollar sales basis although volume is not tracked by USDA the way real fluid dairy milk sales are tracked by volume. Sales growth in plant-based imitations are also a function of the increasing price point, not so much reflective of volume.

Fake-dairy doesn’t offer the nutritional standing of real dairy products, but consumers are duped by advertising campaigns (especially Danone’s Silk commercials on television) into believing real and fake milk are interchangeable in their diets. 

Consumers are also being fed a steady diet of ‘save the planet’ rhetoric centered on plant-based and lab-cultured ‘alternatives’ thanks to regurgitated myths that do not tell the whole story about ruminant cows.

Danone has set a goal to be what it calls “the first carbon-positive dairy brand” by 2025. This includes its Horizon Organic brand. In a March 2020 Marketwatch report, Horizon was ranked as the world’s largest USDA certified organic dairy brand. A few months ago in April 2021, Danone released a report showing that its Horizon brand derived 18% of its carbon footprint from cow manure management, 14% from animal feed, and 9% from keeping milk cold in refrigerators. (That’s less than half, what is the rest?)

As dairy processing innovations continue to lengthen plant code to 30 to 40 days, and beyond, the processing trend in the fluid milk category – organic and conventional – is toward ultra high temperature (UHT) pasteurization and extended shelf life (ESL) aseptic packaging for extended warehousing, longer-distance transportation, and larger global circles of distribution where regional supply chains with fresher products will need to find ways to differentiate themselves.

Meanwhile, notes Maltby, it’s the total effect that consumers aren’t realizing because it’s not broadcast in advertising or on labels. The whole package, total effect of real dairy sales includes better nutrition, along with the components dairy farmers bring to their rural communities in terms of economic support and true environmental leadership.

“You don’t see this many organic farms dumped in a year. It’s unusual. This will have a dramatic effect on our rural communities and environment,” said Maltby.

In 2018-19 Danone began dropping organic dairies milking fewer than 500 cows in the western states, coming back to those farms offering conventional contracts using their proprietary “cost-plus” pricing method.

During a 2019 Western Organic Dairy Producers Alliance (WODPA) meeting in Nevada, some of those affected producers shared this news and blamed inconsistent enforcement of USDA organic rules on access to pasture, percentage of dry matter intake from grazing and other production standards. 

Maltby noted that NODPA and other organic dairy organizations are advocating with USDA and their members in Congress to ensure the Origin of Livestock rule for organic certification is strong “to not allow transitioned animals to retain their organic certification for milk when transferred or sold.”

Maltby observed that USDA and certifiers have “created an un-level playing field with their failure to publish this regulation over the past decade.”

He says NODPA and other organic groups also seek better enforcement of organic production standards, explaining that some certifiers “are still not interpreting or enforcing the access to pasture regulation in their definition of the grazing season.”

NODPA is urging anyone with influence within the CROPP Cooperative and Lactalis/ Stonyfield, to encourage them to enter into discussion with the Northeast organic dairy community about ways to move forward.

“A year is a very short time,” said Maltby.

A boycott of Danone products is also mentioned in the bulletin at the NODPA website.

“We hope to direct people away from thinking too narrowly about Horizon and consider boycotting the Danone (Dannon) products instead, to raise the issue with some leverage for these family farms,” he said. “Danone obviously believes it has adequate supply in other areas of the U.S., at a lower cost and from larger operations, that make their trucking logistics cheaper and easier.”

While dairy producers pay the cost to transport their milk from farm to processing, the milk produced in the Northeast is considered higher-priced at the farm level in part because of the FMMO structure but also because the Northeast lacks capacity for “balancing” the organic fluid milk market with processing assets to take milk for Class III and IV products when Class I sales and processing ebb and flow seasonally.

In addition, more organic feeds are produced in the western U.S. and Canada, and there is a transportation component to that scenario from a carbon footprint modeling aspect that becomes a wash when they just bring the milk to the Northeast from elsewhere instead of inputs for cattle on Northeast farms.

The costs of assembling milk from multiple small farms in a region, including field inspections and interactions, is also considered a cost the global Danone company would like to control by sourcing from fewer and larger “new partners”.

However, remembering the food disruptions, waste, and shortages during the pandemic, especially from the centralized models of the meat and poultry industries, Maltby notes that, “If this is the cost of maintaining farms in our region, in our economies and our communities, isn’t that (food security) something for companies like Danone to consider?”   

Bottom line, Danone appears to be looking to control the criteria of its environmental claims so that other companies can’t mimic them. The company is reportedly looking to build a “Regenerative Organic” certification to differentiate its products in the marketplace and capitalize on buzz terms in the climate discussion.

Meanwhile, current USDA-certified organic dairy producers, especially small and mid-sized family farms, feel abandoned in that conversation because they say they don’t see USDA defending what already are the organic standards and regulations, allowing two things to happen simultaneously – the dilution of standards commoditizing their product in the sourcing by companies like Danone, which then turn right around to reinvent real and fake dairy niche differentiation with new partners.

Stay tuned for updates in Farmshine and at the NODPA website

Consumers continued shift to higher-fat milk in 2020, used 1.3% more fat vs. 2019

By Sherry Bunting

Fluid milk sales in 2020 were essentially unchanged from 2019, although 2020 had an extra day as a leap year, according to USDA data released this week.

Whole milk sales were the largest category of fluid milk sales in 2020 for the third consecutive year since surpassing 2% milk sales volume for the first time in decades in 2018. Compared with 2019 volumes, whole milk sales in 2020 were up 3.2% at 16.6 billion pounds, according to the annual USDA ERS report released Tuesday, Aug. 31.

At 15.8 billion pounds, 2% milk was the second highest volume category, up 3.5% from 2019. This marked the first year over year increase in 2% milk sales since 2010.

Sales of 1% low-fat milk fell 4.3% in 2020 to 5.8 billion pounds while fat-free sales volume fell 13.4% to 3 billion pounds, less than half of what it was in 2010.

Over the past three years, sales of flavored whole milk had been increasing annually back to levels seen in 2005, but dipped 2% lower than 2019 during 2020 at 765 million pounds.

Some this could be attributed to consumer purchase patterns, but also is a function of what processors and retailers choose to make and offer.

In the flavored milk category other than whole, sales volume was 2.9 billion pounds, down a whopping 33.3% — a combination of virtual schooling, reduced institutional feeding, consumers mixing their own at home, and other potential pandemic-related reasons.
In general, the overall trends held in 2020 as consumers continued showing their preference for milk with more fat. Egg nog sales, incidentally, were up a whopping 8.5% on a volume basis.

Some in the industry have said to me that if schoolchildren are provided with the choice of whole milk, there won’t be enough cream for all of the other products the dairy industry makes.

That doesn’t make sense. Taken together, the USDA ERS annual milk sales breakdown showed the continued consumer shifts to higher-fat fluid milk products increased cream usage by 1.3% overall in 2020 vs. 2019.

Despite this shift to more fluid category use of cream, the availability of cream last year dragged down milk prices, pushed butter churns, and contributed to the price divergences.

Producers made more butterfat than the market used, and the industry also imported record levels of butterfat in the March through August 2020 time frame and near record levels for the 12-month year on the whole.

Reports this week (Sept. 1, 2021) indicate this butter inventory built up in 2020, and the current steady production, will control butter prices that have been rising the past few weeks.
Butter inventory keeps milk price in check… mate.

The breakdown of all dairy product usage for 2020 will be released by USDA ERS on September 30.

USDA moves forward with $350 mil. for dairy producers targeted to Jul-Dec 2020 FMMO Class I ‘mover’ losses

Eligible producers to be paid by agreements with milk handlers, co-ops

By Sherry Bunting, Farmshine, August 27, 2021

WASHINGTON, D.C. — According to USDA, milk handlers and cooperatives were contacted Aug. 23-27 about entering into signed agreements to distribute the approximately $350 million in Pandemic Dairy Market Volatility Assistance payments the agency announced on Aug. 19.

The agreements will be to disburse funds to their qualifying producers and provide them with education on a variety of dairy-related topics.

Handlers and cooperatives have until Sept. 10, 2021 to indicate to USDA their intention to participate. USDA will then distribute the payments to participating handlers within 60 days of entering into an agreement. Once payment is received, a handler will have 30 days to distribute monies to qualifying dairy farmers.

These funds will be disbursed to “eligible” dairy farmers through “eligible” Federal Milk Marketing Order (FMMO) independent milk handlers and cooperatives, not through FSA. There will be no signups for this program, and payment rates have not been published.

What is unique about the volatility payments is they will be producer-specific and targeted based on FMMO records and agreements with milk handlers to be the payment conduit.

USDA indicates this program is a “first step” and is aimed at compensating producers for volatility and federal pricing policy changes. The payments will cover 80% of the calculated lost value on Class I fluid milk pounds for July through December 2020.

This language suggests the payments will be limited to producers whose milk was pooled on FMMOs during those six months.

One point of contention with the “volatility assistance” is that the eligible producers will be limited to payments associated with up to 5 million pounds of annual production — even though farms of all sizes incurred these losses due to a combination of pandemic volatility and federal pricing policy changes. The Adjusted Gross Income verification will also be required, like for the prior administration’s CFAP payments.

A special webpage at the USDA AMS Dairy Programs website has been created where more details were provided this week. Officials responding to Farmshine questions said this webpage will be updated on an ongoing basis with more details as they become available. The webpage link is https://www.ams.usda.gov/services/pandemic-market-volatility-assistance-program

A brochure is also available at https://www.ams.usda.gov/sites/default/files/media/PandemicAssistanceMarketVolatilityBrochure.pdf

The actual cumulative net Class I value losses to dairy producers over a longer 27-month period (May 2019 through July 2021) were more than twice the amount of the program, pegged at over $750 million.

During the six months covered by the volatility assistance program – July through December 2020 – the difference between Class III and IV milk prices was $5 to $10 per hundredweight. Further amplifying the impact of this volatility on producer blend prices was the 2018 Farm Bill change (implemented May 2019) to use an averaging method instead of the previous ‘higher of’ Class III or IV skim prices to set the Class I ‘mover.’

This change also led to massive de-pooling and severely negative producer price differentials (PPDs) for most of the past 27 months. Even in some of the positive PPD months, the PPDs were smaller than normal, representing lost value to producers in excess of $3 billion.

In disbursing these volatility assistance payments, milk handlers and cooperatives will be reimbursed for limited administrative and educational costs, according to the USDA brochure.

The education piece stipulates that each participating handler or cooperative “will provide educational materials to all producers by March 1, 2022. The USDA brochure indicates that they may provide the education in the form of mailings, recorded online trainings, live virtual webinars, and/or in-person meetings.”

This education revolves around federal dairy programs, according to USDA. Example topics are Federal Milk Marketing Orders; Dairy Margin Coverage, Dairy Revenue Protection, Dairy Mandatory Price Reporting, Chicago Mercantile Exchange, and Forward Contracting.

USDA will make these education materials available, or the participating handlers and cooperatives may use their own educational materials or training.

Each participating handler will have to verify how many producers were provided with the information and the methods that were used for the education.

The Pandemic Dairy Market Volatility Assistance Program was announced during meetings with farmers and a tour of farms with Senator Patrick Leahy in Vermont last Thursday. Back in June, Agriculture Secretary Tom Vilsack had committed to provide additional pandemic assistance for dairy farmers in an exchange with Sen. Leahy during an Appropriations hearing.

“This (program) is another component of our ongoing effort to get aid to producers who have been left behind and build on our progress towards economic recovery,” said Vilsack. “This targeted assistance is the first step in USDA’s comprehensive approach that will total over $2 billion to help the dairy industry recover from the pandemic and be more resilient to future challenges for generations to come.”

In a press statement this week, NMPF president and CEO Jim Mulhern stated that the $350 million only compensates for some of the damage resulting from the pandemic.

“NMPF asked the department to reimburse dairy farmers for unanticipated losses created during the COVID-19 pandemic by a change to the Class I fluid milk price mover formula that was exacerbated by the government’s pandemic dairy purchases last year,” said Mulhern. “When Congress changed the previous Class I mover, it was never intended to hurt producers. In fact, the new mover was envisioned to be revenue-neutral when it was adopted in the 2018 Farm Bill. However, the government’s COVID-19 response created unprecedented price volatility in milk and dairy-product markets that produced disorderly fluid milk marketing conditions that so far have cost dairy farmers nationwide more than $750 million from what they would have been paid under the previous system.”

NMPF and IDFA suggested and agreed to the Class I pricing change during 2018 Farm Bill negotiations, and no hearings were held before the FMMO method for calculating the ‘mover’ was implemented in May 2019.

Mulhern went on to say that the arbitrary low limits on covered milk production volume mean many family dairy farms will only receive a portion of the losses they incurred on their production last year.

“Disaster aid should not include limits that prevent thousands of dairy farmers from being meaningfully compensated for unintended, extraordinary losses,” Mulhern said, adding that NMPF is “continuing discussions about the current Class I mover to prevent a repeat of this problem.”

For its part, the American Dairy Coalition has been facilitating nationwide discussions with other dairy groups on the dairy pricing, de-pooling, negative PPD losses and risk management impacts since last winter, including a letter signed by hundreds of dairy producers and organizations sent last spring to NMPF and IDFA seeking a seat at the table on solutions for the concerns about the Class I ‘mover’ change and supporting a temporary return to ‘the higher of’ until other methods can be appropriately vetted with a hearing process.

ADC’s nationwide discussions brought attention to this issue and contributed to Senator Kirsten Gillibrand and 20 other U.S. Senators sending a letter to Agriculture Secretary Tom Vilsack seeking financial assistance for dairy farmers for these milk price value losses. A dairy situation hearing is anticipated in the Senate Subcommittee on Dairy, Livestock and Poultry that is chaired by Sen. Gillibrand.

— The Aug. 19 Class I volatility program announcement also mentioned $400 million for the Dairy Donation Program. The DDP implementation process was announced Aug. 25.

— In addition, USDA announced on Aug. 19 an estimated $580 million in Supplemental Dairy Margin Coverage (DMC) to allow “modest increases” in the production history of enrolled dairy producers up to the 5 million pound annual production cap for Tier One coverage. Specific details for adjusting DMC production history have not yet been provided.

— Additionally, USDA announced the inclusion of premium alfalfa prices in the calculation of the feed cost portion of the DMC margin.

-30-

‘Carbon-negative milk?’ Northeast, Southeast milksheds can already claim it

EDITORIAL – OPINION

By Sherry Bunting, Farmshine, July 16, 2021

Farmshine readers will recall coverage of the U.S. Senate Ag Committee’s climate hearing in 2019, when Tom Vilsack, then president and CEO of U.S. Dairy Export Council, lobbied the Senate for climate-pilot-farm-funding. Remember, he announced DMI’s Net Zero Initiative at that hearing – five months ahead of its formal unveiling.

In that same June 2019 hearing, animal scientist and greenhouse gas emissions expert Dr. Frank Mitloehner of University of California-Davis explained the methane / CO2 ‘biogenic’ cycle of cows. 

He said that no new methane is produced when cow numbers are “constant” in an area because methane is short-lived and converts to CO2 in 10 years time, which is then used by plants, cows eat the plants, and the cycle repeats. 

Dr. Mitloehner also said that this cycle changes when cattle concentrations move from one area to another.

Nationally, dairy cow numbers are rising after decades of declining. However, in the Northeast and Southeast milksheds, cow numbers are declining — and by a wide margin. 

This should indicate net methane reductions in the biogenic cycle or negative carbon milk for the fluid milk regions of the Northeast and Southeast.

As USDA and the industry coalesce around DMI’s unified approach through the Net Zero Initiative and the work of DMI’s Dairy Scale for Good with partner WWF — stating large integrators can be net zero in five years to spread their climate ‘achievements’ across the footprint of all milk in the dairy supply chain — I have to wonder what this means for the areas of the country beyond the ‘chosen’ growth areas.*(see footnote at the end)* 

Looking at the work of DMI’s Innovation Center and it’s fluid milk revitalization committee, sponsoring the launches of various diluted dairy-‘based’ beverages, something occurred to me from a marketing standpoint.

Here is a thought that could be helpful in the future for whole fluid milk bottled regionally to compete with emerging climate claims of dairy-‘based’ beverages that are made with ultrafiltered solids shipped by centralized cheese and ingredient facilities (without the water) to be reconstituted as mixtures with plant-based alternative beverages for population centers on the coasts.

The milk produced and bottled in the Northeast and Southeast milksheds is not just carbon neutral, it’s already carbon negative, producing not just no new methane, but less than prior-decades’ methane.

Bear in mind, these new dairy-‘based’ — blended — beverages are NOT Class I products. I have been informed that the 50/50 blends, for example, do not meet the standard of identity for milk, nor do they meet the milk solids profile that requires Class I pricing. This means that even though milk is part of a fluid dairy-‘based’ beverage, it is not priced as Class I.

The milk used in these emerging products that combine ultrafiltered solids with water, additives and maybe an almond or two, fall into Class IV, some are Class III if whey protein is used. Examples include products like DFA’s Live Real Farms ‘Purely Perfect Blend‘ that arrived recently in Pennsylvania and the greater Northeast after its first test-market in Minnesota. 

Think about it. Unity is great on many levels, and is to be encouraged in an industry such as dairy, but when it comes to marketing, who is calling the shots for future viability within the DMI integration strategy, otherwise known as unity?

Pre-competitive alliances and ‘proprietary partnerships’ working on food safety are wonderful because all companies should work together on food safety. But animal care? Environment? Climate? Why not just offer quality assurance resources and pay farmers certain premiums for investing as companies would like to see and pay them for providing the consumer trust commodity — instead of implementing one-size-fits-all branches in programs like F.A.R.M.? 

These so-called voluntary programs have the power to negate contracts between milk producers and their milk buyers even though consumer trust is a marketable commodity that producers already own and are in fact giving to milk buyers, and their brands, without being compensated. 

Instead, producers are controlled by arbitrary definitions of the consumer trust commodity that the producers themselves originate. This goes for Animal Care, Worker Care, Environment, and Climate.

The pre-competitive model used in food safety is applied to all four of the above areas today. This is exactly the supply-chain model World Wildlife Fund (WWF) — DMI’s ‘sustainability partner’ — set in 2010 to “move the choices of consumers and producers” where they want them to go.

*footnote

In the 2019 Senate hearing referenced at the beginning of the above op-ed, Dr. Mitloehner stated that the mere fact there are 9 million dairy cattle today compared with 24 million in 1960 and producing three times more milk shows that dairy producers are collectively not only emitting zero new methane, they are reducing total methane as old methane and carbon are eradicated by the carbon cycle and less new replacement methane is emitted.

The problem may be this: Year-over-year cow numbers for the U.S. are creeping higher. While still much lower than four to five decades ago, the issue emerging for DMI’s Innovation Center for U.S. Dairy is how to accommodate growth of the new and consolidating dairy structures to attain the checkoff’s expanded global export goal and to accommodate massive new dual-purpose plants if dairy farms in other areas remain virtually constant in size, grow modestly, or decline at a rate slower than the ‘designated’ growth areas are growing.

DMI is at the core of this, you see, to reach it’s new collective net-zero goal, cow numbers would have to decline in one area in order to be added in another area, or they will all have to have their methane buttons turned off or the methane captured because now the emissions are being tracked in order to meet one collective “U.S. Dairy” unit goal under the DMI Innovation Center and F.A.R.M.

At that 2019 Senate hearing, Dr. Frank Mitloehner testified that dairies already create zero new methane but this can be tricky when cattle move from one area to another (as we see in the industry’s consolidation). Then we have DMI’s Dairy Scale 4 Good claiming the dairies over 3000 cows can be net-zero in 5 years and ‘spread their achievement’ over the entire milk footprint. Do we see where this is going?

Will all dairy farms have to meet criteria — set by organizations under the very umbrella of the checkoff program they must fund — to get to a ‘collective’ net-zero using the GHG calculator developed by the checkoff-funded Innovation Center in conjunction with its partner WWF (12 year MOU)? This GHG calculator has been added to the FARM program. These are the big questions.

Dairy situation analysis: What’s up with milk production?

Record high milk growth vs. record high losses, dissected

By Sherry Bunting, both parts of a two-part series in Farmshine, July 2021

The dairy industry continues to wait for USDA to provide details on three areas of dairy assistance already approved by Congress or mentioned as “on the way” by Ag Secretary Tom Vilsack.

The fly in the ointment, however, is the record-high 2021 milk production (Table 1) and accelerated growth in cow numbers (Table 2) at a pace the recent USDA World Agriculture Supply and Demand Estimates (WASDE) expect to continue into 2022.

USDA is reportedly looking at production reports — up vs. year ago by 1.9% in March, 3.5% in April, 4.6% in May — to determine how to assist without adding fuel to expansion that could threaten late 2021 milk prices in the face of rising feed costs and a worsening western drought. (The latter two challenges could temper those forecasts in future WASDEs.)

May milk production a stunner

U.S. milk production totaled 19.9 billion pounds in May. This is a whopping 4.6% increase above 2020 and 2018 and a 4.1% increase over May 2019.

Let’s look at year-to-date. For the first five months of 2021, milk totaled 96 billion pounds, up 2.3% vs. the 93.8 billion pounds for Jan-May of 2020, and it is 4.4% greater than the 91.9 billion pounds of Jan-May milk produced in pre-pandemic 2018 and 2019. Of the four years, only 2020 had the extra production day as a Leap Year.

Milk per cow was up 3% over year ago in May. Compared with 2019, output per cow is up 2.2%, according to USDA.

Cow numbers vs. 2018 tell the story

Milk cows on U.S. dairies in May 2021 totaled 9.5 million head, up 145,000 from May 2020’s 9.36 million, up 172,000 from 2019’s 9.33 million, and up 83,000 head from 2018’s 9.42 million.

Counter to the national trend, Pennsylvania had 48,000 fewer milk cows than May 2018 — dropping 30,000 into 2019; 10,000 into 2020, and 8,000 into 2021.

Elsewhere in the Northeast and Southeast milksheds, among the 24 major monthly-reported states, New York had 4000 more milk cows in May 2021 than 2018, Vermont 8000 fewer. Georgia dropped 1000, Florida 12,000, and Virginia 11,000. In the Central states, Illinois was down 10,000 head.

The total decline in cow numbers for the 24 lesser quarterly-reported states, the collective loss in cow numbers is 59,000 head from May 2018 to May 2021

Accelerated growth is coming from three key areas where major new processing assets have been built or expanded.

In the Mideast, where the new Glanbia-DFA-Select plant became fully operational in Michigan this spring, there is a net gain of 32,000 cows for 2021 vs. 2018, Ohio’s cow numbers that had been declining 2018-19, began recovering in 2020-21. Indiana had 18 months of substantial growth, and Michigan returned to its growth pattern in 2020. Taken together, the Indiana-Ohio-Michigan region had a loss of 8,000 cows heading into 2020, but gained a whopping 40,000 cows over the past year.

In the Central Plains, where new plant capacity is starting up this spring and summer — Minnesota, South Dakota and Iowa, combined, added 40,000 cows May 2018 to May 2021.

In the Southern Plains, where joint-venture processing capacity continues to grow, Texas has continued full-steam-ahead, gaining 87,000 cows from 2018 to 2021, along with 29,000 added in Colorado and 17,000 in Kansas. New Mexico regained earlier losses to be 2000-head shy of 2018.

The growth patterns in these regions somewhat mirrored dairy exits from other areas — until Jan. 2020 (Table 2). The past 17 consecutive months of year-over-year increases in cow numbers leave the U.S. herd at its largest number in 26 years (1995).

However, the assumption that ‘dairy producers are okay because the industry is expanding’ ignores several essential factors. The playing field has become more complicated and inequitable. There are four main factors at play. We’ll look at them one at a time.

Ben Butler of South Florida posted this photo that went viral on Twitter April 2, 2020 of milk being dumped in Florida because there was no home for it. A few days later, he tweeted photos of milk gallons also being donated to Palm Beach County families in need. Challenges abound in the dairy supply chain. The unofficial tally of milk dumped in the Northeast and Mid-Atlantic region the first week of April 2020 was north of 200 loads, with additional reports of 130 loads dumped in the Southeast. Meanwhile, stores were not well stocked, most were limiting purchases and foodbanks were getting more requests as over 10 million people were newly out of work.

Factor #1 — Milk dumping and base programs 

A year ago in April and May 2020 — at the height of the Coronavirus pandemic disruptions — the dairy industry saw dumping of milk, stricter base programs and bigger milk check deductions. Producers culled cows, dried cows off early, changed their feeding programs, even fed milk in dairy rations.

But milk production still grew, according to the USDA data.

Some cooperatives and milk buyers, like Land O’Lakes, had base programs already in place and triggered them. Others made changes to prior programs or implemented new ones.

Dairy Farmers of America — the nation’s largest milk cooperative, largest North American dairy processor and third-ranked globally by Rabobank — quickly implemented a new base program in May 2020, seeking 10 to 15% in production cuts from members, varying by region, with overage priced on ‘market conditions.’

It is difficult to assess the ‘equity’ in these base programs and the cross-layers among producers between and within regions, or to know how these ‘bases’ are being handled presently. When questioned, spokespersons say base decisions are set by regional boards.

Meanwhile, product inventory and pricing schemes affect all regions, and milk rides between FMMOs in tankers and packages — with ease.

According to USDA, the 11 FMMOs dumped and diverted 541 million pounds of milk pooled as ‘other use’, priced at Class IV, during the first five months of 2020, of which 350 million pounds were in April alone. This is more than three times the ‘other use’ milk reported by FMMOs during the first five months of pre-pandemic 2019 (171.4 million pounds). By June, the amounts were double previous years.

Of this, the largest amount, by far, was the 181 million pounds of ‘other use’ milk in the Northeast FMMO 1 during Jan-May 2020, comprising one-third of all the dumped and diverted milk pooled across all 11 FMMOs in that 5-month period.

In the Southeast milkshed, the Appalachian, Florida and Southeast FMMOs 5, 6 and 7, together pooled 88 million pounds of ‘other use’ milk in the first five months of 2020. The Southwest FMMO 126 had 106.2 million pounds of ‘other use’ milk; Upper Midwest FMMO 30 had 46.1 million pounds; Central FMMO 32 had 36.7 million pounds; Mideast FMMO 33 had 30.7 million pounds; California FMMO 51 had 28.9 million pounds; Arizona FMMO 131 had 21.7 million pounds; and Pacific Northwest FMMO 124 had 1.3 million pounds.

The dumping had begun the last week of March 2020 and was heaviest in the month of April. Producers also saw deductions as high as $2/cwt. for balancing costs, lost quality premiums, and increased milk hauling costs. Unaccounted for, were the pounds of milk that had reportedly been dumped on farms without being pooled on FMMOs.

All of this against a backdrop of pandemic bottlenecks and record-high March-through-August imports of butter, butteroil, milkfat powder, and blends — adding to record-high U.S. butter inventories and contributing to the plunging Class IV, II and I prices vs. Class III (PPD).

Meanwhile, not only did production growth in key areas move ahead, so did strategic global partnerships. Just one puzzling example in October 2020, after eight months of deflated producer milk checks, depressed butterfat value, burdensome butter inventory, record butterfat imports, and a plunging Class IV milk price that contributed to negative producer price differential (PPD) losses, Land O’Lakes inked a deal to market and distribute cooking creams and cream cheeses — Class II and IV products that use butterfat — from New Zealand’s Fonterra into United States foodservice accounts.

The New Zealand press reports were gleeful, citing this as a big breakthrough that could be followed by other of their cheeses entering the “huge” U.S. foodservice market through the Land O’Lakes distribution.

Factor #2 — Class price wars and de-pooling

As reported in Farmshine last summer, dairy farmers found themselves in uncharted waters. As Class IV prices tumbled from the get-go with all of the ‘other use’ dumping and diverting, butter inventory building as butter/powder plants tried to keep up with diverted loads at a disruptive time, the USDA Food Box program started drawing products in the second half of May, and really got going by July 2020. 

Cheese, a Class III product, was a big Food Box winner. The cheese-driven Class III milk price rallied $7 to $10 above Class IV, and massive volumes of milk were de-pooled by Class III handlers, which has continued through May 2021.

Reviewing the class utilization reports, an estimated 80 billion pounds of Class III milk normally associated with FMMOs has been de-pooled over the past 26 months.

At the start of this ‘inequitable’ situation, academic webinars sought to explain it.

“We’re seeing milk class wars,” said economist Dan Basse of AgResource Company, a domestic and international ag research firm in Chicago, during a PDPW Dairy Signal webinar a year ago. 

He noted that under the current four-class pricing system, and the new way of calculating the Class I Mover, dairy farmers found themselves “living on the edge, not knowing what the PPD (Producer Price Differential) will be” (and wondering where that market revenue goes).

“A $7.00 per hundredweight discount is a lot of capital, a lot of income and a lot of margin to lose with no way to hedge for it, no way to protect it, when the losses are not being made up at home as reflected in the PPD,” Basse said in that summer 2020 webinar.

What does this have to do with year-over-year milk production comparisons?

Two words: Winners. Losers. 

Some handlers, and producers won, others lost — between and within regions.

Here’s why all of this matters from a production comparison standpoint: Dairy economists — Dr. Mark Stephenson, University of Wisconsin, and Dr. Marin Bozic, University of Minnesota — are both on record acknowledging that USDA NASS uses FMMO settlement data, along with producer surveys, to benchmark monthly milk production.

So, on the one hand: How accurate are these data for comparison over the past 26 months, given the inconsistent FMMO data from dumping, diverting and de-pooling? 

On the other hand: Did the negative PPDs and de-pooling, resulting in part from the 2018 Farm Bill change in the Class I Mover, allow Class III handlers to capture all of that additional market value and use it to fuel the 2020-21 accelerated milk growth for regions and entities connected to the new Class III processing assets?

Factor #3 — New dual-processing concentrates growth

Accelerated growth in cow numbers is fueling record production in 2021. It is patterned around ‘waves’ of major new processing investments in some areas, while other areas — largely fluid milk regions — are withering on the vine or growing by smaller margins with fewer cows. 

In the 24 major milk states, production growth was even greater than the All-U.S. total — up 4.9% vs. year ago. In part one, the breakdown was shown vs. 2018.

Here’s the breakdown for just the 12 months from May 2020 to May 2021 — a time in which the industry dealt divergences that created steep losses for some and big gains for others, while FMMOs became dysfunctional. 

In just one year, over 40,000 cows were added in Indiana, Ohio, and Michigan, combined, and milk production was up in May 2021 by 12.6, 3.2 and 5.1%, respectively. The draw is the massive new Glanbia-DFA-Select joint-venture cheese and ingredient plant that began operations late last year in St. Johns, Michigan. Sources indicate it reached full capacity this spring. Add to this the 2018 Walmart fluid milk plant in Fort Wayne, Indiana and other expansions in Ohio and Michigan.

Ditto for the Central Plains, where new cheese and ingredient line capacity became operational this spring and summer. Supplying these investments, Minnesota grew production 6%, South Dakota 14.6%, and Iowa 6.2% over year ago. 

Number two Wisconsin grew by 5.6% in May 2021 vs. year ago.

Milk production was up 5% in number one California, even though cow numbers were down by 1000 head, and dairy farmers in a referendum voted recently by a slim margin to keep their quota system. They are also dealing with a devastating drought that news reports indicate is now impacting both the dairies and the almond growers.

Then there’s Texas, where growth continues to be a double-digit steamroller, up 10.8% in May 2021 vs. 2020 — pushing New York (up 4.2%) to fifth rank. 

The Southern Plains has had several strategic investments, starting in Texas and New Mexico (up 6% vs. year ago).

In Colorado, where production was up 5.3% in May, DFA’s joint ventures and strategic partnerships with Leprino, Kroger and others have fueled growth.

Kansas grew milk production 7.3% vs. year ago. In 2018, a state-of-the-art whole milk powder and ingredient plant became fully operational in Garden City, Kansas. The plant was to be a joint-venture between DFA and the Chinese company Yili but ended up as a joint-venture between DFA and 12 of its member farms that are among the 21 Kansas dairies shipping milk to it.

DFA’s Ed Gallagher gave some insights on this during a May 2021 Hoards webinar. He said, “We went through a period of investing in powder plants in the U.S. It seems like there is a follow-the-leader approach when deciding on investments, and it goes in waves. The industry just completed a wave of a lot of investment in Class IV manufacturing plants, and now… it’s flipping to Class III.”

Looking back on the Class IV ‘wave’ 2013 through 2018, there were several times in those years that Class IV beat Class III, leading to FMMO de-pooling, but not to the extreme extent seen in the past 12 months as Class III now beats all other classes, including Class I, leading to negative producer price differentials (PPDs).

Gallagher sees Class III and IV prices “coming together” in the “next period of years” because the ‘wave’ of capacity investment has flipped from Class IV to III. He predicted more Class III capacity will be added.

Are these past 26 months of PPD net losses for producers the industry’s answer to, in effect, increasing processor ‘make allowances’ without a hearing?

The average PPD value loss (see chart) across the seven multiple component pricing FMMOs was $2.57 per hundredweight for 26 months, which began with implementation of the new Class I pricing method May 2019 through the most recent uniform price announcements for June 2021 milk. 

Applying a conservative 5-year average PPD (prior to Class I change) for each FMMO, only the few gray blocks on the chart represent ‘normal.’

This means even positive-PPDs show margin loss for farm milk pooled on FMMOs. In fact, the CME futures markets as of July 14 show August through December divergence between Class III and IV above the $1.48 mark, indicating Class I value loss and negative PPDs or smaller positive PPDs could return after barely a two-month reprieve.

Many handlers that don’t pool on FMMOs also use the uniform prices as a benchmark.

This $2.57 net loss for seven MCP FMMOs across 26 months represents almost a doubling of the current make allowance levels.

Current USDA make allowances and yield factors add up to a processor credit of $3.17 per hundredweight on Class III and $2.17 on Class IV. This already represents 11 to 25% of farm milk value, according to 2018 analysis by John Newton, when he was Farm Bureau’s chief economist.

Why is this important? Because we are already seeing additional margin transfer from Class I to Class IV as the industry moves to blended beverages that mostly use ultrafiltered (UF) milk solids. Blends using whey would fall under Class III.

Looking ahead, DFA now owns most of the former Dean Foods’ Class I fluid milk plants since May 2020. New manufacturing synergies are undeniable, considering the direction of dairy checkoff’s fluid milk revitalization plan emphasizing these dairy-based-and-blended beverages and ‘dual-purpose’ processing facilities. 

Dairy + Almond is a Live Real Farms beverage made by DFA and was launched through DMI’s Innovation Center with checkoff funds paid by all dairy farmers. The milk in this beverage is not priced as Class I, though it competes in the dairy case and is being promoted as a “Purely Perfect Blend.”

As low-fat UF milk solids are blended with other ingredients in a manufacturing process to make new combined beverages, the result is a competing beverage, and the milk in the beverage drops from Class I to Class IV.

Meanwhile, these beverages cost more at the grocery store, and the ingredients are not part of the USDA end-product pricing ‘circle’. Therefore, no new make allowances should be requested because processors are already getting a reduced class value, and a higher margin.

DMI’ vice president of global innovation partnerships, Paul Ziemnisky, gave some insights into this “future of dairy beverages” — and how it ties into new processing plants investments during the virtual Pennsylvania Dairy Summit in February.

Ziemnisky went so far as to say new processing facilities will “need to be built as beverage plants able to handle all kinds of ingredients” for the blended products of the future. In essence, he said, the future of fluid milk is “dual purpose” processing plants.

DMI’s usdairy.com website touts the checkoff launches of ‘blended’ dairy-‘based’ beverages — key to DMI’s fluid milk revitalization plan. Not flavorings, these blends dilute milk out of Class I, the highest farm-level pricing, and mainly into Class IV, the lowest. The resulting beverages compete in the dairy cooler with Class I fluid milk. Screen view

While 11 of the top 24 states had milk production increases of 5% or more in May, the 13 states with increases below 5%, or negative, are mainly located within traditional Class I fluid milk marketing areas: Florida, up 0.5%, Georgia up 2%, Virginia down 2.3%, Illinois up 1.9%, Arizona, down 0.5%, Washington, down 0.9%, Pennsylvania and Vermont both up 1.8%, and New York up 4.2%. 

Idaho and Utah, up 2% and unchanged, are outliers and largely unregulated by FMMOs. Some beverage assets are coming to that region in the form of ultra-filtration and aseptic packaging, including a plant renovation to make Darigold’s FIT beverage. Additionally, a new Fairlife filtration membrane plant was opened near Phoenix, Arizona in March, and Kroger is doing filtration and aseptic packaging in Colorado.

Meanwhile, Pennsylvania is often described as a ‘fluid milk state’ with a Milk Marketing Board setting minimum prices for fluid milk, and a string of independent milk bottlers that figure prominently in their communities.

Ranked fourth in milk production in 2006, Pennsylvania was passed by Idaho in 2007. By 2016, Michigan had pushed Pennsylvania to sixth. The very next year, in 2017, Texas leapfrogged both Pennsylvania and Michigan. Now, Minnesota has pushed the Keystone State to eighth.

How does the future of dairy affect traditionally ‘fluid milk’ states like Pennsylvania, or the Southeast for that matter?

New dairy-‘based’ beverage innovations can be made anywhere and delivered anywhere, often as shelf-stable products. Most are not Class I products unless they meet the strict FMMO definition which was last spelled out in the USDA AMS 2010 final rule. 

For now, this also includes the Pa. Milk Marketing Board. Executive secretary Carol Hardbarger confirms that the 50/50 drinks are not regulated under PMMB, which generally uses federal classification, but that a legal interpretation of the Milk Marketing Law with regard to blends may be in order.

The 50/50 blends are already in some Pennsylvania stores and elsewhere in the Northeast, which is the second phase of the ‘undeniably, purely perfect’ marketing plan for fluid milk revitalization.

Factor #4 — USDA, industry coalesce around climate

Ag Secretary Tom Vilsack has been outspoken from the outset about using and aiming every available USDA program dollar in a way that also addresses the Biden administration’s strategies for equity, supply chain resiliency, and climate action.

Speculating a bit as to why USDA is taking so long to announce details about already funded dairy assistance, it could be that Sec. Vilsack is looking at the fit for ‘climate impact.’

Paid around a million a year in dairy checkoff funds to serve 4 four years as CEO of the U.S. Dairy Export Council — between prior and current Ag Secretary posts — Vilsack understands the future plans of the dairy industry’s checkoff-funded proprietary precompetitive alliances on a global scale. 

Vilsack has been privy to the DMI Innovation Center’s discussions of fluid milk revitalization through ‘dual purpose’ plants and blended beverages. He is no doubt looking at the accelerating growth in milk production that is occurring right now for ways to tie dairy assistance to measured climate impacts in the net-zero file.

Producers on the coasts and fringes of identified growth areas have a target — fresh fluid milk and other dairy products produced in regional food systems for consumers who have a renewed zeal for ‘local.’ Fresh fluid milk will have to find a path outside of the consolidating system and cut through the global climate-marketing to directly communicate fresh, local, sustainable messages about a region’s farms, animals, environments, businesses, economies, jobs and community fabric.

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Sen. Gillibrand’s plans for Dairy Subcommittee hearing are moving forward

By Sherry Bunting, Farmshine, July 9, 2021

WASHINGTON, D.C. — Senator Kirsten Gillibrand (D-NY), chair of the Senate Agriculture Subcommittee on Dairy, Livestock, Poultry, Local Food Systems, Food Safety and Security, told reporters in late May that she is working on milk pricing legislation and wants to have dairy pricing hearings in her subcommittee before the August congressional recess. 

According to a document obtained by Farmshine, the Senator has been granted the request to hold the hearing in her subcommittee. The American Dairy Coalition (ADC) reports their appreciation for Senator Gillibrand moving forward on this, noting her office has established the hearing scope and is contacting testifiers. A date is anticipated for late summer 2021, though not yet confirmed on the Senate Ag calendar.

“We cannot lose the ability to feed our own people,” Gillibrand said during her May press conference. “If you have a market that’s fundamentally flawed and are constantly leaving producers unable to survive in the industry, there’s a problem. So, I think we need a very thorough investigation of my concerns.”

At that time, Gillibrand also talked about a multi-part scenario where this hearing could be followed by an investigation. Since 2003, the U.S. has lost almost half its licensed herds with milk price returns declining 23% in the past five years, according to USDA.

In addition to pricing and competitive market concerns over the past decade, the billions of dollars in dairy farm losses due to negative producer price differentials (PPDs) and de-pooling are part of the hearing equation.

Of this, a documented $783 million in net losses have accrued over 26 months directly tied to the reduced Class I price for beverage milk under the new averaging method implemented by USDA in May 2019 (See Chart 1). 

That equates to a straight average loss of nearly $25,000 per farm or $83 per cow, but the Class I value losses would be greatest in milk marketing areas with a higher percentage of Class I use. Other types of losses were incurred by producers in milk marketing areas that have a lower Class I utilization but experienced large volumes of Class III milk de-pooled, making the much lower Class IV price a bigger portion of the blended price paid to farmers.

At the height of these losses being incurred, the American Dairy Coalition worked to bring dairy producers together through conference calls and emails, driving a letter signed by hundreds of producers and organizations to National Milk Producers Federation and International Dairy Foods Association. The March letter requested a seat at the table for producers to address the Class I method.

NMPF and other groups came out with statements about potential FMMO hearing requests, which did not materialize.

In May, ADC worked with Senators in supporting Senator Gillibrand’s letter to Ag Secretary Tom Vilsack, seeking use of available CFAP and PAP funds to assist dairy farm families with these losses. 

Secretary Vilsack recently responded to questions from Senator Patrick Leahy (D-Vt.) during an Ag Appropriations hearing to say USDA is working on a plan to compensate Class I and Class III differential losses, but no details have been forthcoming. Producers are also waiting for details from USDA about the enhanced Dairy Margin Coverage base payments approved by Congress in December.

Sen. Gillibrand has observed the extreme volatility in milk prices over the past decade of her service as a member of the Senate Ag Committee. Dairy farm revenues have steadily declined due to a combination of trade wars, increased production costs, and competition from non-dairy alternatives leading to reduced consumption of fluid milk.

Other seismic shifts have also occurred in the dairy market landscape over the past five years, including shockwaves of rapid cooperative and plant mergers, plant closings, farms and small cooperatives losing milk markets since 2015, Walmart opening its own fluid milk processing plant in 2018, and the bankruptcy filing in 2019 and sale of plants in 2020 by the nation’s largest milk bottler, Dean Foods.

Multiple factors have also converged around the pandemic to create further losses for dairy farm families operating on already razor-thin margins and struggling to attain equitable markets and revenue.

Even the risk management tools purchased by producers did not function as designed because they are based on market values that most farmers did not receive in their actual milk checks. That’s like filing an insurance claim for a fire, but the adjuster looks at someone else’s intact property to determine your damages.

The upcoming hearing will likely look at all of this in relation to the change in the Class I pricing method for fluid milk, which was added to the 2018 Farm Bill without being vetted through a hearing process. The hearing is also expected to look at ways to address the Class I change and the FMMO hearing process, as well as FMMO pooling and de-pooling rules and dairy cost of production.

FMMO revenue sharing pools are the mechanism for how the usually higher Class I base price and normally positive differentials are shared with producers across a milk marketing area, no matter what class of products their milk is used in.

However, when the Class I price — due to the new averaging method — fell below Class III for 16 of the past 26 months, an estimated 85 billion pounds of Class III milk normally associated with FMMOs was kept out of the revenue-sharing pools, dropping the Class III portion to less than half its normal size from May 2019 through May 2021, and ultimately depressing milk check returns to producers. Some handlers may have paid their own shippers a portion of this de-pooled value, most did not.

In effect, the equitable method became inequitable when pricing turned upside-down, and risk management, at a time when farmers needed it most, failed.

Additionally, the USDA Farmers to Families Food Box cheese purchase effects on markets in relation to Class I pricing, are also expected to be part of the hearing.

The Food Box program included cheese, milk and other dairy products to help struggling families and at the same time was intended to support struggling farmers that were having to dump milk and be docked further penalties by milk buyers and cooperatives as ‘balancing costs’ or ‘market adjustments’ to handle milk supplies during the disruptions of the Coronavirus pandemic.

These purchases prompted cheese market rallies, followed by intervals of higher Class III milk prices (see Chart 2). However, this support became inequitable in large part due to the Class I pricing change, alongside a record large spread between the Class III and Class IV prices of $5 to $10 per hundredweight. This spread was affected on one side by record-large butter imports and inventories (Class IV), a slowdown in milk powder exports (Class IV) and on the other side by cheese sales (Class III) rising because of active exports and government cheese purchases for food boxes during the pandemic.

Even though every food box contained a gallon of fluid milk, there is no way to determine the ‘market value’ of Class I fluid milk, apart from the manufacturing class and component values. This is because fluid milk is treated as a base commodity. It is present in 95% of shopping carts, and thus used by large retailers as a loss-leader on the one hand, while on the other hand, the USDA regulates Class I fluid milk handlers as the only class that must pay a minimum FMMO price to farmers.

The hearing is also expected to look at processor ‘make allowances’ that are built into USDA’s end-product pricing formulas for bulk surveyed commodities: cheddar and dry whey (Class III) and butter and powder (Class IV).

Make allowances and yield factors currently add up to $3.17 per hundredweight on the Class III milk price and $2.17 per hundredweight on Class IV, according to a 2018 presentation by John Newton, formerly the chief economist for Farm Bureau who was hired this year by the Senate Ag Committee, explained make allowances as part of a risk management conference in Pennsylvania.

In effect, the make allowances are deducted from the milk component values as a ‘processor credit’ per pound of product, and the yield factors are applied, determining the number of pounds of product made per hundredweight of milk. Processors are indicating the make allowances should be raised because of the “circular” nature of end-product pricing.

But there’s another way to look at that ‘circularity.’ While it’s true that 12 years have passed since make allowances and yield factors were last updated (2008), it also true that in those 12 years vast amounts of value-added manufacturing have been added that benefit from these make allowances but are not part of the end-product-pricing ‘circle’ back into the farm milk price. The cost of making those products can be easily passed up the supply chain instead of back to the farmers. 

For the plants making the four USDA-surveyed bulk commodities that determine class and component prices — cheddar, butter, nonfat dry milk and whey — the issue may be ‘circular’. However, if make allowances are too high and too rigid, then there’s too much incentive to make product for storage that further depresses raw milk prices through end-product-pricing. So make allowances can be circular in that way also.

Dairy pricing is complicated and intricate — a huge topic. But then again, maybe what can come out of a Senate Subcommittee hearing is a simple straightforward message about making milk pricing simple and straightforward.

Pennies per pound here and there across milk volumes mean millions for big players, and when they add up to nickels and dimes that turn into dollars per hundredweight in the farm milk price, the intricacies become something farmers should be able to see and understand.

In a word: Transparency.

As indicated in her May press conference, Senator Gillibrand is looking to have each part of the dairy sector represented to offer their unique perspectives in the upcoming hearing, which is expected to have two panels, the first being dairy farmers and the second panel bringing in cooperatives, processors and an expert on dairy policy and economics.

In May, Senator Gillibrand made it clear she wants to see a multi-part evaluation of current and longstanding dairy issues, with this hearing being a first step to get a look at the lay of the land.

Stay tuned.

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Milk Market Moos, June 25, 2021

By Sherry Bunting, published weekly in Farmshine Newspaper

Cutting through consumer confusion

Consumers and producers of food and beverages — anything in the protein market — are going to see a disruptor explosion of new products. As I look through the food-related publications coming across my desk and into my email inbox — Culinology, Progressive Grocer, Food Navigator, Meat + Poultry, Dairy Foods, Food and Beverage, and the list goes on — the sudden onslaught of animal-free cellular agriculture, portrayed as dairy and meat without the animals, is stunning.

Even Facebook pop-up ads push Nick’s ice cream every day in my Facebook ‘newsfeed’ — with the tagline ‘dairy without the cow’ courtesy of Perfect Day Foods.

They use ‘climate’ to generate interest from companies wanting to reduce a carbon footprint by incorporating the excrement of genetically-altered yeast to replace a portion of real dairy protein in the dairy manufacturing space. It’s an easy swap, Perfect Day founders say, and according to the USDA Bio-engineered labeling regulations that became official last January, the stuff doesn’t have to be labeled BE because the genetically-altered yeast are not being consumed — just their excrement harvested from the fermentation vats.

“We ran the numbers, and if we partnered with the dairy industry to use Perfect Day protein in just 5% of their products, we’d save 12.3 million metric tons of greenhouse-gas emissions – equivalent to the carbon emitted from every single car registered in the city of Los Angeles,” says Nicki Briggs, Perfect Day’s vice president of corporate communications in a Berkeleyside online interview on the third day of June 2021. Ms. Briggs was formerly an employee of Chobani.

There are other dairy turncoats and straddlers moving between real and fake and seeking to blend them to some sort of climate / carbon standard. But data like that of Ms. Briggs doesn’t tell the whole cow story. Just like the data Impossible Foods is using to coax schools to replace 50% of their beef with Impossible Burger — now that it has the coveted USDA Child Nutrition Label — are figures that do not consider the entire cycle of cattle for a net figure on GHG.

It is maddening. This onslaught of bright packaging with new and clever names and claims populating the meat, dairy and seafood offerings — starting with plant-based concentrates and chemical combinations and leading to cells growing in bioreactors and yeast excreting protein in fermentation vats. Big Tech is the new wannabe farmer, and Big Ag, Big Food, Big Finance, and Big ole Uncle Sam are in for the deal.

Consumers will begin to feel like they are stuck inside a pinball machine, or to be more current with my analogy, a warp-speed version of a video game bombarded by bangs, pops and whistles.

That’s what Gen Z wants, they all say. And yet, a survey by the Hartman Group recently showed Gen Z — just like the Millennials before them — are most comfortable with the food choices they grew up with, but unlike Millennials who still had a preference for local, seasonal and farm-to-table, Gen Z-ers have a preference for fast food and foods with familiar tastes.

We’ve got some work to do to navigate all of this with a straight forward message that cuts through the climate half-truths and outright lies about cows, that penetrates the government dietary restrictions based on outdated and incomplete reviews of the scientific literature on dietary fat.

We’ve got our work cut out for us to keep educating others, giving them the facts that are being ignored and bullied out of the national, even global, conversation about food as the industry grows its margins for investors through consumer confusion at the expense of consumer’s knowing what’s real.

USDA joins global school lunch deal

USDA can’t even get U.S. school lunch right, but now plans to lead America’s joining into a “global coalition” called the “School Meals: Nutrition, Health and Education for Every Child.”
There’s also a bill before Congress seeking to make three meals and a snack universal for all children through school.

As for the global coalition, this is right up Secretary Vilsack’s alley. In a press release Wed., June 23 about USDA’s leadership in joining the global deal, Vilsack talked about “powerful incentives” and “building resilience to future shocks” by focusing on improving the nutrition, health, and education of vulnerable children and adolescents worldwide. Sounds good, right? Who can argue with words like that? But like everything else out of USDA these days, where’s the details? And what’s it really mean?

The global coalition is centered around education and school meals and will launch at the United Nations’ Food Systems Summit in September. Like the 30 x 30, the Net Zero initiatives, and everything else coming through the pipeline from World Economic Forum, the goal line for this, too, is 2030 — making nutritious meals available for all children by 2030, with other benchmarks set for 2022.

Who can argue with nutritious meals for all children? There’s not a single person who doesn’t want all children to have nutritious meals. The problem is this: Who defines what is nutritious? How will the systemization child-feeding change the future of food and agriculture?

Details, please, because the track record so far where USDA is concerned is marred by lack of logic and reduced application of current nutrition science via institutions like the Dietary Guidelines and restrictive policies for feeding children.

“We look forward to bringing our expertise to bear, expanding our reach, and benefiting millions more vulnerable children by partnering with the World Food Program and other like-minded countries as part of this important coalition,” said Vilsack in Wednesday’s press release.

Okay, let’s hear those details.

Will USDA do dairy?

In a June 15 press release about previously authorized aid for dairy, USDA announced $580 million for Dairy Margin Coverage base changes and $400 million for Dairy Donation Program would be implemented within the next 60 days, but we’ve yet to see the details.

As part of that news release, USDA also noted that, “Additional Pandemic Assistance for Producers (PAP) payments would be targeted to dairy farmers who have demonstrated losses not covered by previous payments.” No details on that either.

However, on the same day of that press release — June 15 — Senator Patrick Leahy, Chairman of the Senate Appropriations Committee, asked USDA Secretary Tom Vilsack about delivering urgently needed relief to dairy farmers. Vilsack replied to say that USDA was announcing that day (again without details).

In the exchange between Vilsack and Leahy during a Senate hearing, Vilsack said: “We are creating a program to help reduce the differential that occurred between Class I and Class III milk pricing because of the disproportionate number of purchases of cheese during the Food Box effort. That distorted the market, and it caused a lot of harm to smaller producers. We’re putting resources in to reimburse those producers for some of the loss they incurred.”

Those ‘differential’ discrepancies have not been outlined yet by USDA, but here are several manifestations Farmshine and other publications have been documenting:

  1. Due to the new Class I base calculation that uses a III / IV averaging method instead of the prior ‘higher of’, which was implemented by USDA in May 2019, over $750 million in cumulative Class I value was lost from May 2019 through May 2021.
  2. As much as $3.5 billion was potentially withheld or represented as inequitable transmission of milk value when massive volumes of Class III milk were withdrawn from FMMOs, as further reflected in severely negative PPDs. This would be a net loss after months of positive PPDs are applied; however, even positive PPDs in some months were smaller than normal.
  3. Both 1 and 2 contributed to the inequitable transmission of Class III value to many producer milk checks
  4. These losses affected the performance of purchased risk management tools, meaning that a change in Class I pricing that was supposed to help dairy processors manage their risk, had the resulting effect of making it more difficult or impossible for dairy farmers to manage their risk — during a time when they needed it most.

Conundrum: U.S. milk production up 4.6% in May

But here is the conundrum in regard to USDA dragging its feet on details for ‘dairy aid’: May milk production nationwide was up a whopping 4.6% over year ago — so says the USDA report released June 22. April production was up over 3% vs. year ago.

USDA looks at this as though dairy producers are doing so well that they are expanding their herds. In fact, in May, there were 145,000 more milk cows in the U.S. than a year ago. Could this be another sign of the inequitable transfer of value in the milk pricing formulas?

More insight on the production report next week’s Market Moos.

July Class I advance $17.42

The July advance Class I base price, or ‘mover,’ was announced Wednesday (June 23) at $17.42. This is 87 cents lower than June’s Class I base price and 86 cents higher than a year ago. The July 2021 Class I base price at $17.42 — using the current formula of average plus 74 cents — is 34 cents higher than it would have been if figured using the previous ‘higher of’ method at $17.08.

July 2021 marks the first time in 12 straight months that the new calculation method resulted in a higher Class I base price than the old method. However, there’s a lot of ground to make up, considering that for 16 of the 27 months since the new method was implemented, the difference between the new ‘average plus’ and the old ‘higher of’ was lower and only 11 months were higher.

In fact, the Class I base value losses for 16 months averages to $3.28 per hundredweight while the value gains (including upcoming July 2021) for 11 months averages to just 39 cents.

Class III/IV milk futures plunge

Class III and IV milk futures were all lower across the board this week. The only green in the sea of red, was the Class III current month gained a dime heading into the last week of June contract trading, but the Class III July contract lost 15 cents and August plunged by $1.00 below week ago, with the rest of the board on Class III milk ranging 10 to 50 cents lower. On the Class IV board, the losses were more evenly spread ranging 20 to 50 cents lower across all 12 months.

As all four dairy commodities trended lower on the CME spot market this week, the 12-month futures average lost 29 cents on both classes, equally, by midweek, so the spread between Class III and IV 12-month future contract averages remained exactly at 67 cents on Wednesday, June 23 — right where it was a week ago and still well below the $1.48 mark.

On Wed., June 23, Class III milk futures for the next 12 months averaged $17.67, down 29 cents from the previous Wednesday’s average, the 7th straight week the 12-month Class III futures price average was lower than the prior week. Class IV contracts averaged $17.00 — down 29 cents from the 12-month average on the previous Wednesday.

Dairy commodities all lower

Butter slid lower almost daily, on the CME daily spot market. By Wed., June 23, the price was pegged at $1.73/lb — down 7 cents from the previous Wednesday with 6 loads trading.

Grade A nonfat dry milk (NFDM) also slipped this week. On Wed., June 23, the CME spot market price was pegged at $1.2575/lb, a penny lower than a week ago with a single load trading.

Cheddar trade plunged lower on the CME, then firmed up a penny or two at midweek. Barrels took the brunt of the decline and by Wed., June 23, both the 40-lb block Cheddar and 500-lb barrel cheese were pegged at $1.49/lb on the spot market with 2 loads of blocks and a single load of barrels changing hands. This was a net 3-cent loss for the week on blocks and a 15-cent loss on barrels.

Whey price was firm on the CME spot market, pegged at 59 1/2 cents with zero loads trading.