Expect very negative PPDs, large depooling to short farms on market gains; ‘New’ Class I calculation doubles rub

 

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Large negative PPDs, Class III depooling and buyers reblending the milk price paid to farmers in June and July could be with us through August and even September because of how wide the divergence is between the Class III and Class IV prices, based on what the CME futures markets are showing. This divergence lowers all other classes in the pool (I, II and IV), especially now with the new “averaging” method of calculating each month’s Class I Mover in effect since May of 2019.

By Sherry Bunting, Farmshine, July 3, 2020

BROWNSTOWN, Pa. – Dairy producers can expect record-large negative PPDs (Producer Price Differentials) for June milk, meaning they likely won’t see the extent of the significant gains made in cheese markets and the Class III price in June, especially for Federal Milk Marketing Orders (FMMOs) that are not predominantly cheese markets.

The extent of these negative PPDs – estimated to range from -$5 to -$7 per hundredweight (cwt) – has several factors, including the new way the Class I Mover is calculated since the 2018 Farm Bill changed it from the “higher of” Class III or IV pricing factors to an average of the two with an arbitrary 74-cent add-on.

“Expect historically large negative PPDs in Multiple Component markets for June and July,” writes Calvin Covington, retired breed association executive secretary and milk cooperative CEO, in an email interview with Farmshine this week.

He also estimates the volume of milk depooled in June will set a record, further limiting how much of the past six weeks of higher dairy product prices will even make it into their milk checks.

Covington confirms Class III milk was already being depooled in May. As reported in last week’s Farmshine, we calculated the volume of milk pooled across all Federal Orders in May was already 13% below year ago levels.  For June, the depooling volume will be much more significant, in fact it is likely to be enormous.

“There is little economical reason to pool any Class III milk in June,” Covington asserts. “The only Class III milk that will be pooled in June is Class III milk going to a pool plant, and to meet any requirements to keep milk pooled in July.”

In fact, if buyers pooled Class III milk on Federal Orders in June, they would have to write a check to the settlement fund (instead of taking a draw from the fund as they do in normal conditions when the Class I bottlers are writing that check).

This is because the Class III price for June was announced this week at $21.04 – nearly $10 per cwt higher than the Class I Mover for June, which was set at $11.42 back in the beginning of May. The June Class I Mover is the lowest since the Great Recession while the June Class III price is the highest since 2014 — both now occurring in the same pooling month!

The reasons for the steep negative PPDs producers in Multiple Component Pricing (MCP) FMMOs will see for June milk, says Covington, are the high Class III price ($21.04) vs. Class IV ($12.90) and Class II ($12.99), the Class I Mover advanced pricing lag at $11.42, and the new method of calculating the Class I Mover, especially for July.

“In skim-butterfat priced markets – the Southeast Orders – blend prices will be lower than the Class III price,” Covington adds.

He explains that the PPD is paid on a hundredweight (cwt) basis, and it impacts all milk the same regardless of milk components.

“High component herds, especially in Multiple Component markets, see larger variation in milk prices,” Covington explains. “It is all due to arithmetic. Milk is paid on fat and protein. The more fat and protein in the milk, the greater the price change when fat and protein prices change.”

Covington spoke at World Dairy Expo last fall about the makeup of the milk check, and all of the factors that go into it. He reminds producers that only regulated plants are required to pay minimum class prices. Unregulated non-Class I plants choose to be associated with the pool so they can draw from it to pay a blend price to their farmers.

Now that the price for milk used to make cheese is so much higher than the price for milk used as a beverage or to make yogurt, ice cream, dips, butter, powder and all other products —  cheese plants are free to disassociate themselves from the FMMO pool, and there is no regulation stating they must pay their producers even the minimum announced Class III price for components.

Under the current system, when the Class III price rises quickly to overshadow the previously-set Class I Mover, there’s no reason for those Class III plants to pool the milk, unless they want to remain “qualified” to participate in the pool (draw) in the following month.

Covington observes that the upside-down pricing and negative PPDs will be with us at least through July. Dairy economists Mark Stephenson, University of Wisconsin and Andrew Novakovic, Cornell, noted in a recent Dairy Markets and Policy brief that this situation of negative PPDs, Class III depooling and buyers reblending the price paid to farmers could be with us through August and even September because of how wide the divergence is between the Class III and Class IV price via the CME futures markets.

This divergence lowers all other classes in the pool (I, II and IV), especially now with the new “averaging” method of calculating each month’s Class I Mover in effect since May of 2019.

Covington notes that it all boils down to math. The PPD is simply the difference between a Federal Order’s revenue available for producer payment (Class I, II and IV combined), minus the payment to producers at the Class III price based on components.

“Factors impacting the size of the PPD, positive or negative,” he says, “are Class III price relative to the other class prices, volume of Class III milk pooled and an Order’s Class I price and usage.”

The primary factor in June’s negative PPDs is the extreme rapid increase in the Class III milk price. The rising cheese markets and Class III milk futures were mostly translated into the June Class III price because it was based on four weeks of June cheese sales.

The Class I Mover, on the other hand, was calculated six weeks earlier based on what the trade was doing at the end of April and beginning of May.

In the Covid-19 market-disrupted environment this is like two different world’s colliding based on timing and calculations.

Add to this the fact that Class IV and Class II prices saw muted increases during June compared to Class III’s large and abrupt increase, and what we are left with is the scenario where Class III beats all other classes by $7 to $10 in the same pooling month.

FMMOs with larger utilization of Classes I, II and IV will not see much boost from the uptrending cheese markets in their June blend price.

FMMO’s with large Class III utilization would see that boost. But depooling, reblending and assessments will all play further roles in how even those mailbox milk checks look once June milk is paid for.

Negative PPDs are not new. Dairy producers have experienced negative PPDs on milk checks in the past. Seeing a negative number in an uptrending milk market always brings questions and frustration. In fact, the November 2019 through January 2020 period in several of the past five years produced negative PPDs.

Last November, for example, the seven Multiple Component Pricing FMMOs saw a negative PPD averaging -$2 and ranging from just under -$1 to over -$3.

That pales in comparison to the negative PPDs producers will see for June, July and potentially August or September of 2020. Expect to see PPDs that are double, even triple, what was seen last November.

By now, most dairy farmers understand that a rapidly rising cheese market and corresponding Class III milk price presents the key factor putting PPDs into negative territory. When this happens, producers are reminded that a rising Class III milk price is still a positive development because it indicates milk markets are improving.

But in what some are calling a “whipsaw market” where prices turn abruptly in unexpected directions due to an unforeseen disruption like Covid-19, it’s useful to look at the other factors, for the long term.

First, when Class III milk’s component value is higher than the value of all the classes combined, the result is a negative PPD because after the Class III component values are paid, there is nothing left in the pool for the PPD draw. When the Class III milk is depooled, then that value is not available either.

When the blend price is higher than the Class III price, which is the norm, those Class III plants take a draw. When the reverse is true, they would technically owe the pool.

What sets this up against a huge market-disrupting event like Covid-19 is the lag-time between the calculation of the Class I Mover based on two weeks of trade and calculated six weeks in advance compared with the calculation of the manufacturing class prices based on the current month’s market conditions weighted over four weeks.

Even in those prices, there is a one to two week lag between what happens on the CME daily spot market and its translation to the weekly USDA National Dairy Product Sales Report, on which the class and component prices are based. There is no daily reporting of actual trade, actual sales of the four main dairy commodities, just weekly surveys that are published the following week.

On the flip-side, for April, the Class I Mover was set at $16.64 based on market conditions (advance pricing factors) during the first two weeks of March, before the Covid-shutdown. The Class III price came to $13.07 for April based on the economic shutdown affecting foodservice demand while retailers had a tough time keeping dairy products in stock.

With Class I sales rising dramatically in April, and the Class I Mover sitting $3.57 higher than Class III and $5.24 higher than Class IV – there was incentive to pool everything, even the displaced milk as the industry adjusted to an unforeseeable event and the Class I Mover stood well above all other classes, especially the dumped milk that was pooled at Class IV value.

Thus, April set a record the amount of ‘other use / dumpage’ milk as 350 million pounds of displaced milk was pooled at the lowest class price across all FMMOs, nearly 10-times the amount that is normally pooled as ‘other use / dumpage’.

Now, that lag-time produces an opposite situation for June and July, and there is another wrinkle in the FMMO fabric – the new method for calculating the Class I Mover doubles the rub.

As a result of changes made in the 2018 Farm Bill, the Class I mover is now established by averaging Class III and Class IV and then adding 74 cents to that average. It used to be calculated using the higher of Class III or Class IV. In this case, that would have made a difference as Class III and IV have significantly diverged.

The calculation change for the Class I Mover was made to help processors hedge their future milk costs on the futures markets without having to guess which futures contract to use – Class III or IV. This was said to be something that would provide stability for Class I producers by stabilizing pricing for Class I processors. However, in these very unstable ‘whipsaw market’ times, the rub on producer milk checks will sting.

When it was proposed in 2017, American Farm Bureau Federation studied this method and documented little change to the net result for dairy producers when multiple years of pricing were averaged together and evaluated. In fact, when the new method went into place, there were several months where the average-plus-74-cents made the Class I Mover higher than it would have been under the old “higher of” method.

Not so in a volatile market with a time-lag involved.

These issues of negative PPD affect disproportionately the Federal Milk Marketing Orders (FMMOs) that have more Class I and IV utilization. FMMOs with small Class I utilization and large Class III utilization are relatively untouched as those blend prices would reflect mainly the much higher Class III cheese milk component value. But with depooling and reblending, those checks may also be impacted.

Looking ahead to July, the Class I Mover was already announced at $16.56, based on the advance pricing factors from the first two weeks of June. While July’s cheese trade is yet to be seen, the July Class III contract on the CME futures market stood at $22.85 at this writing on July 1st, which is $6.29 per cwt higher than the already set Class I Mover for July.

Even though the July Class I Mover stands $5.14 per cwt above the June Class I Mover, not even July’s Class I had the benefit of the full advance in June cheese trade because it was based on just the first two weeks of the June rally.

According to John Newton American Farm Bureau chief economist , there is currently, no mechanism to prevent negative PPDs. Newton writes in a recent ‘market intel’ piece:

“Historically, negative PPDs occur less than 15% of the time. Methods to prevent or mitigate negative PPDs  — such as eliminating the advanced pricing component, reconsidering the higher-of pricing formula (but with forward contracting of Class I milk), requiring mandatory pooling of milk in all Classes or consideration of decoupling the Class I milk from the price of manufactured milk products  – could be explored.”

FYI: The Pennsylvania Milk Marketing Board (PMMB) successfully “decoupled” the Class I milk price for May and June by setting a Class I floor of $15 through the state’s over-order premium authority. The Federal Milk Marketing Orders were going to have a national hearing on this in April, but chose not to after economists and organizations in the Upper Midwest cheese region complained. The PMMB action was limited only to Pennsylvania, so for May and June (the limit of the Order), when the Class I beverage milk price for milk produced, processed and sold in Pennsylvania fell below $15, the current over-order premium of around $1.00 per cwt was expanded automatically to bring the price back up to $15 for May-July 2020 for this very reason.

Trouble is, with the FMMOs not considering a similar move, this PA ‘premium’ only pertained to bottling plants paying milk suppliers for milk produced on PA farms (and they are free to take milk from other farms outside of PA). This price was built into the PA minimum retail milk price for May and June, but retailers, processors and cooperatives are not required to pass these state-mandated premium funds paid by PA consumers back to PA farms — unless the milk meets all three of these criteria: produced, processed and sold in Pennsylvania.

Author’s Opinion: There is one other thing worthy of consideration. A national hearing on milk pricing, period, to look at options, updates, simplification, transparency, daily reporting, producer voting, consolidation, transportation and deductions. Some grassroots groups have been asking for a national hearing with report to Congress for nearly 10 years as there is no other way for farmers to access the FMMO system run by market administrators, and they don’t even get a vote because cooperatives bloc-vote changes on behalf of their members. Previous Farm Bills included language for such a national hearing, but they were never conducted. At some point, the complexities at play here need to be evaluated from both regional and national perspectives in terms of “orderly marketing” and how farm viability and farm and food security in regions are affected and in terms of fulfilling the desire of many consumers wanting fresh, local milk.

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U.S. milk production falls 1% in May, FMMOs pool 13% less milk

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Table 1 showing “other use / milk dumpage” totals by Federal Order includes data for May 2020. The month of May saw 13% less milk pooled on Federal Orders compared with a year ago, and 13% less milk in the “other use / dumpage” category compared with a year ago — down dramatically from the enormous 350 million pounds of “other use” milk pooled in April 2020.

States east of Mississippi cut production, west mainly grow

By Sherry Bunting, Farmshine, June 26, 2020

WASHINGTON, D.C. — As April’s dismal Covid-impacted dairy market spilled into May milk checks, the supply-side of the ship turned in May at the same time as demand was strengthened by dairy donations, retail demand and food-service re-stocking.

USDA Dairy Market News reports each week have signaled progressively tighter milk supplies heading into summer vs. stable to strong demand pushing spot loads to sell above class price in some areas.

In April, cooperatives across the country set base limits on member milk production for May until further notice. Some severely discounted any milk provided that was above 80 to 90% of a member farm’s March marketings. Many producers chose to leave this penalty milk out of the tank.

As these co-op ‘base’ programs went into effect in May, the impact is demonstrated in the USDA May Milk Production report, estimating  U.S. output at 18.8 billion pounds, which is 1.1% below year ago for May.

Cow numbers were down 11,000 compared with April, according to USDA, but still 37,000 more milk cows were estimated on farms compared with a year ago.

Nationally, milk output per cow dropped by one pound/cow/day in May compared with a year ago, the report stated.

In addition, Federal Order milk pooling totals and “other use / dumpage” data provided to Farmshine by USDA AMS by request, showed the total volume of milk pooled across all Federal Orders in May dropped like a rock to levels 13% below year ago.

Similarly, the volume pooled as “other use / dumpage” across all Federal Orders fell to levels 13% below year ago nationwide — from the enormous 350 million pounds recorded in April to 36 million pounds in May. (See Table 1.)

What is eyebrow-raising is how the numbers in these reports geographically arrange themselves.

In last Thursday’s Monthly Milk Production Report, the national drop in total output for May masks the fact that among the 24 top milk producing states listed individually in the report, those east of the Mississippi accounted for all of the production decline – plus balancing the accelerated western growth to get the U.S. total a significant 1% below year ago.

States east of the Mississippi saw large decreases in production, while in contrast, the growth states of Texas, Colorado, Idaho, Kansas, Arizona, South Dakota saw increases in production ranging from 1.4 to 9.7% above year ago.

East of the Mississippi, the Northeast milkshed really clamped down on production with Pennsylvania 3% below year ago, New York down 3.7%, and Vermont down 6.4% vs. year ago in May.

Further south, Virginia and Florida were unchanged from a year ago, while Georgia’s production fell 1.4%.

In the Mideast and Midwest, Michigan was off a fraction (0.4%), Minnesota down 1.9% and Wisconsin’s production fell by 3.1% vs. year ago. Indiana, Illinois and Iowa were down 1.7 to 2%. Ohio was the outlier, gaining 0.4% in production over year ago.

In the West, May production was larger than a year ago with South Dakota leading on a percentage basis producing a whopping 9.7% more milk compared with a year ago. Number five Texas grew by 1.9%. Number three Idaho grew by 4.6%, and Colorado grew by 4.8%. Arizona grew by 1.4%, and Kansas by 2.4%.

Three western states were key outliers as California dropped production 1.5% below year ago, Utah was down 3%, and New Mexico fell a whopping 7.2% below year ago. The Pacific Northwest had generally steady production with Oregon unchanged from a year ago and Washington down fractionally.

In Federal Order pooling, the volume pooled nationwide was down a whopping 13% from 15.1 billion pounds in May of 2019 to 13.2 billion pounds this May of 2020.

In the Northeast, total pooled pounds on Federal Order One for April and May of 2020 were essentially equal at 2.3 billion pounds each, but relative to year ago, this was a decline of 1.7% while production on farms in the region fell a whopping 4%, collectively. The difference likely came from elsewhere.

Meanwhile, the amount pooled as “other use / dumpage” in the Northeast Order One dropped abruptly from the enormous 131 million pounds in April to 12.3 million pounds in May, representing a 35% drop in “other use / dumpage” compared with a year ago.

Pooled milk classified as “other use / dumpage” in the Appalachian, Florida and Southeast Orders 5, 6 and 7, also dropped significantly in May compared with April’s large records. In fact “other use” milk in those three Orders fell to levels that were 19% (Appalachian), 9% (Florida) and 32% (Southeast) below year ago. At the same time, total pooled pounds for these three Orders – 5, 6 and 7 – were calculate below year ago in May by 1% in Order 5 (Appalachian), 2.5% less in Order 6 (Florida) and a significant drop of 11.7% less milk pooled compared with a year ago in Order 7 (Southeast).

In a sense, the pull back in production in the Northeast, Mid-Atlantic and Southeast regions, where April’s dumping had been so extreme, helped bring down total pooled pounds in those areas to rein-in the “other use” pounds as well.

Growth areas of the nation showed significantly less “other use / dumpage” pounds in May vs. April. However, in some of the Orders, such as the Southwest (Order 126) and Upper Midwest (Order 30), the “other use / dumpage” category was still above year ago levels by a modest margin, according to the USDA AMS figures.

As the dairy industry right-sizes itself after COVID-19 supply-disruptions that abruptly cut 30 to 40% from producer milk checks, it remains to be seen how states east of the Mississippi can regain their footing as western growth areas kept shipping more milk right on through — without missing a beat.

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Industry, government follow grassroots donations lead, CFAP adds to dairy demand driving markets higher

By Sherry Bunting, Farmshine, June 26, 2020

WASHINGTON, D.C. – Government and industry dairy donations and record-setting CME cheese prices all got their starter fuel from grassroots dairy producers in what has become one of the good news stories of the COVID-19 era.

Today, USDA has systemized the donating through the Coronavirus Food Assistance Program (CFAP), and dairy processors, cooperatives and checkoff organizations have partnered with food banks and non-profits to extend the reach of efforts begun originally by generous dairy producers and their agribusiness partners supplying grateful consumers.

In April, when milk dumping was at its height, and stores had purchase-limits or sparse supplies of milk and dairy products, farmers and their agribusiness partners and communities went into immediate action. Examples of milk donation drive-through events began popping up in succession – just a fraction of them featured in the pages of Farmshine.

Also in April, farmer-funded Dairy Pricing Association (DPA) purchased 228,000 pounds of block cheddar, immediately moving the CME block cheese price from its $1/lb plummet to $1.20 (adding $1.00 to Class III milk values at the same time).

This DPA move, working with charities for distribution and a Midwest processor to turn their CME-style bulk purchase into consumer-packaged goods for donation, gave a green light to other cheese market participants. Within a week of that purchase and the initial 20-cent gain in blocks that followed, block cheese continued its climb to $1.80/lb, and the upward momentum has not stopped — fueled now by huge government purchases and food-service pipeline re-stocking.

On the heels of these grassroots efforts, dairy checkoff organizations began getting involved to work with their partners and “convene” the industry to do big donations in May.

Meanwhile, the U.S. Congress had passed the Coronavirus Food Assistance Program (CFAP) in April, with $3 billion of the $19 billion set aside for the Farmers to Families Food box purchases. But it was mid-May before USDA announced those first-round contract awards totaling $1.2 billion in fresh food — $317 million of it for fluid milk and dairy products – for distribution May 15 through June 30.

This week, USDA Secretary Sonny Perdue called the food box program a “trifecta, win-win-win”, pointing out how the program is getting farmers, processors and non-profits together to directly provide fresh food to people without burdening food banks with refrigerated inventory they aren’t prepared to handle.

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In April, when block cheddar was plummeting to $1.00/lb, the farmer-funded Dairy Pricing Association based in Wisconsin with member-contributors nationwide, purchased 228,000 pounds of block cheese to be cut-down for distribution by several charities. DPA Facebook photo

This was the model of grassroots groups and individuals on their own dime and time doing dairy donation drive-throughs, milk-drops, and whole milk gallon challenges from late March to the present. It was also the model of DPA, funded by voluntary dairy farmer milk check deductions, when DPA purchased the block cheese in April for cut-down and donation. Also in April, we saw the partnership initiated in Pennsylvania between 97 Milk and Blessings of Hope. They raised funds to buy local milk for donation to families in need.

As these grassroots efforts began having an impact, Midwest Dairy got approval from USDA in May to use checkoff funds to donate cheese, and UDIA of Michigan was allowed to provide minimal funding to food banks for “handling costs” associated with receiving cheese donated in May by DFA.

Now, with USDA systemizing that smart approach — started by grassroots efforts — the department stated in a news release that as of June 23, its CFAP Farmers to Families Food Box Program had delivered more than 20 million boxes of fresh food, including milk and dairy products, to families impacted by COVID-19.

The initial round of USDA CFAP contracts ends on June 30. But this week, USDA announced it will extend “well-performing” first-round contracts for similar amounts in a second-round from July 1 through August 31 to total an additional $1.16 billion.

The share of this second-round to be devoted to fluid milk and dairy purchases was not specified in the USDA announcement. One thing USDA did note is that even though most of the second-round dollars will be spent with “selected” current contract awardees, a few new contracts may be awarded to previous applicants that had been passed over due to technical errors or to provide boxes in areas identified as “underserved.”

Throughout the USDA CFAP food box delivery process, regional dairy checkoff organizations have been involved as “facilitators.”

Week after week, Farmshine has received press releases from dairy checkoff organizations, and there have been numerous social media posts, about the CFAP milk and dairy box donations. Regional checkoff organizations say they are working with processors, cooperatives and non-profits — in conjunction with the USDA CFAP food box program — and that area dairy farmers are involved as volunteers to hand out the boxes.

According to National Dairy Council president Barb O’Brien, dairy checkoff organizations began “convening the industry” before CFAP.

“We have leveraged the checkoff’s unique ability to convene companies from across the value chain to identify a number of ways to redistribute excess milk and other dairy products to families facing food insecurity,” writes O’Brien in an email response to Farmshine recently.

In a specific cheese example she had mentioned in a media call described as block cheese being purchased and cut into consumer size portions, our inquiry for details was met with this response:

“In response to lost food-service markets and dairy farmers being asked to dispose of milk, we’ve worked to connect coops to partners that donated processing capacity for any excess milk available for food banks,” O’Brien wrote. “Many other dairy companies — such as the example I gave from DFA of cheese donations in Michigan — provided massive quantities of dairy products to food banks before the USDA Farmers to Families Food Box Program was even put into place. Moving forward, it will be important that we continue working together as an industry to target the greatest needs and find long-term solutions to our nation’s hunger crisis.”

O’Brien cites DMI’s “long-time partner” Feeding America and other relationships with local food banks and pantries. Former Ag Secretary Tom Vilsack, now a top dairy checkoff executive with DMI, sits on the Feeding America board of directors.

O’Brien also noted in her response that dairy checkoff “counseled industry partners and others on how to direct dairy products toward the greatest needs.”

She reports that, “This widescale approach enabled us to pinpoint some of the biggest barriers in getting excess dairy products to hungry families during the pandemic” and to “rapidly initiate an industry response.”

As communities began doing their own grassroots efforts through the generosity of dairy farmers, agribusiness and individuals purchasing milk or contributing milk for dairy donations in the early days of the COVID-19 ‘stay-at-home’ orders, checkoff organizations took note and began to look at what they could do in terms of refrigeration equipment and setting up refrigeration trucks for industry and governmental efforts.

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Grassroots whole milk donation events like this one just outside of Lancaster, Pa. in May, have been providing whole nutrition to families across the state and region since the height of COVID-19 ‘stay-at-home’ orders in April.  Photo by Michelle Kunjappu

While many of the grassroots-organized milk donations were comprised of whole milk purchases vs. low-fat milk, this week marked the first time a checkoff news release showed red-cap whole milk gallons or even referenced whole milk in their facilitation of USDA CFAP box deliveries. This is another win led by early grassroots efforts.

ADA Northeast (ADANE), for example, indicated in a press release this week that 200,000 gallons of milk will have been handed out in the Northeast / Mid-Atlantic region by the time June Dairy Month ends. The release stated that 20,000 gallons would be donated this week, alone, from DFA, Upstate Niagara and Schneider’s Dairy to be given out in New York and Pennsylvania through the Nourish New York state funds and CFAP food box federal funds.

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For the first time among the many news releases sent by ADA Northeast (ADANE) touting checkoff ‘facilitation’ of fluid milk and dairy donations, whole milk is in the box! Here, dairy farmer Joel Riehlman of Fabius, N.Y., and a 4-H member, hand out whole milk in mid-June at a Nourish New York and USDA CFAP Farmers to Families Food Box donation drop in Syracuse. Photo provided by ADANE

In a recent Watertown, New York drop point for these donations, ADANE board member Peggy Murray of Murcrest Farm, Copenhagen, N.Y. volunteered, and she noted in the ADANE press release that, “It was heartwarming to see their gratitude – especially for the whole milk — and to know that people really want the products that we produce on the farm.”

This has been the experience of so many farmers and ag community members involved in the grassroots distributions, as well as the industry and governmental distributions, because each event affirms that consumers love milk and dairy products, especially whole milk, and that they want to support local farms — as evidenced by their comments and long car-lines of families eager to receive these products. In some cases, recipients gave money asking it be put toward more drive-through dairy events.

In the Southeast and Midwest, CFAP contract recipients Borden and Prairie Farms have also been visible this month with Dairy Alliance and Midwest Dairy checkoff organizations often as partners, along with several state dairy producer group members joining in as volunteers and location coordinators.

Overall, the CFAP food boxes have been well-received. The program was designed by USDA to give farmers and food providers a presence within their communities, working with local food banks and non-profits without creating inventory hardships. In this way, USDA has taken what local communities were doing at the grassroots level — on their own dime and time — and systemized it with federal funds and contracts.

While dairy’s share has not been specified in USDA’s announcement of the second round of $1.16 billion in fresh food purchases in the contract extensions through August 31, it is believed fluid milk and dairy purchases will be similar to the first-round total of $317 million because several non-profits indicate they will be supplied with all their milk and dairy needs through the USDA until at least August 31.

This includes Blessings of Hope, which had partnered with 97 Milk in April, and raised over $50,000 for purchasing and/or processing local milk for families they serve in Pennsylvania.

Farms in southeast and southcentral Pennsylvania that were wanting to donate “over-base” milk for this 97 Milk / Blessings of Hope program will have to wait until after August 31, when the USDA CFAP food box program is set to end. It is possible that the CFAP program may again be extended until all $3 billion in food box funds are exhausted.

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When Dairy Pricing Association (DPA) first ran an ad in the Cheese Reporter in early April looking for 200,000 pounds of USDA-graded cheddar cheese less than 30 days of age, the calls they received could not fill the order. By requesting USDA-graded cheese, the delay in their eventual purchase of 228,000 pounds showed a void in supplies that led to the initial turnaround in the plummeting block cheese price on the CME, which fueled the advances in manufacturing milk value. CME cheese prices drive Class III milk futures, which have risen rapidly since the DPA purchase bridged the gap in April. Current market strength has been extended through the large USDA food box program demand occurring at the same time as the re-opening of the food-service sector. DPA Facebook image

A positive outcome for farmers from all of these efforts — now extended by these large government purchases — is the real impact they are having in helping drive dairy markets higher since that first farmer-funded DPA purchase of block cheddar in April turned the CME away from its $1.00/lb record-low plummet.

Block cheese is traded every day around noon on the CME spot auction, and the price has set several new record-highs in June, including the most recent record-highs of $2.70/lb on Monday, June 22 and $2.81/lb on Tuesday, June 23.

This rally has pushed Class III milk futures into new contract highs for June, July, and August, while adding strength across the board.

In CME futures trading Monday (June 22) the June Class III milk contract hit $21, up $9 from the USDA-announced May Class III price of $12.14. July’s contract topped at $22.19, and August edged into the $20s. Monday’s Class III milk futures averaged $17.98 for the next 12 months, and Tuesday’s futures trading held most of that level, even adding to the July contract.

There is a supply side to this scenario also. See the related article on USDA milk statistics, pooling, production and dumping.

Trade sentiment is mixed on how long the upward momentum in dairy markets can last.

On the one hand, cheese prices are being driven by the combination of USDA CFAP purchases now continuing through August, re-stocking of food-service pipelines as the country re-opens, and the USDA Dairy Market News reports of consumer buying strength shown in strong pizza sales throughout the Covid period, and stable to strong retail sales meeting tighter supplies of milk and cream.

On the other hand, some experts warn of weakness ahead as these record-setting prices may prompt milk production expansion by fall when demand may wane after the USDA CFAP food box purchases end and food-service pipelines are re-stocked.

Much of the future will depend on how the re-opening of America goes for families, the food-service sector, schools, sports, and the economy at-large.

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Eye on markets as reined-in supply vs. strong demand drive dairy higher

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By Sherry Bunting

Trade sentiment is mixed on how long the upward momentum in dairy markets can last as producers wait for these higher levels to land in their milk checks.

On one hand, USDA Dairy Market News reports strong pizza sales, stable to strong retail sales, and government purchases all stoking demand against reined-in supply. On the other hand, some analysts see weakness ahead as higher prices may prompt milk expansion by fall when demand may wane after CFAP food box purchases end and food-service pipelines are re-stocked. Much will depend on how the economic re-opening goes for families and food-service, as well as what happens with schools and sports. Experts suggest producers evaluate their risk management tools while markets present positive margins in a tumultuous time.

To-date, the USDA Coronavirus Food Assistance Program (CFAP) Farmers to Families Food Box Program has delivered 18.5 million boxes. The first round of May 15-June 30 fresh food purchases totaled $1.2 billion, including $317 million for milk and dairy products. Now USDA is poised to announce a second round of $1.16 billion for July 15-Aug. 30, of which dairy’s share has not yet been specified.

Also, as of June 22, USDA paid $895 million in CFAP dairy farm payments, and a total of 15,222 dairy producers (about half) have applied. The dairy payment formula equates to $6.20 per hundredweight on Q1 milk (including dumped milk). CFAP enrollment continues through August 28, 2020.

Meanwhile, milk futures continued their multi-week march higher on the heels of record-setting CME block-cheese prices through June, pegged at $2.70/lb Monday, June 22 and then $2.81/lb Tues., June 23. Barrels shared the advance, but were a record 44-cent spread behind the block trade at $2.37/lb.

June’s Class III milk contract hit $21 Monday, up $9 from the USDA-announced May Class III price of $12.14. July’s contract topped at $22.19, and August edged into the $20s. Monday’s Class III milk futures averaged $17.98 for the next 12 months — up 69 cents from two weeks ago.

Part of the extent of Monday’s advance is attributed to new rules when higher trading surpasses the 75-cent limit, as happened Friday, the limit doubles for the next trading day, allowing more speculative activity up or down. But Monday’s spot cheese increase shored-up the gains, while after-hours trading hinted a 20-cent pull-back before another spot cheese market gain Tuesday noon narrowed the dip in fall milk futures. At mid-day Tuesday, summer 2020 front-months were another potential nickel or dime in the green, and penny to nickel gains were applied to 2021 Class III contracts.

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Screenshot of June-Sept. Class III milk futures trading at Noon CDT Tuesday, June 23 — just after the spot cheese auction on the CME in Chicago saw 40-lb block cheddar trade at yet another record high of $2.81/lb with 500-lb barrels also higher at $2.36/lb — behind blocks by a new record-setting 45-cent spread.

New block cheese futures at the CME were launched in 2020, helping processors manage the risk of the wide spreads between 40-lb block and 500-lb barrel cheddar that broke records in 2019, setting new record spreads again this week.

Class IV milk futures gains into this week have been less stellar as butter had melted off a previous advance, but firmed up late last week, then pegged a 2-penny loss at $1.81/lb Tuesday. Spot powder strengthened last week in active trade after the biweekly Global Dairy Trade auction index rose 1.9%. The first two days this week, the Grade A nonfat dry milk spot price remained pegged at $1.03/lb with just two loads changing hands on the CME.

The awaited June 22 USDA Cold Storage report confirmed that accumulating cheese moved to food-service with a seasonally-unusual and record-large natural cheese inventory pull-out for the month of May. Despite this inventory pull, cheese stocks remain 5% above year ago, and butter stocks are up 21% vs. year ago. Inventory is apparently not as negative to markets as it was pre-Covid due to the retail shortages experienced in April during the height of ‘stay-at-home’ orders. Some companies report wanting to keep more inventory instead of operating ‘hand-to-mouth.’

On the farm side, USDA confirmed 1.1% less milk was produced in May vs. year ago. USDA data also showed 13% less milk was pooled on Federal Orders vs. year ago — abruptly reducing the pooling of dumped and diverted milk. At 36 million pounds, the volume of milk pooled as “other use / dumpage” in May was a fraction of April’s 350 million pounds of “other use / dumpage” milk pooled.

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Monitor, document, reassess, reach out

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On the financial side of handling the plummeting prices and disruptions to what was previously expected to be a better year for dairy, Dr. David Kohl, Virginia Tech, talked about the Coronavirus pandemic’s impact and how to manage it during a Center for Dairy Excellence industry call last week.

“What is different about this is that it hit everyone in the world and how sudden it was. It created demand destruction, and it has affected consumer behavior.”

Kohl said 70% of the U.S. economy is driven by consumption, and 40% of that consumption economy is tied to airlines, hotels, restaurants, recreation and the sports world. “Now that 70% of the U.S. economy has been knocked down to 30%,” he said. “We are not going to just flip that switch.”

He sees the “consumption economy” coming back to just 75% of its prior strength in the restaurant, hospitality and foodservice sectors, “because people are changing their behavior.

“We also export a lot of dairy, but we will see a move from globalization to ‘selective’ globalization,” said Kohl. “This black swan will turn into an angry bird with agriculture as the point dog for extreme volatility.”

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Dr. David Kohl

Kohl stressed three entities need to work together: producers, government, and agribusinesses/lenders. “Lenders will have to think about interest-only and principle deferments because producers will need good sound financials to get through this.”

Kohl said it is too early to tell what effect COVID-19 will truly have on exports. “The value of the dollar vs. other currencies is still strong. The economic health of countries we export to is important, watch for how the middle class is doing in those countries.”

Overall, Kohl sees the economic recovery being more of a Nike-shaped swoosh than a v-shaped bounce-back. As recovery takes shape, the foodservice and export demand will come back but not in a big way, he said, and not immediately.

He gave this advice as a financial expert, ag economist and part owner of a creamery:

  • Monitor cash-flow month-to-month and compare actual to projected to see where you stand.
  • Document losses so we can send a message about them to congressional delegations about what we need.
  • Meet with lender and accountant and go over the financials.
  • Communicate, be flexible and adapt.
  • Be real careful of knee-jerk reactions — that goes for farmers, lenders, and the government.
  • Follow protocols for the virus and know what your protocols are.
  • Never equate self-worth to net-worth.
  • Keep re-assessing your goals.
  • Reach out. Remember, you are not in this alone.

Kohl also sees opportunities for the future. “I have been outspoken on this. There is too much consolidation and concentration in our industry — whether it is dairy or beef,” said Dr. David Kohl, Virginia Tech professor emeritus as a Center for Dairy Excellence industry call guest last Thursday, April 23.

“We have to look at our supply chains and the vulnerability of them, the vulnerability of having too much power in the control of two few in the food and agriculture industry.

“America was built on small business and entrepreneurship. Even as small processors, we can go bankrupt very quickly, but this is where we also have great opportunity in the future,” Kohl suggested.

Participating on industry teleconferences and webinars over the past few weeks of the Coronavirus pandemic, Dr. Kohl has voiced his observations about how COVID-19 is changing consumer behavior and exposing food supply-chain vulnerabilities.

Some of his insights offer a systemic reality-check, but also present some forward-looking opportunities.

“We had a run-up in demand the first couple weeks of this thing. In general, it is still stronger, but we are also seeing people want local, and they want transparency,” Kohl reported. “People want to know where it comes from, how it is processed and to know the producer.”

He described the supply chain disruptions in dairy over the past several weeks as being attributed to large processing entities built on serving restaurants, universities, schools and other institutional foodservice, and catering to a segment of the international market – bulk products or tiny table sample products — not retail family-sized.

On the other side of that spectrum… “We are feeling this movement back to local, and it’s getting stronger,” said Kohl, adding that creamery home-delivery, for example, is taking off. “People want delivery.”

The other thing Kohl sees in consumer behavior is a return to “emotional food,” something some would call “comfort food.”

Consumers are not only following the science and realizing the healthfulness of dairy fat, they are gravitating toward natural, local and emotional food that brings comfort. Dairy can fit that mode very well if the consolidated supply chain can loosen the grip, open up, and welcome opportunities for local and regional models of processing and marketing.

Kohl said he sees it in the big trends and at the creamery — demand is growing for products like whole milk and ice cream — emotional comfort food.

Various fresh dairy products

— By Sherry Bunting, Farmshine, May 1, 2020

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

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

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

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

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

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

globalthoughtspartfive-chart1That is, until we hit 2009-10, when the third and fourth layers (see Chart 1 above) were added to the lowfat-push — that consequently pulled total fluid milk sales into the bucket at the same time that exports began their rapid ascent.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Adding value

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

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

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

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

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

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

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

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

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

Global volatility

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

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

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

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

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

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

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

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

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

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

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

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

Supply-chain realities

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

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

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

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

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

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

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

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

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

Trickle-down effect

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

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

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

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

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

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

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

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

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

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

Growth challenges

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Global dairy thoughts Part II: Who’s being creative?

Part Two of Five-part “Global Dairy Thoughts” Series in Farmshine

wGDC18-Day1-56By Sherry Bunting, from Farmshine May 4, 2018

BROWNSTOWN, Pa. — Everywhere we turn, we receive the message that fresh fluid milk is a market of the past and exports of less perishable dairy products are the wave of the future. As discussed in Part One of this ‘global dairy thoughts’ series, that seems to be the trend if you look at the markets.

Yet, could a portion of the reason we are in this fluid milk decline, be the effect of USDA-regulated pricing, USDA-imposed restraints on the ability to promote competitively in the beverage space, and the resulting industry neglect of this regulated commodity category — fresh fluid milk?

The government — USDA — and the checkoff and cooperative leadership have no appetite for significant change to any of these factors. USDA gets to pay less than it otherwise might for milk in its nutrition assistance programs, while both the proprietary and cooperative processors get to pay less than they might otherwise for components in a range of products.

Meanwhile, dairy farms see the first product to come from their herds — milk — declining, and their futures along with it.

Yes. We all know it. Fresh fluid milk — the most nutritious and natural option — is in the fight of its life. In meeting after meeting, presentation after presentation, we hear the messages from the industry and university economists — both subtly and outright.

Like this: “The fluid milk market is the dead horse we need to stop beating.”

Or this: “Do we want to hitch our wagon to a falling rock?”

And so forth, and so on.

It is difficult to question the industry and its economists on anything to do with the Eastern U.S. or the fluid milk market. Some have gone so far as to say that if the East is relying on fluid milk, they are out of luck.

Meanwhile, dairy farmers in eastern regions suggest that if fluid milk does not stabilize its losses or restore its market share — at least partially — they see their value as producers vanishing.

And in fact, this has an impact on our global advantage — that being the U.S. having a large consumer base at home to anchor the base production while growth is said to be the reason why we need exports.

As mentioned briefly in Part One, the Federal Orders are designed to move the milk from surplus regions to deficit regions, and that is what the proposed USDA change in Orders 5 and 7 will do further, the experts say.

Meanwhile, who is being creative to figure out how the deficit regions of the East can use or regain their primary competitive advantage — having a base of consumers within a day’s drive. This line of thinking is analogous to how the U.S. fits as an exporting nation with quite a large consumer base at home.

What really requires our creativity is the U.S. product mix and how milk resources are priced and sourced.

Here are some numbers. U.S. dairy protein disappearance has had average annual growth of 6.3% over the past five years, though it has been a bumpy ride, with U.S. production of milk protein concentrate (less exports) at its lowest levels over that five-year period in 2014.

Meanwhile, demand for fat is increasing as consumers heed the dietary revelations and switch from lowfat and fat-free milk to whole milk and have their butter without guilt.

Mentioned last week in part one is that global milk production increases are beyond the stable rate of 1.5% per year. According to the U.S. Dairy Export Council (USDEC), the combined growth rate from the EU-28, U.S., New Zealand, Australia and Argentina was double that collective 1.5% threshold. Looking at 2018, however, reports are surfacing to show spring flush is delayed in Europe just as it appears to be in the U.S.

Or is global production reining in? The markets are trying to figure that out with quite a rally going in powder right now.

One thing rarely mentioned in these reports is that Canada’s production has also grown with increased quota to account for the greater demand they see in their domestic market for dairy fat.

In fact, despite its supply management system, government figures show Canada’s milk production had year-over-year growth between 3 and 6% for each of the past three years, and 2018 production is off to a 5% start.

In Canada, as in the U.S., fat fortunes have changed over the past four years, so the belt has been loosened to serve that market, leaving more skim swimming around.

Canada’s new export class (Class 7) mainly pertains to this excess skim, which has reduced the amount of ultrafiltered milk they now buy from U.S. processors.

In addition, as pointed out by Calvin Covington in his presentation at the Georgia Dairy Conference in January, milk can be purchased at lower prices for this Canadian export Class 7 because the excess skim is used in products that are then exported.

This means the resulting products in the Canadian export class can be sold at globally competitive prices. While not in huge volumes, some of this product is going to Mexico.

This brings us to Mexico — currently the largest buyer of U.S.-produced nonfat dry milk, making the outcome of NAFTA negotiations a sticky issue for industry leaders, especially as Mexico recently signed a trade deal with the EU to include dairy.

The two forks come together in regions like the Northeast, where Class IV utilization has become an increasing part of the blend price and a more important balancer of the shrinking Class I.

While March showed a surprising jump in Class III utilization to a 15-year high in the Northeast, the overall trend over the past four years has been a blend price with increasing Class IV utilization and decreases in Classes I, II and III.

Dairy economists indicate the U.S. is making more world-standard skim milk powder for export, but in reality, the U.S. still makes a high percentage of nonfat dry milk (NFDM), which is still the largest domestically-produced milk powder category and it is the only milk powder that is used in the Federal Order pricing formulas.

NFDM is primarily made in conjunction with butter. As butter demand has grown and prompted greater butter production in the U.S. over the past four years, more NFDM has been made and stored (or the skim is dumped) as a result.

The market issue in the U.S. has been compounded by the EU having a mountain of intervention powder stocks in storage, some of it aging.

After the European Commission sold over 24 metric tons two weeks ago, global and domestic powder markets moved higher. It was the largest chunk to come out of that mountain to-date and was offered at reduced prices to attract buyers. But by the time the bidding was done, it sold at or above the GDT price for SMP powder.

It’s really true. Inventory depresses prices. Having a big chunk of a huge inventory gone, is, well, big.

The flip side of the coin is that European processors have shifted from powder production with their excess to making more cheese and butter.

Next in Part Three, we will look specifically at some differences between the products made in the U.S. vs. what is traded globally, and at the differences between the U.S. and global trading platforms.

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PHOTO CAPTION

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While attending the 2018 Georgia Dairy Conference in January, a large global cargo ship on the Savannah River, passed by the glass windows at lunchtime on its way out to sea. Several dairy producers walked outside for a closer look, we all hoped there was plenty of powder on board. Photo by Sherry Bunting

PMMB responds to Pa. Dept. of Ag with hearings May 2 and 16

Public comment must be pre-submitted by Apr. 30 and May 11 to speak at the hearings on May 2 and 16. Separate from the PMMB hearings, the Pa. Dept. of Ag is seeking public comment to improve the market for dairy in the state and invites the public and industry to provide suggestions or comments online to be considered moving forward.

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By Sherry Bunting, @agmoos

HARRISBURG, Pa. — In responding to Pennsylvania Secretary of Agriculture Russell Redding’s petition for hearings and review, the Pennsylvania Milk Marketing Board (PMMB) announced April 18 that it will conduct the first of two public hearings on May 2 with an expedited process requiring testimony to be provided in advance by noon on April 30.

The first hearing is set for May 2, 2018 at 9:00 a.m. in Room 309 of the Agriculture Building across from the Farm Show Complex on North Cameron Street, Harrisburg.

A second hearing is set for May 16, 2018 at 9:00 a.m. in the Monongahela Room of the Pennsylvania Farm Show Complex. The second hearing was announced this week, and like the first hearing, stipulates pre-registration with copy of comments provided in advance by noon on May 11.

PMMB states that the purpose of the first hearing on May 2 is to receive testimony and comments regarding the specific “Recommendations for Statutory Changes” found in the Ag Department’s April 5 petition.

The hearing will occur before the PMMB Sunshine Meeting already scheduled on that day, which sources indicate will address another portion of the PDA petition — asking PMMB to amend regulatory provisions dealing with termination of dealer-producer contracts. Since this portion of the petition involves a board-level action rather than a statutory change, steps to begin the regulatory review process will begin during the Sunshine Meeting that follows the public hearing on May 2.

(Author’s note: As you read on, please keep in mind that most Pennsylvania dairy farmers I speak with want transparency. They are not seeking a more complex system. They are seeking truth and a level playing field from which to compete. Pennsylvania is unique in having this lawyered-up state-level milk pricing system cohabitating with two Federal Order milk pricing systems. The state system (PMMB) sets a minimum retail milk price and minimum wholesale milk price for 6 regions of Pennsylvania, and the farm premium built into it only passes back to the farm IF the milk is audited to have met three specific criteria: produced, processed and sold in PA. However, the money is collected from all Pennsylvania consumers on ALL milk sold in Pennsylvania no matter where it came from or what pathway of logistics it utilized in getting to a PA store shelf. In turn, the very high per-gallon minimum price creates an uneven playing field for PA-produced milk as the state has become a magnet for increasing numbers of out-of-state dealer licenses as well as out-of-state milk usage, as well as out-of-state distribution warehouses and companies that specialize in logistics while the nation is overcome by supermarket loss-leading and price wars for customer acquisition).

In Wednesday’s hearing (May 2), PMMB will receive testimony on the following statutory items specifically mentioned in the Ag Department’s petition, many of which were suggested by PMMB staff as far back as 2009, but were never moved on, nor implemented!

LICENSING OF RETAILERS

In its petition, the Pa. Dept. of Ag mentions a recommendation by PMMB staff back in 2009 that was never implemented. It would have enabled the Board to require retailer reporting of volumes of fluid milk purchased and volumes sold in Pennsylvania “to track the amount of fluid milk sold at retail, the amount of consumer dollars being generated by the various components that make up the minimum retail price, and to identify the wholesalers and other sources of all fluid milk sold in Pennsylvania.”

The PDA petition notes that this is “a noted absence of data which prevented Drs. Novakovic, Stephenson and Nicholson’s study from being more conclusive on PMMB pricing’s impact on retail prices and Pennsylvania processing volumes. Such data is necessary for the continuation of credible, industry-supported and publicly-supported, PMMB pricing.”

TITLE TO MILK

Regarding Title to Milk, the PDA petition cites another amendment suggested by the PMMB staff in 2009, but never implemented, “to declare by statute, for the purposes of producer pricing only, that title to milk transfers to a milk dealer at the farm pick-up.”

In its petition, PDA notes that, “This (amendment) enables the Board to account for milk transported for out-of-state processing and to track that milk if it comes back in-state via wholesale or, coupled with the above, by a retailer.”

RETURN ABOVE COST OF PRODUCTION

The PDA petition also cites portions of the statute that result in “a return above the cost of production must always be guaranteed in the wholesale and retail price but not in the producer price.”

The petition recognizes that while the producer price under Section 801 must be, according to statute, “cost of production and a reasonable profit to the producer,” there is this exception stating that ‘the market for Pennsylvania-produced milk is threatened,’ which has “so permanently swallowed the rule that increasingly producers question the legitimacy of the entire PMMB pricing system,” PDA states in its petition.

“This is a major problem that must be addressed with transparency and clarity. This petition specifically requests that the PMMB staff be charged with investigating and recommending options to the Board for a statutory revision that has industry acceptance and equitably allocates the impact of market conditions across producers, milk dealers and retailers. If that is not deemed advisable, consideration of a statutory amendment nevertheless remains necessary to replace the existing language,” the petition states.

(Author’s Note: In other words, in times when the minimum price must be lowered to protect the market, the “pain” should be allocated to the other sectors and not taken on solely at the farm level. For example, when supermarkets loss-lead and get into price wars to acquire customers, should they not calculate that cost to their business rather than pass it back through the chain to the farm? It’s the retailer’s decision to use the price on a staple to acquire customers. It’s the processor’s decision to negotiate for large contracts. In the same sense, farmers cooperatives have admitted (in at least one civil proceeding) to doing the same by “sharing” profits gained by collective distribution efficiencies in the form of rebates to processors that are then passed on to retailers. Meanwhile, farmers are told the efficiencies of these collective distribution efforts are meant to reduce the cost of the hauling that is passed on to the farmer and that cost been steadily rising.)

RETURN OF BENEFIT TO PRODUCERS

Finally, the May 2 hearing will receive testimony on the point in paragraph 18 of the Pa. Ag Department’s petition concerning the return to producers of the benefit of minimum wholesale pricing.

The PDA petition explains it this way: “Much has been said over the years about the language of Section 805 of the Milk Marketing Law and whether the price increase built into the minimum wholesale price for payment of the over-order premium is being ‘given to producers’ as required.

“The allowed exception (‘ … necessary in order lawfully to maintain proper milk markets and outlets for producers and consumers’) has, again, permanently swallowed the rule. As with Section 801 producer pricing, consideration should be given to amending Section 805 to clarify the intended result. This is another area where positive perception of PMMB pricing appears to have been eroded by a perceived lack of clarity and transparency, the petition explains.

The PMMB hearing announcement states that intent to present testimony, and a written copy must be provided by noon on April 30, 2018 either electronically at  deberly@pa.gov or by filing at the PMMB office, Rm 110, Agriculture Building, 2301 North Cameron Street, Harrisburg, PA 17110.

For the May 16 hearing, the purpose is to solicit and consider suggestions for statutory changes to the Milk Marketing Law as requested by the PDA in its petition.

Those wanting to give testimony or comments on May 16 must provide notification and a written copy in advance to the PMMB by noon on May 11 either electronically at ra-pmmb@pa.gov or by filing at the PMMB office, Rm 110, Ag Building, 2301 North Cameron St., Harrisburg, PA 17110.

Announcements for the May 2 and May 16 public hearings indicate that both will be listening sessions with no examination or cross examination by interested parties.

A copy of the Pennsylvania Department of Agriculture Petition can be found at the Board’s website and drafts of the proposed amendments may be obtained on the Board’s website at http://www.mmb.pa.gov/Legal/Documents/Petition%20for%20Hearing%20MMB.pdf.

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Buy back and give? Sell cheap and dump? You decide.

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Cheese was loaded recently for Hunger Task Force, based in Wisconsin and part of the Feeding America network. Changes in USDA feeding programs are making Food Banks a more vital food access point for the poor. Farmers rise to the occasion when it comes to feeding the hungry. Dairy Pricing Association seeks to work continually with farmer funds to see that paying forward helps give back as times are very tough today on dairy farms across America. Facebook Photo: Dairy Pricing Association

Commentary, by Sherry Bunting, Farmshine, December 19, 2017

BROWNSTOWN, Pa. — Buy back and give? Or sell cheap and dump?That is the question.

“Just imagine what we could accomplish if there was a groundswell of farmers coming on board to fund this process to clear excess milk and dairy products and help others in need at the same time,” notes Amos Zimmerman of Dairy Pricing Association, Inc.

Zimmerman lives in Lancaster County, Pennsylvania and works with farmers here and in the Midwest on behalf of Dairy Pricing Association. He and others involved are excited about the organization’s track record and the new projects that are starting up that are funded by voluntary assessments. Dairy farmers sign up because they believe in the power of helping to clear the overloaded milk system of excess while helping people in need as the ultimate form of promotion.

Founded initially in Taylor, Wisconsin, the farmer-funded organization operates nationwide to help balance dairy plants across the country.

Dairy Pricing Association (DPA) does not disrupt the flow of milk. Instead, DPA uses the funds contributed by dairy producers to buy dairy products for donation to feeding programs in a way that has begun making a difference and has the potential to do even more.

Disappearance positively affects price, according to DPA literature. However, this is not milk ‘dumping,’ this is dairy giving. DPA’s activity in the marketplace is one that values the hard work of the dairy farmers while recognizing the pain and suffering caused by hunger in the world. DPA purchases dairy commodities and donates them for humanitarian purposes, for a two-fold benefit.

These and other donations show the heart of this dairy industry we are all proud to be a part of. Though it has been around for more than a decade, DPA is a lesser-known entity that is out there buying and donating milk and dairy products, not just at the holidays, but consistently throughout the year.

Buying excess dairy for donation is something Dairy Pricing Association has been expanding upon since its inception gathered steam in 2009 when a call to action by founder Robin Berg of Wisconsin led to a more systematic method. Farmers designate voluntary milk check assessments by signing up. Now others can also donate through a joint effort between Dairy Pricing Association and Hunger Task Force.

Tom Olson, DPA vice chair, tells of this history: “After the second meeting we could see that no one in the industry was going to help get this started. We were going to have to start this at someone’s kitchen table.”

With private donations for startup costs, Dairy Pricing Association, Inc. was born.

Today, their work is supported by dairy farmers who sign up to pay a voluntary assessment for the expressed purpose of buying excess milk and dairy products and channeling it to feeding programs that are the only option for poor consumers. The base of operations has expanded from the Upper Midwest into California and the Northeast as more farmers in Pennsylvania, New York, Ohio and Indiana have come on board to provide the necessary funding.

Dairy Pricing employee Amos Zimmerman of Lancaster County, Pennsylvania, is excited about the organization’s track record and the new projects that are starting up. In a phone interview with Zimmerman, Farmshine learned that dairy farmers can tailor the amount and purpose of their voluntary assessment to participate in this double-goal: To help clear the overloaded milk system of excess and help those in need as the ultimate form of promotion.

Every three months for the past two years, Dairy Pricing has been buying block cheese for donation to feeding programs. “We have gotten into a routine and the industry is starting to predict our purchases,” said Zimmerman. “We are changing things up and working on new projects for next year to start in January.”

One new project Dairy Pricing is working on is to satisfy the desire of the Central Pennsylvania Food Bank to have cheese donations coming every month of the year, not just at certain intervals, with the Food Bank paying half and DPA paying half.

“Central Penn Food Bank came to us to talk about a monthly arrangement,” Zimmerman said. With this in mind, Dairy Pricing is looking at a plan with Pennsylvania milk, processed in Maryland, but then cut to consumer package size by a Pennsylvania firm. DPA would purchase the cheese and Central Penn Food Bank would pay wholesale price for half of it, delivered in retail-size, pantry-ready.

Back on the bulk cheese purchases in the Midwest, recent loads of block Cheddar include one in October at 41,592 pounds, purchased by Dairy Pricing for donation to the Houston Food Bank for their needs after Hurricane Harvey.

The first load of blocks were purchased in 2016, when 30,588 pounds were bought at $1.65/lb for the Hunger Task Force in Milwaukee. That was followed by a $1.90/lb purchase of 41,604 pounds in December 2016 for Hunger Task Force and 41,860 pounds at $1.65 in April 2017 for Hunger Task Force. In July 2017, 39,662 pounds were purchased at $1.61 for Ruby’s Pantry in North Branch, Minnesota, followed by the October purchase of 41,592 pounds at $1.84/lb for the Houston Food Bank of Houston, Texas.

Dairy Pricing will be trying to do both the bulk purchases in the Midwest and the new programs in the Northeast and Midatlantic region, with the money available through dairy farmers’ voluntary assessments, according to Zimmerman.

Similar milk balancing through cheesemakers for feeding programs has also been happening in the Midwest, including recent milk to cheese through Lynn Dairies to The Community Table in Eau Claire, Wisconsin.

Another new startup project is coming about through inquiries by dairy farmers wanting to be involved in dairy donations through Christian Aid Ministries, based in Ephrata, Pa.

“They only handle powder because it goes overseas,” said Zimmerman. People who want to be involved in that project can sign up for a voluntary 15-cent/cwt assessment.

The powder project will be 100% whole milk powder to a host of oversees destinations where hunger is prevalent.

“Whatever we buy or donate, it has to be the whole milk product, not just the skim,” says Zimmerman, who spends his days on the road talking to farmers and attending meetings. He does a conference call with farmers every Monday night, attracting 100 to 150 people, and he serves as the boots-on-the-ground contact person for Dairy Pricing here — covering the whole East Coast and spending time in Ohio, Indiana, Kentucky, Virginia and Wisconsin.

He also works with farmers and farm groups on the side to help them with local processing start ups and other marketing solutions. He has been involved in the dairy industry his whole life, working as a herdsman for dairy farms since he was 18 and known for his curiosity in always looking for information about how the dairy industry works with a keen interest in the processing side.

“I’ve always had an interest in it, and since the marketing system is going the way that it is, people are having to find different routes to their consumers,” said Zimmerman, adding that “local consumers come to us all the time wondering how to support local farmers.”

This has become a difficult direct line within an increasingly national and global marketplace. Processing investments are the tough part of this task.

.“I can’t stress enough how important it is for dairy farmers to be informed to make better decisions,” Zimmerman says.

Since Dairy Pricing Association expanded to the east with its producer voluntary assessments, the very first milk donation was to New York for hurricane victims in 2012. When surplus milk is available over holidays, Dairy Pricing pulls gallons for donation, including donations last year to feeding programs in Washington D.C.

“None of what we do is to get the credit for doing it,” said Zimmerman. “We are doing this because it needs to be done.”

In fact, a bit more credit for doing this work could help get more of it done. As farmers learn more about what DPA is doing, more voluntary milk check assessments could accomplish an even greater impact.

Zimmerman noted that since Dairy Pricing balances the bottling of White Gold Milk and Chocolate Gold here in the East at California standards, this is the brand they typically pull from the wholesale supply for donations of fluid beverage milk. This utilizes both fresh fluid milk and powder to arrive at the higher solids content of the milk, including a 3.5% fat profile for whole milk instead of the minimum standard of 3.25%.

“What we can accomplish hinges on signups,” said Zimmerman. “The more we get the word out, the more interest we see. In 2014, we could hardly talk to farmers, prices were good. But that’s when we should be jumping on board to fix things before they get bad again.”

A ubiquitous figure in local dairy circles, Zimmerman gets calls every day from farmers in trouble thinking of selling their cows. “This problem is deeper than the milk prices,” he says. “It is the whole structure that is at risk that could destroy the infrastructure, even in Lancaster County.”

The typical voluntary assessment signup is 10 cents/cwt. But can be as little as 5 cents/cwt or as high as 30 cents. To specifically participate in the whole milk powder donations through Christian Aid overseas, a 15 cent/cwt level is required. (See form at the end of this story).

“It is all a donation, and farmers can cancel at any time,” Zimmerman explains, stressing that this assessment cannot be used to replace the 15-cent promotion checkoff nor the 4-cent CWT deductions taken off milk checks by member cooperatives.

In addition, others can also donate through a joint effort with Hunger Task Force. (See form at the end of this story).

DPA notes at their website that when milk is in great supply, many loads are sold at up to $3 per cwt below the Class III price. “When this happens, this cheap milk goes into storage as cheese or powder and starts to pile up,” according to DPA. “We need to have a fund to buy at these times to keep the system from being overloaded.”

Through Food for the Poor and Christian Aid, exporting to 17 countries overseas, the need is great for all the whole milk powder that can be supplied and as well for domestic use through Feeding America for soup kitchens and feeding the homeless here in the U.S.

The point is for the dairy product to go to people who could not get it any other way except through donation, not to take a sale away from a store. It is estimated that for every semi-trailer load of whole milk powder exported or used in domestic soup kitchens, eight tanker loads of milk are removed from the overloaded system.

Because the program is voluntary, producers can follow the progress of what DPA is doing, and can continue their contributions or cancel at any time.

Whether it is tens of thousands of gallons of milk or tens of thousands of pounds of cheese, DPA has steadily increased its benevolent presence from coast to coast as more farmers sign up to be involved.

Who are DPA members? They are dairy farmers from coast to coast shipping their milk via nearly every cooperative and direct milk plants. These dairy farms span the milk marketing and handling system across the U.S.

According to the DPA website, farmers funding Dairy Pricing Association with their voluntary assessments include shippers to Agri-Mark Inc. in New England; Associated Milk Producers in Minnesota, Clover Farms Dairy in Reading, Pa., Cloverland Farms Dairy in Baltimore, Md., Cooperative Milk Producers in Blackstone, Va., Dairy Farmers of America, Dean Foods, Farm First Coop in Wisconsin, Galliker’s Dairy in Johnstown, Pa., Grassland Dairy Products in Wisconsin, Guggisberg Cheese in Ohio, Horizon Organic based in Colorado, King’s Kreamery in Lancaster, Pa., LaGranders Hillside Dairy in Wisconsin, Lancaster Organic Farmers Cooperative and LANCO-Pennland, both based in Hagerstown, Md., Land O’Lakes, Lynn Dairy in Wisconsin, Maryland-Virginia in  Reston, Va., Mount Joy Coop, Mt. Joy, Pa., Nasonville Dairy in Wisconsin, National Farmers Organization headquartered in Ames, Iowa, Organic Valley, Prairie Farms based in Illinois, Smith Foods in Ohio, Westby Cooperative in Wisconsin, and former DMS shippers in New York and Pennsylvania.

 

Current dairy prices are not sustainable for the future survival of dairy farms and the rural communities and businesses that rely on them. At the same time, we read about the concerns of food insecure Americans as well as staggering numbers of war refugees and victims of disasters and famine throughout the world.

If our industry builds a storehouse of dairy goods that end up pressuring farm milk prices lower, and if growing numbers of people here and abroad are unable to access dairy nutrition without assistance, what better way to meet the needs of both than to voluntarily, consistently and strategically provide this assistance?

When the storehouse of goods is channeled to the needy through farmer-funded purchases in a way that helps to balance the market, America’s farm prices can improve and the food-security of our nation in the future can be assured.

The government and the industry do not have a plan that adequately addresses either of these concerns. This is why DPA exists as a way for farmers to help themselves by helping each other and helping those less fortunate at the same time.

Dairy Pricing Association is not funded by the government, nor is it funded by processors or marketers. Participation in DPA funding cannot be used to replace the 15-cent federally mandated promotion checkoff or the 4-cent CWT assessment. Nor can it  replace new deductions showing up on milk checks in the current marketing environment.

However, DPA attracts new farmers every day because the mission is funded by dairy farmers who believe that sitting back and doing nothing but complain is not an option. They want to take the future by the horns and move forward.

Through membership donations in the form of 5-cent to 15-cent per hundredweight (some even give 30 cents/cwt), farmers are joining together through DPA to strengthen the organization’s ability to place orders for finished dairy products from processing plants and once the order(s) are filled, donating the product for humanitarian purposes.

The possibilities of this concept are only limited by the funding available, and that means dairy farmers, themselves, can make the difference. Unlike the marketing and balancing fees that are being increased on dairy farm milk checks, the Dairy Pricing Association assessment is completely voluntary, simple, direct, farmer-run and built from the ground up to help dairy farmers help themselves, help each other and help children and families who know real hunger throughout America and the world.

The question is: Do farmers want to gain strength by joining together voluntarily to buy back their own excess for giving to people less fortunate?

Or do they want to continue to allow the system to do the incomplete job it has been doing – bound by its Federal Order rules that allow dumping but not giving, and costing farmers ever-higher deductions from their milk checks to “balance” the excess through below-class sales that create market-depressing inventory or by dumping milk down the drain at a cost to the farmers?

Hats off to the givers. May their vision and efforts continue to multiply.

To learn more about Dairy Pricing Association, Inc. and to acquire forms for milk check pledges, call Tom Olson at 715.284.9852 or 715.299.1332 or Amos Zimmerman at 717.872.1464  or email dpainc@ceas.coop. Visit DPA online at visit dairypricing.org and follow on Facebook @dairypricing. Ask about national producer conference calls.

To learn more about Christian Aid Ministries, the vehicle for a new farmer-funded Dairy Pricing Association, Inc. project of whole milk powder donations for hunger assistance worldwide, visit christianaidministries.org and dairypricing.org

Find out more about what they are doing, and then decide if your farm can help make a positive two-fold impact on markets and hunger. See below the forms for farmer milk check deductions and for non-farmer donations.

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