Your milk check and fairness in contracts: Dr. Bozic urges transparency

Posted on February 17, 2022 by Agmoos

Dr. Marin Bozic of Bozic LLC talked about his Milk Check Transparency Report at Pennsylvania Dairy Summit in Lancaster on Feb. 2. S.Bunting photo

By Sherry Bunting, published in Farmshine, Feb. 18, 2022

LANCASTER, Pa. — Aside from Federal Milk Marketing Order modifications, Dr. Marin Bozic talked about two other key pillars of reform during his keynote presentation at the Pennsylvania Dairy Summit February 2: Milk check transparency and fairness in milk contracts.

“Everyone prices milk differently depending on what they want you to do,” he said, showing a scattergram of milk check data from various coops and buyers.

“It’s impossible to compare it,” Bozic declared, noting that in Australia, all milk pricing data are public so anyone can see how everyone compares in payment by region. In Ireland something similar is also done, where each buyer’s protein and butterfat price is published as well as a price for the liquid portion.

“They see what different processors pay. They don’t have Federal Orders. This transparency keeps everyone honest,” said Bozic.

He knows about pricing around the world because — in addition to being an associate professor of applied economics at the University of Minnesota — Bozic is founder and CEO of Bozic LLC, a global provider of technology for commodity markets analytics and risk management, with around 100 clients on four continents. He is also an advisor to several dairy trade associations.

“While it’s not easy to switch (milk markets) today, milk check transparency would allow producers to hold boards accountable and hold management accountable,” said Bozic. “Having this information, seeing the patterns, a producer can ask the question: Are you doing everything you can to make sure I am successful?”

Bozic announced his new Milk Check Transparency Report, which he said will be a monthly report generated from producers submitting their milk checks to him. The purpose is to make milk checks easier to understand and to benchmark across processors to improve price discovery.

He has been working on this project with 12 processors, mainly in Wisconsin, so far. The first report is due out in the next few weeks, and the goal is to gain more input covering more buyers in more regions.

He said he hopes to have 90 to 95% of the processors included within the next six months to be able to generate a national Milk Check Transparency Report every month.

Specifically, all data is collected from producers’ milk check statements. The collaboration is confidential and a non-disclosure agreement is signed protecting the producer. Bozic and an assistant input the data. No one else sees the individual milk check submissions.

Once enough data are collected to have a high degree of confidence in the estimates, processors are contacted to offer them the opportunity to validate or comment before publishing.

Bozic has a multi-step process for standardizing the information at national average component levels (4.0F and 3.3P). He appreciates having a document describing how premiums are set by the milk buyer. Representative hauling is also incorporated and other formulas so price discovery comparisons can be made.

“Then we can work with any milk check,” said Bozic.

He said a large number of farms from Washington to Florida and from California to New York are or will be participating in this project, and he urged producers to get involved by writing to him at marin@bozic.io

Bozic was quick to point out there are other considerations and benefits a cooperative or private milk market may provide that go outside the scope of the report. He said the Milk Check Transparency Report is not meant for ranking. Instead, it is a way to look comparatively, so producers can have better market price discovery, input and accountability.

Another goal of the report is to eventually have a calculator option, where a producer can slide the pounds of volume or components, even milk quality, and see how it changes the pricing outcome.

“We are then better able to design risk management,” said Bozic, whose proprietary company owns the intellectual property he developed as the infrastructure behind risk management programs like Dairy Revenue Protection (DRP).

He believes with better information, even the Dairy Margin Coverage can be improved, and the calculators and sliders could allow producers to see how they are paid against a national index allowing them to make changes that would improve profitability and better inform how to manage the price risk they have.

Negative PPDs (producer price differentials) made headlines the past two years, Bozic acknowledged.

“There’s an impression that all this milk was de-pooled and a feeling that processors could have their cake and eat it too,” he said. “The Milk Check Transparency Report puts everyone on notice that whether differentials are positive or negative, they are in there.”

In this way, he said, the report can “promote good behavior in an unregulated way.”

On the variation in how producers are paid, Bozic said a big problem is lack of clarity on how farmers can achieve a better price.

“It’s astonishing to me that processors do not have brochures detailing how their incentives are based so farmers know how to meet them,” said Bozic.

The Milk Check Transparency Report is something Bozic is doing, for free, on his own time. He is not relying on the University of Minnesota. He said he knows he’ll get some ‘hate mail’ but believes it is important.

When asked why he is doing this, Bozic brought his reply to a personal level. He mentioned his mother, who is ailing, saying that she inspired him all his life to help people. He said it is hard for anyone to do this, but that he is fortunate to have built a technology company over the years and believes he is in a position to do something good.

On contract fairness, Bozic noted that Australia has required structures in their milk contracts, but they do not have regulated pricing.

“It’s their contracts that put them on an even keel,” he said.

For example, no cooperative or milk buyer should be able to prohibit their producers from doing third-party milk weight and test samples. Contracts should protect farmers from being ‘failed’ in inspections simply because they are ‘prickly’ or ‘vocal’ producers.

He also noted that in countries, like Australia, milk buyers or cooperatives are not allowed to require exclusivity while also doing two-tiered pricing for base and over-base milk at the same time.

“It’s one or the other,” said Bozic. “When those two lanes cross at the same time, we have a traffic accident.”

“Organizations like ADC and Edge are fighting for some of these interests of farmers, but they need more voices,” said Bozic.

He pointed out that the combination of exclusivity and base programs in the East may be insulating against production growth and surplus.

“That ‘insulation’ may be fine right now,” said Bozic. “But what about 10 years from now?”

What happens to dairy in the Northeast, for example, when processing has been built up everywhere else where production is being allowed, even encouraged, to grow?

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Covington: Southeast blend price forecast $3.50 higher for 2022

Posted on February 17, 2022 by Agmoos

Industry trends explored at Georgia Dairy Conference

Calvin Covington gives Southeast Dairy Outlook at Georgia Dairy Conference in January. S.Bunting photo

By Sherry Bunting, published in Farmshine, Feb. 11, 2022

SAVANNAH, Ga. – “Everything is going up, and quickly. Class IV is driving milk prices, with good demand for both butter and powder, especially for exporting,” said Calvin Covington as he presented the Southeast dairy outlook during the 2022 Georgia Dairy Conference, attended by around 300 dairy producers and industry members in Savannah in January.

He forecast the 2022 Federal Order blend price average (not mailbox price) for the Southeast region will be up $3.50, with most of that increase on higher butterfat, predicted to average $2.54/lb.

Covington’s 2022 blend price projections range from $23.01 in the Appalachian Order 5 and $23.05 in the Southeast Order 7 to $24.81 in Florida Order 6.

He noted that the market beat his conservative 2021 projections by 50 cents to the good.

“I’m still on the conservative side this year because prices can decrease as quickly as they increase,” Covinton said. “A small change in supply or demand makes a larger change – up or down – in your milk price.”

Covington went through the numbers for 2021, noting reduced milk production, reduced product inventories, reduced Class I sales, a narrowing of the Southeast milk deficit, expanded exports, and expanded domestic demand as trends that are expected to persist into 2022 – especially on the milk production side as supply programs, production cost increases and limits on available labor keep a lid on milk growth nationwide, even worldwide.

Come 2023-24, Covington sees production “jumping up” because of new cheese capacity coming on line in the next two to three years.

“Texas and the I-29 corridor (Central Plains) are bringing cows to where the plants are growing. We can see this in the production numbers,” he said.

As the milk supply in 2022 is likely to be restrained, Covington looks to the signs that domestic and export demand will continue strong, but questioned how inflation will affect consumer buying power.

The availability and consistency of labor also continues to challenge the dairy supply chain and its customers on the foodservice side.

Be prepared for the unexpected, he cautioned, reminding producers that 2020 was forecast to be a good year, and then the unexpected happened – Coronavirus – so all bets were off.

Exports play bigger role in milk price

“Export demand has become very important to your milk price,” said Covington. “We are seeing the strongest demand yet… and look how dependent the industry is on the export market, sending a record 17.1% of supply overseas — up from 15.8% in 2020.”

Using the available figures for the first 11 months of 2021 to gauge it, Covington said overall export demand is up 11.5% for 2021. Over the past decade, the year over year export demand gains averaged 4.3% by comparison.

Add to this the increase in domestic demand, up 1.4% in 2021, and the net gain in dairy demand for 2021 is more than 3% — almost double the 10-year average year over year demand increase of 1.7%.

Unfortunately, on the fluid milk side, USDA reports sales are down over 4% in 2021 vs. 2020, according to Covington.

“Exports are having a bigger part in your milk price,” he said, noting that global milk production in major dairy exporting countries is flat to lower, pushing global dairy prices higher. “Our prices are well below the world prices, making us very competitive. We’re exporting twice as much butter, and 75% of our nonfat dry milk is being exported.”

That’s positive for the skim price, and the doubling of butterfat exports along with domestic demand push the other side of the fat/skim equation higher.

Milk production trends

Even though 2021 milk production will clock in at around 1% over 2020, Covington honed into the production and cow losses on the back half of the year, using July through November data.

Cow losses at 124,000 head in those five months “are the biggest drop since 2009,” he said.

At the same time, milk per cow had been increasing the first part of the year but flattened in the second half as cost of production caught up to milk prices.

“Production is lower now because of less milk per cow and fewer cows,” said Covington.

Looking at just the back half of 2021, Covington broke the 24 monthly milk reporting states into thirds and showed the geographic shifts (Table 1, above): 8 states were up more than 1% in production, 8 states had reduced production and 8 states were in between.

Significant in the gaining top-third is Georgia, with July through November 2021 production up 3.2% over the same period in 2020.

“Georgia added more cows and increased milk per cow,” said Covington. He said as Florida is losing production, Georgia is gaining and getting closer to Florida.

On the bottom third, the back half 2021 milk production decreases were 4.6% in Florida and 3% in Virginia.

“Florida lost 6000 head and Virginia 3000,” said Covington. “This tells me people are going out of business.”

Looking at the three major milk states of the Southeast region for the year, Covington noted that Florida is down 4.8%, Virginia down 3.3% and Georgia up 1.1%. The other seven states of the Southeast are collectively down about a billion pounds over the past few years.

In the Northeast, Covington’s chart showed New York’s production for those months was up 1.1%, barely putting it in the gaining third, while Pennsylvania’s production was 2.3% lower and Ohio of 1.1%.

In the West, the chart showed Texas up 3.9%, but New Mexico down 9.9%; Wisconsin and Minnesota up 3.2 and 2.7% and Illinois down 1.4%; South Dakota continues as the largest percentage gainer, up 16.7% on the back half of 2021.

“South Dakota tops the list with expansion in cheese capacity,” said Covington. “Cheese expansion is also underway in Texas, and milk production is growing there too.”

Dairy inventories and commodity production are down

Dairy inventories are down. “One of the best barometers for milk prices is looking at inventories, to see if they are building or declining,” said Covington. They are declining with butter inventory down 16%, powder down 21%, whey down almost 9%.

Cheese inventories are up 9.6%, which isn’t bad, according to Covington.

“We’re going into 2022 with really no challenge of inventory,” he said.

On the commodity production side, Covington observed that, “We do not have excess cream. Butter production is lower and powder production is lower. Fluid milk consumption is lower, but the fat percentage is higher, decreasing the cream supply. Demand for other cream products has also been good.”

With cheese production up 1.3% overall, Covington said the real positive here is Italian cheese production up 5.6% is the bulk of the increase.

“This tells you the product is moving,” he said, “because it’s the fresh cheese production that is higher. They don’t usually make Italian cheese without a sale for it.”

Southeast fluid milk changes

Together, all three southeastern FMMOs had 4.2% less milk going into Class I in 2021. (Table 2, above)

“2021 was a poor year for Class I in the Southeast, but we are comparing to when the food box program was in effect, and that program gave quite a lift to fluid milk in 2020,” said Covington. This loss translates to about one million pounds per day.

Utilization percentage has remained about the same at a little over 72% across the three FMMOs. As Class I sales have declined (4.2%), Southeast production has also declined (3%), so there is little change in utilization percent.

The structure of Class I pool distributing plant ownership has also changed in the Southeast, post-Dean, with 9 of the 44 plants supermarket owned and 19 cooperative owned.

The Southeast region is producing 103 pounds of milk per capita annually, down 20 pounds while fluid milk sales per capita, at 134 pounds, are off by 7 pounds – putting Southeast per capita production 31 pounds below fluid milk per capita consumption.

“The size of the deficit gap is smaller than it was in 2010 due to sales declining more than the production declines over the past decade,” said Covington.

Looking ahead to questions asked about FMMO reform and the Class I mover calculation, Covington said he “would hope we can get back to the ‘higher of’ – realizing what it costs to serve a fluid milk market.”

He shared concern about what happens to orderly marketing when Class I is underpriced vs. the other milk classes.

“Fuel cost estimates are a big concern, and there are other costs,” said Covington. “The cost to serve Class I markets keeps going up. The biggest issue is the FMMO system started when fluid milk was king, and now it is becoming a minority, especially in some areas of the country where processors will wonder, why be in the Federal Order?”

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Milk solids seen as foundation for optimism in 2022

Posted on December 30, 2021 by Agmoos

By Sherry Bunting, Farmshine, December 24, 2021

NEW HOLLAND, Pa. — “Milk pricing is backward, but look forward, and focus on components,” said Dr. Normand St-Pierre of Perdue Agribusiness speaking at Homestead Nutrition’s December Dairy Seminar in New Holland, Pennsylvania, where 200 dairy farmers heard from experts about the markets and the all-important goals of modifying milk price by improving components, and improving the milk margin by feeding healthy cows.

St-Pierre urged producers to be smart as they look at their costs — to not cut costs that sacrifice early lactation milk yield. He also pointed out how these higher prices for all components make feeding for components a continued area of focus to help the dairy in the face of milk check deductions related to cuts in base allotments and balancing.

Earlier in the program, Dr. Mike Van Amburgh shared Cornell University research on how to feed cows in a way that optimizes component yield by percentage, not just in total volume pounds. Total component pounds have historically been a function of total milk volume, but today, percentage counts because of per-hundredweight milk check deductions and over-base penalties.

“Milk volume is being discouraged in many regions of the country,” said Van Amburgh. “So the opportunity for producers here is to enhance their milk components, to make components a primary strategy, while still making your milk volume.”

St-Pierre noted that the next six months will be better than the last six months with a better milk price, and the futures markets certainly confirm this — moving even higher over the past four weeks. Global milk production is down 1% year-to-date, global skim milk powder stocks are low, butter production has been down for three months, stocks are low, and the world is getting short on butterfat, he said.

He observed that the Class III price was averaging over $19 and Class IV over $20 looking out six to 12 months in the futures markets. (That was the case on December 8, and now Class III is averaging over $20 and Class IV over $21.)

He sees the milk check butterfat price averaging $2.30 over the next six months; however, he said he believes this average could actually go higher, while protein should average $2.80.

Another positive he mentioned is the ‘solids nonfat’ are being priced higher, and the ‘other solids’ are priced at almost double the historical average, driven by robust whey sales.

Even the USDA World Supply and Demand Estimates (WASDE) report the day after this meeting (Dec. 9, 2021) revised forecasts higher for butter, cheese and whey with NFDM forecasted at steady prices in 2022. As pointed out by St-Pierre, the current trends suggest this report could revise upward again in January, although much hinges on consumer responses to inflationary pressure in their buying habits.

The 2021 All Milk price average was increased in the WASDE report to $18.60, buoyed by yearend strength, and the 2022 All-Milk price forecast was revised upward to $20.75.

If current futures market levels are realized, these higher trending milk prices should help dairies keep pace with rising input costs, although experts calculate feed costs to be up by around $2.50/cwt for 2022 vs. 2021 and all costs combined could be up by almost $3.50/cwt for 2022 vs. 2021.

St-Pierre dug into this from a milk pricing standpoint, and he shared the good news that negative producer price differentials (PPD) from 2020 and the first half of 2021 have “quieted down.”

Negative PPDs eat into location adjustments and change the way components are ultimately valued when massive de-pooling of milk occurs in Federal Milk Marketing Orders.

“We have positive PPDs right now because Class III and IV are trading closer together,” he said, noting that the new Class I formula averages the two manufacturing classes and adds 74 cents, so when they trade farther apart, the producer sees the hit in Class I also, dragging down the blend price and leaving smaller or negative producer price differentials (PPD).

The Class I pricing change and negative PPDs are issues St-Pierre has written about.

“Now they are asking the people who made the mess to fix it. That escapes me,” he said, noting the Federal Milk Marketing Orders (FMMO) were created in the 1930s and designed at a time when there were hundreds of cooperatives and milk did not move all over the country and the world.

St-Pierre said FMMOs exist for “orderly marketing,” but the government made a ‘fix’ that is like fixing an old horse. “He’s fixed but not running very fast and may be at the point where the horse has had enough.”

FMMOs were also created at a time when people drank more milk. Today, he said, they eat more cheese.

Showing a graph of per-capita fluid milk sales from 1980 (234 pounds per capita annually) to 2018 (146 pounds per capita annually), St-Pierre asked: “Does that look to you like an area of growth? If that marketer worked for Coca-Cola, he would have long been unemployed.”

While he acknowledged fluid milk has been disadvantaged by “lazy marketing,” he also said promoting milk is very hard because “we are not in the same world as in 1980. We are competing against water — with food in a bottle that we have to keep refrigerated. Cheese is easier to sell.”

The per-capita rise in cheese consumption since 1980 reflects this.

In the past, said St-Pierre, the FMMOs were designed to put the highest price in the bottle because that was the most perishable product. Today, as for the past 20 years, the prices are still based on the surveys of four products at wholesale – cheddar, butter, nonfat dry milk, and whey.

It was designed to have those prices for Classes 1 through 4 go in that order, he explained. “But it doesn’t work that way anymore.”

“As the butter price goes up, just make more butter, right?” he asks. “But it’s hard to make butter in a cheese plant and vice versa.”

“If I’m a processor, and I built a big cheese plant, and it cost me $150 million, I make a lot of cheese,” St-Pierre quipped.

Plus the built-in make allowances encourage single-product, single-class production plants running at full capacity, regardless of what the market is doing.

“It will take a while to change that dynamic,” he said.

“All milk is paid on components, but handlers don’t pay for components in the same way in the (FMMO) pool,” said St-Pierre. He explained that milk handlers pay for components according to how the milk is used, what “class” of products the milk was utilized in.

Class I price is based on butterfat and skim, Class II on butterfat and nonfat solids. Class III, which is 55% of the milk utilization, pays mainly on protein and other solids with an adjustment for butterfat because cheese production also uses a lot of fat. Class IV pays on butterfat and nonfat solids.

“We price things backward. Tell me one thing that you can go out and buy and drive out of the store and a month later tell that store what you will pay for it,” St-Pierre said, noting this is essentially what milk buyers do through the FMMO system, month after month, year after year.

He encouraged producers to be looking ahead three months, which he admitted is hard to do when the pricing for their product is so far behind the transaction. Still, he said following the markets gives a good indication, and there is more reliability in the 3-month window than 6 to 12 months out in the futures markets.

The Class III price is normally higher than Class IV, but for the next few months, even through the next year, it looks to be flip-flopped.

Using an ‘imaginary’ FMMO, he divided all four classes as 25% utilization, which in reality is not too far off what the Northeast Order can come close to. In that four-class FMMO, the different ways different classes pay for components cause the books to be out of balance after producers are paid their advance check based on protein. Knowing each class pays differently, the class price differences and utilization become the key to how that PPD is either positive, flat or negative.

When Class IV was $6 below Class III, cooperatives and processors de-pooled a lot of milk, St-Pierre observed: “They could just pay 20 cents over that $13.80 price to get the milk and then sell it back at the $20 (Class III) price. That makes the co-op look good but the producer gets shafted,” said St-Pierre.

In FMMO 30, where most of the utilization is already Class III, processors made a lot of cheese in 2020-21, but they didn’t pool a lot of that milk, and they got it cheaper, he explained.

Bottom line, said St-Pierre, the Federal Orders were never designed to operate this way. Then along came the “little change” in the Class I price. In the past, the FMMOs used the ‘higher of’ Class III or IV as the way to set the Class I base.

“If I am a bottler, I don’t like that (higher of) because I don’t know how to hedge it,” said St-Pierre. “I know my price ahead of time anyway (through advance Class I pricing), but I still don’t like the ‘higher of’ so I go and tell Congress to average it and add 74 cents. Then Covid-19 hits, and producers lose over $750 million.”

St-Pierre notes that the industry is trying to fix the system, backwards.

He confirmed that where the negative PPDs kick Northeast producers is in the location adjustments. A smaller than normal positive PPD is a loss, and when it goes negative, it eats into the location adjustment, which is also supposed to be positive.

Working through all of these thoughts about pricing and consumption pattern, St-Pierre left dairy farmers with the good news that for the foreseeable future, the PPDs should be positive, although smaller than normal in some months, and Class III and IV prices are both on the rise.

Production has slowed, and demand is good, including for milk powders and whey. These positive supply and demand factors are confirmed in the dairy product production and cold storage reports.

With the very reasonable expectation of good prices for milk components, in the face of base penalties, balancing assessments, and other milk check deductions that a dairy producer encounters, the best way to navigate is focusing on component yield because the deductions are a flat amount per hundredweight of total volume, whereas component yield becomes a percentage increase in the value of those milk hundredweights.

Look for more on other interesting nutrition topics and milk quality award winners as this article continues in a future Farmshine.

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2022 milk futures rally continues as butter leads the spot market gains

Posted on December 29, 2021 by Agmoos

Updated Market Moos, by Sherry Bunting, a weekly feature in Farmshine

2022 Class III futures avg. $20.10, Class IV $21.10

Milk futures surged to levels not seen since 2014 this week on the heels of previous weeks’ gains, and the Class III milk futures contracts for 2022 now average over $20 with Class IV over $21 as of Dec. 29, 2021.

Class III milk futures first broke into the $20s last week, hitting new contract highs daily since Wed., Dec. 22 on all 2022 contracts. The closeup contracts for Dec. 2021 and Jan. 2022 were flat in pre-Christmas trading, but see-sawed toward gains in post-Christmas trading.

On the milk futures close Wed., Dec. 29, Class III contracts for the next 12 months (Dec. 2021 – Nov. 2022) averaged $20.01, up $1.35 from a month ago, with January through October 2022 contracts all at or above $20.00.

Class IV futures broke the $21 mark for the Feb. 2022 contract last week, and then continued marching higher after Christmas with January through October 2022 contracts all at or above $21. At the close of trade Wed., Dec. 29, the next 12 months (Dec. 2021 through Nov. 2022) averaged $21.05, which is $1.89 higher than a month ago.

Excluding the lower and expiring current month contract, the 12-month average of 2022 futures contracts averaged at $20.10 for Class III and $21.10 for Class IV.

Class IV continues to dominate the board, and the average spread between the two widened to $1.00 this week with December’s contract pegged at a Class IV over III differential of $1.45; January’s $1.29.

Butter’s impressive gains lead the spot-market

Butter is leading the charge as CME spot dairy products moved mostly higher in pre- and post-Christmas trade. Cheese prices had weakened in pre-holiday trade while butter, nonfat dry milk and whey all made solid or impressive gains. In the post-Christmas spot calls, impressive gains were made on both cheese and butter while whey held firm and milk powder weakened.

On Class III dairy product spot markets at the CME Wed., Dec. 29, the 40 lb block Cheddar price was pegged at $1.95/lb — recovering all of the pre-holiday loss and then some. A single load traded at $1.94 and a spot bid to purchase at $1.95 was left on the table by sellers. Barrels have seesawed almost daily but moved decidedly higher on a nickel upswing Wed., Dec. 29, when 500-lb barrel Cheddar was pegged at $1.69/lb and 5 loads changed hands.

Dry whey gained 6 cents last week and held firm at that 75-cent level Dec. 27, 28 and 29, although zero product changed hands.

In the Class IV products, the spot butter market was very active, and the spot price was pegged at $2.43/lb on Wed., Dec. 29, up a whopping 24 cents from the previous Wednesday and 33 cents higher than two weeks ago. On Mon., Dec. 27, a whopping 10 loads of butter traded with the price pegged at $2.30. On Tues., Dec. 28, another big round of 12 loads traded with the price pegged at $2.40/lb. Then on Wed., Dec. 29, another rally resulted in 3 loads trading with the spot price reaching $2.43/lb with sellers on the sidelines holding their offers at $2.45.

Grade A nonfat dry milk had added a penny last week but lost two pennies this week. On Wed., Dec. 29, the NFDM spot price was pegged at $1.6475/lb with 5 loads changing hands.

November milk production fell 0.4% vs. year ago amid increasingly obvious geographic patterns

U.S. milk production was 0.4% lower than a year ago in November, but for the major milk states, the decline was 0.1%.

Cow numbers dropped 10,000 head nationally in the month of November, alone. Almost one-third of them (3000 head) left the count in Pennsylvania between October and November. Compared with a year ago, cow numbers across the U.S. were down 47,000 head.

In Pennsylvania, cow numbers at 472,000 head were down 10,000 vs. year ago with production off 3.5%. Elsewhere in the Northeast milkshed, New York’s production was down 0.2%, but cow numbers were up 2000 head. In Vermont, milk production fell 1.4% while cow numbers were stable compared with a year ago.

(Producers in Pennsylvania and through most of the Northeast and Midatlantic region report continued penalties on overbase milk, continuance of the 12% cuts in Northeast/Midatlantic producer base allotments instituted by the largest national footprint cooperative during the height of the pandemic. This, despite USDA Dairy Market News reports confirming very tight milk and cream supplies in the eastern markets, and increasing evidence of store shortages based on consumers facebooking their photos of empty dairy and milk shelves at prominent regional supermarket chains throughout the Northeast and Midatlantic states. The recent revelation that the iconic Readington Farms in New Jersey — that supplies ShopRites and other stores in the Wakefern Foods retail group throughout New England, New York, Pennsylvania and the Delmarva — will begin procuring milk for these stores from former Dean plants now owned by Dairy Farmers of America (DFA) also sent shockwaves throughout the Northeast last week)

In the Southeast, Florida dropped 6000 cows with production down 3.4% from a year ago. Georgia gained 1000 cows and 1.4% in production.

In the Mideast region, Ohio, Indiana and Michigan collectively lost 14.000 cows and were down 1.6% in milk vs. year ago.

Growth in the Central Plains continued. States that gained both cows and production vs. year ago include South Dakota, up 22,000 head and 16.7% in milk; Minnesota up 6000 cows and 1.9% in milk; Iowa up 6000 cows and 2.7% in milk; Wisconsin up 18,000 cows and 2.2% in milk; and Texas up 17,000 cows and 2.8% in milk.

California produced 1% more milk than a year ago but lost 1000 cows.

January Class I mover $19.71, Class IV pricing factor tops Class III by $1.48 per cwt.

The Class I mover for January 2022 was announced Dec. 22 at $19.71. That’s 54 cents higher than December’s mover and $4.57 higher than January a year ago.

By the hair of its chinny-chin-chin, the January Class I base price is identical under the new formula as it would have been under the old. Based on USDA AMS prices for cheddar, butter, nonfat dry milk and whey in the first two weeks of December, the January 2022 Class IV advance pricing factor was calculated by USDA to be 12.21 while Class III figured at $10.73.

Averaging the two advance pricing factors together and adding 74 cents is how we get to that $19.71 Class advance base price for January 2022 — under the new Class I formula. This is also the price it would be using the previous ‘higher of’ Class I formula because the $1.48 spread between the Class III and Class IV advance pricing factors (74 cents x 2) is the magic number that keeps the new method from calculating a Class I base price that is lower under the new method than it would have been under the old method. Any wider than $1.48, and the difference becomes negative.

Class IV is projected to be higher than Class III throughout 2022, if the current futures markets and market fundamentals hold out. This means the ideas circulating to change the Class I formula to a Class III-plus would be negative over the duration of time that Class IV beats Class III.

In volatile markets, where the dairy industry is vulnerable to market shocks, the use of the ‘higher of’ formula for Class I did help prevent further disparities that lead to de-pooling and negative PPDs, which affect not only producer milk checks but also their risk management.

Secretary Vilsack says bring me consensus, first

Last week during a farm visit in Wisconsin, Secretary of Agriculture Tom Vilsack told dairy producers he wants to see the dairy industry come together with a consensus on Federal Milk Marketing Order changes before holding USDA hearings.

Three weeks ago, Senators Kirsten Gillibrand (D-NY), Patrick Leahy (D-Vt.) and Susan Collins (R-Me) introduced the Dairy Pricing Opportunity Act of 2021, a bipartisan bill in the U.S. Senate that would direct the Secretary of Agriculture to provide notice of, and initiate, national hearings to review Federal milk marketing orders … “which shall include review and consideration of views and proposals of producers and the dairy industry on the Class I skim milk price, including the ‘‘higher of’’ Class I skim milk formula…”

In the past, whenever USDA has initiated administrative hearings to make specific FMMO changes, a consensus was typically sought before such hearings.

On the other hand, if the Senate bill becomes law, a more open process appears to be described that could make national hearings a review of the system, consideration of proposals, and specifically a look at the Class I formula change, which had been made legislatively without hearings, comment or a producer referendum in the 2018 Farm Bill.

Perhaps national FMMO hearings could open a consensus-building process.

PMVAP payments delayed

The Pandemic Market Volatility Assistance Program (PMVAP) payments related to the Class I formula losses from July through December 2020 will be delayed until late January or into February or March, according to Erin Taylor, USDA AMS. She told dairy farmers in a Dairy Industry Call hosted by the Center for Dairy Excellence this week that eligible producers should have been contacted by their milk cooperative or handler by now requesting proof they meet the Adjusted Gross Income limits of USDA payment programs.

USDA is in the process of finalizing agreements with each eligible handler that had any milk pooled on any FMMO during that time period and is providing workbooks with methodology on how the payments should be made to their producers based on how they were paid during the July-Dec 2020 period. Look for more information in the Jan. 7 edition of Farmshine and click here.

Whole Milk for Healthy Kids Update

There are 84 Congressional cosponsors from 30 states (including the prime sponsor, G.T. Thompson of Pennsylvania) who are now supporting the Whole Milk for Healthy Kids Act, H.R. 1861. However, for those readers who live in the New England states as well as Maryland, Delaware, South Carolina, West Virginia and several western states, representation is absent.

To-date, there are no cosponsors yet from the following states: Colorado, Connecticut, Delaware, Hawaii, Maine, Maryland, Massachusetts, Montana, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Carolina, Utah, Vermont, West Virginia, and Wyoming.

This bipartisan bill was introduced in March by Congressmen G.T. Thompson (R-PA) and Antonio Delgado (D-NY), to end the federal prohibition of whole milk in schools. It gained 18 new cosponsors over the past two weeks to reach 84 from 30 states, but needs at least 100 cosponsors representing all 50 states to get moving in committee toward the goal line.

Consider contacting your Representative with thanks or a request to cosponsor this bill that simply allows school children the healthy milk choice they love and will drink. To find your Representative, enter your address at https://www.govtrack.us/congress/members

What’s up with the $350 mil. in PMVAP payments to dairy farms announced last August?

Posted on December 29, 2021 by Agmoos

Just some of the criteria for PMVAP are listed on this slide. There is no generally-applied formula per-cow or per-cwt for how producers will receive these USDA program funds via their handlers or cooperatives. The PMVAP payments are milk handler-specific. Criteria were explained in a USDA webinar and during a recent Center for Dairy Excellence industry call.

Producer payments will vary by handler eligibility, specific Federal Order data, how producers were paid during the covered time period, and are delayed to Q1 2022. Only those handlers and cooperatives that pooled any portion of their milk on a Federal Milk Marketing Order at any point during the July-Dec. 2020 time period are eligible.

By Sherry Bunting

WASHINGTON, D.C. – Dairy farmers are wondering about the PMVAP payments. They were expecting to see roughly $350 million in Pandemic Market Volatility Assistance Program funds disbursed by USDA through eligible milk handlers by the end of 2021.

According to Erin Taylor at USDA AMS Dairy Programs, those payments will be delayed until the end of January or into February or even March because of the unique and complicated handler-specific internal clearing process being used.

During a recent Center for Dairy Excellence dairy industry call, Taylor said USDA has been working diligently with eligible handlers and cooperatives since the program was announced on August 19, 2021.

It is a complex process of USDA AMS dairy program staff meeting with milk handlers and cooperatives that pooled any milk on any Federal Milk Marketing Order at any point from July through December 2020 to formulate specific payment agreements on an individual handler basis that include the calculated lump sum to the handler and specify how the producers affiliated with that handler are to be paid.

“We have started sending out these agreements and expect to get them all out to handlers for signing and returning by early January,” said Taylor. “Once approved, we will distribute payment dollars to those handlers. Then, they have 30 days to disburse the funds to their eligible producers.”

In short, she said, USDA is striving to get the money sent to handlers in early 2022. Later this spring, she said, USDA will audit handlers to verify these payments were made correctly, in full, to their producers.

It is important to know that not all handlers and cooperatives are eligible to participate, not all eligible handlers will choose to participate, and therefore, not all producers will receive PMVAP payments.

Who is eligible for PMVAP payments?

Only those milk handlers and cooperatives that participated in a Federal Order system during some or all of the July through December 2020 time period are eligible, according to Taylor.

Eligible handlers must also obtain from each producer the verification of meeting the Adjusted Gross Income (AGI) limits USDA has for its farm programs.

“You should have been contacted by your handler by now, if you are eligible, because they need to verify that you meet the AGI requirements,” said Taylor, noting that any producer who has not been contacted by their handler but thinks they are eligible for PMVAP can contact their handler and directly ask if they are participating.

“If that doesn’t work, or if you would rather ask USDA, then email pmvap@usda.gov or call 202.384.3417. Tell us who your handler is, and we can look it up,” she added. These email and phone contacts can also be used by producers who have other questions about the PMVAP.

During the Center for Dairy Excellence call, producers asked if there was a formula for how they can expect to be paid per cow or per hundredweight. Taylor explained there is no general formula for many reasons.

First, she said, there are requirements in this program that will be met differently by different handlers according to their Federal Milk Marketing Order data.

Also, payments to producers are limited to payment of 80% of losses on up to 5 million pounds of production and only on milk that was pooled or in cases of non-pooled producers who were paid by their handlers based on the pooled volume – together with the pooled producers.

“Each factor is different for every handler,” said Taylor. “We are working with handlers to ensure the milk pounds to be paid on and the methodology for payment are correct according to the program.”

She said doing it this way was deemed “the easiest way to do it through handlers that have this payment relationship with (dairy farmers), to get the money out quickly and with USDA oversight.”

In short, these are targeted payments based on Federal Order pooling fund losses as reflected by a much lower Class I base price under the new average-plus formula compared with the old ‘higher of’ formula for the July through December 2020 time period.

“A lot of these factors differ by handler in terms of how producers were paid in aggregate,” she said. “In the FMMOs, handlers don’t have to pool all of their milk. Some don’t pool any, and those that didn’t pool any milk are not eligible.”

For other handlers, the payments are based on the pooled portion, but if they paid all their producers the same way (pooled and non-pooled), then their payments to their producers will be done in the same way over all the milk in aggregate, not just the pooled milk.

“Otherwise, it would be the luck of the draw because a producer is not the one who decides on what milk is pooled and what milk is not pooled,” Taylor explained. “We compute the payment rate (for each handler) in a way that ensures fairness and equity in how the payments are distributed (based on how the producers were originally paid) for those months.”

Taylor said each eligible handler will have received workbooks pre-done by USDA with their approved data for covered milk pounds and the payment methodology so they can simply do the calculations and distribute the payments to their producers accordingly.

FMMO staff will audit and verify with handlers after these payments are made, according to Taylor.

The eligible and participating milk handlers will be reimbursed to administer these payments, which includes providing an educational component for their producers. These funds do not come out of the producer payments but are calculated separately.

She noted that handlers do not receive their administration reimbursement until after USDA verifies producers have been paid in full and the educational component is met.

When asked what percentage of U.S. milk production will be covered by PMVAP payments, Taylor said it depends on the percentage of handlers pooling milk and choosing to participate in the PMVAP. Normally, she said, about 70% of U.S. milk production is pooled on Federal Orders, but in 2020 this percentage was lower (due to massive de-pooling of milk in many Federal Orders in the face of severely negative PPDs).

Producers also asked if there is any chance that a Class III producer that was not paid that higher Class III price during the July-Dec 2020 period may be able to receive PMVAP payments.

“This program pays on pooled milk and depending on if the handler pooled any milk at all will determine if that handler’s producers get a payment,” Taylor replied. “Those that didn’t pool any milk during those months are not eligible under the current program rules.”

While these PMVAP payments are meant to assist against the losses influenced by pandemic volatility in 2020 exacerbating issues with the Class I formula change, the payments will be received by producers in 2022, and it will be considered earned income for that tax year, according to Taylor. Handlers will be sending 2022 Form 1099 Misc. Income statements to producers receiving these payments.

The educational component of the PMVAP requires handlers to outline their plans and to verify they have met them. USDA AMS has provided links at the special website with educational resources on an array of federal dairy policy topics that meet the requirement. Handlers can also choose to use other resources to provide education on one or more areas that include dairy markets, risk management, how FMMOs work, how marketwide pooling works, Dairy Margin Coverage and other topics via a variety of methods, including in-person meetings, webinars, newsletters, emails distributions and mailers.

USDA has a special website devoted to the PMVAP program that includes explanations, webinars, resources and contacts at https://www.ams.usda.gov/services/pandemic-market-volatility-assistance-program

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Markets on the mooove as next 12 months of Class III futures average above $19.50, Class IV over $20.

Posted on December 14, 2021 by Agmoos

By Sherry Bunting, Farmshine Milk Market Moos

“The next six months will be better than the last six months with a better milk price,” said Dr. Normand St-Pierre of Perdue Agribusiness speaking at a meeting of dairy farmers this week. Global milk production is down 1% year-to-date, global skim milk powder stocks are low, and the world in general is short on butterfat, he said.

In fact, milk and dairy products are experiencing spot shortages in U.S. retail and foodservice channels. Kraft-Heinz, for example, is reporting sustained demand for cream cheese with sales up 35%. Reduced butter production vs. year ago has met increased drawdowns to bring cold storage stocks well below year ago.

On the CME spot market on Dec. 14, butter was pegged at $2.06, with high sales on two loads at $2.10. Nonfat dry milk crossed the $1.60 mark and stood at $1.64/lb, pushing Class IV milk futures solidly into the $20’s with a 12-month average of $20.21 as of Mon., Dec. 13.

Class III milk futures moved well into the $19s across the 12-month board with December and January topping the $20 mark Monday (Dec 13) fueled by the strength of a rising block-Cheddar price, pegged at $1.94/lb Tuesday, Dec. 14 and steadily rising whey prices pegged at 71 cents/lb. The caveat is the 500-pound barrel cheese price is moving more slowly, pegged at $1.67/lb Tuesday — 27 cents behind the 40-lb block price.

St-Pierre sees the milk check butterfat price averaging $2.30 over the next six months, and he thinks it could actually go higher, while protein should average $2.80. Mid-December milk checks will price November butterfat at $2.15 and protein at $2.75. Nonfat solids are also higher, and other solids are almost double the historical average, driven by the robust whey sales.

A more conservative USDA World Supply and Demand Estimates (WASDE) report on Dec. 9 forecast higher prices for butter, cheese and whey with NFDM unchanged in 2022, but current trends suggest this report could revise upward in January, although much hinges on consumer responses to inflationary pressure in their buying habits. The report did nudge the 2021 All Milk price average to $18.60, buoyed by yearend strength. The WASDE report forecasts a 2022 All-Milk price of $20.75, which some analysts believe to be a low-end projection given current market indicators.

If current futures market levels are realized, these higher trending milk prices should help dairies keep pace with rising input costs. In addition, risk management tools and margin coverage options will help sync both sides of the milk price / feed cost equation in this inflationary environment.

Overall, domestic demand is strong but challenged by spot shortages and higher retail prices. As global prices are also rising, U.S. exports have continued strong even in light of overseas transportation disruptions.

Risk management will be important, despite uptrending dairy product and milk prices because costs for feed and other inputs are also rising, and the effect on demand down the road from inflationary pressures and global uncertainties is difficult to forecast. One caveat that is mentioned by market analysts is China’s large purchases of whole and skim milk powder on global markets over the past six months have accumulated a stockpile that could reduce China’s purchases in the coming year.

Still, the Global Dairy Trade (GDT) biweekly internet auction on Tues., Dec. 7 moved higher on all products with the GDT index up 1.4% from November 30 to its highest level since January 2014. The GDT butter price jumped 4.6% over the two week period to the highest levels since February, and most of that increase was in the nearest term delivery months. Skim milk powder (SMP) was up 1.3% to levels not seen in more than five years, with the strongest increase (+3%) seen on global SMP for delivery six months ahead in May 2022.

Dairy Margin Coverage Note: USDA announced last week that the Dairy Margin Coverage signups for 2022 enrollments began Dec. 13, 2021 through Feb. 18, 2022. Dairy producers wanting to update production history (up to 5 million annual pounds) by verifying 2019 milk marketings will receive supplemental coverage retroactive to January 2021 and ahead through 2023. This updated production history must be done first the local FSA office before enrolling 2022 DMC coverages. The new feed cost calculation using higher quality alfalfa prices is estimated to add 15 to 22 cents per hundredweight to previous DMC payments retroactive all the way back to Jan. 2020. FSA offices confirm receiving funds this week to finally do these retroactive feed-cost-adjusted DMC payments — automatically — very soon for all producers who were enrolled in the program for 2020 and/or 2021.

Supply and demand are the real story behind chaos in cream markets

Posted on December 10, 2021 by Agmoos

istock photo purchased and used with permission
As shortages of cream products become more obvious in retail and foodservice channels, USDA’s Dec. 8 fluid milk and cream report acknowledged raw milk cream supplies are “tight to extremely tight” in the eastern U.S. at the same time that processors nationwide are trying to ramp up production of cream cheese, butter and seasonal products to meet sustained strong demand. In the midwestern markets, USDA notes Class I bottling needs have risen instead of declining like they normally do in December, and in the eastern markets, Class I bottlers are taking in more milk for steady to strong sales. istock photo

By Sherry Bunting, Farmshine

BROWNSTOWN, Pa. — What’s the real story with the availability of cream products and whole milk, especially in the population centers of the eastern U.S., and why the continued base penalties, base reductions, warnings of greater deductions on future milk checks — even for the base-obedient producers? Why the talk of overproduction of milk — especially in the Northeast and Mid-Atlantic region — when headlines are noticing a crimp in supplies?

A paradox, for sure.

One clue that makes this a true supply and demand situation — as opposed to purely a sign of supply chain disruptions — is the most recent USDA dairy products report showing 1.6% less butter was produced in October compared with a year ago, attributable to increased demand for cream and declining milk production.

The U.S. also exported more fat in the product mix than prior years.

In relation to this, October butter stocks, according to USDA NASS, are down 13% from September and 6% lower than a year ago after being double-digit percentage points higher than year earlier for the previous two to three years. The seasonal increase of 11.2% more butter produced in October than September was not as robust as previous years and it met an increased drawdown that has left cold storage stocks short heading into the holiday baking season in competition with cream product-making season.

While processor leaders from IDFA did a second Washington D.C. fly-in last week, talking with members of Congress about the trade disruptions, exports have continued strong and domestic shortages of milk and cream products are popping up all over the place – especially in the Northeast and Mid-Atlantic region.

It’s clear that trucking and worker shortages contribute, but it’s also clear the issues go beyond the frequently-cited packaging shortages, given the fact that bulk product is also becoming limited in foodservice channels.

So much so that the Dec.4 New York Times covered what has become a worsening cream cheese shortage in New York City. This pertains to the bulk cream cheese base that bagel shops purchase to tailor-make their own schmears. Consumers report retail packs of cream cheese in short supply at chain stores in New York while the bulk cream cheese base is tenuous for foodservice.

In both New York and Pennsylvania, shoppers confirm scarcity of cream cheese and other cream products while stores are placing limits on purchases. Reports from Boston indicate stores are “screaming” for half and half. Others observe that eggnog production is exacerbating already tight cream supplies, but acknowledge the issues are bigger than just the seasonal beverage production.

Fox News picked up the story Dec. 6 and 7. They interviewed NYC bagel shop owners to learn how they are navigating the problem. One owner talked about begging his vendors for product, then locating some cream cheese in North Jersey and driving 90 minutes in his own truck three times to transport a total of 2000 pounds of the schmear.

The Fox and Friends morning hosts checked with Kraft-Heinz, the parent company of Philadelphia Cream Cheese, conveying the company’s statement that they are seeing a 35% spike in demand for the product, which they then blamed on panicking restaurateurs stockpiling it.

“We continue to see elevated and sustained demand across a number of categories where we compete. As more people continue to eat breakfast at home and use cream cheese as an ingredient in easy desserts, we expect to see this trend continue,” Kraft-Heinz spokesperson Jenna Thornton told Fox News in a written statement.

Fox and Friends host Steve Doocy, who does a lot of cooking, chimed in that he can’t find cream products, and they all wondered out loud, what’s the deal with no whole milk in the stores?

Facebook responses to queries about what’s happening in different areas confirm many are having trouble finding half and half, heavy cream, cream cheese, even butter, and some reported spot depletion of whole milk or all milk.

A Pennsylvania store owner texted a note claiming he simply can’t get whole or 2% milk for his store.

A ‘Lunch Ladies’ group on facebook discussed numerous incidents of milk order shortings, delays and non-deliveries lasting more than a week, in some cases several weeks.

In both eastern and western Pennsylvania, shoppers are reporting purchase limits and limited or non-existent supplies of whole milk and cream products at major supermarket chains. (In my own shopping over the weekend, a Weis location just outside of Lancaster had a decent supply of milk, but only a few off-brand unsalted butter packages in the case. I was lucky to pick up the very last Land O’Lakes butter pack lingering way back in the corner. In the baking aisle, the canned evaporated milk shelf was bare.)

A reader from Virginia reached out to say her local Walmart was full with milk Saturday, but not a jug to be found Sunday.

An anecdotal report from a shopper in Florida, after stopping at two stores, found no half and half, no heavy cream, limited fluid milk, a buying limit on cream cheese – but “lots and lots of non-milk ‘milk.’”

Coffee houses are also randomly affected, with reports out of New York and New England. in the Twitterverse noting both real-milk and oat-milk shortages as people tell of stopping at multiple locations for morning lattes. Mothers were also tweeting frustration this week over limited supplies of infant formula in some areas.

Perhaps complicating the issue – waiting in the wings — is the foray of DNA-altered yeast-excrement protein analogs being tested in the supply chains of large global corporations – like Starbucks. A headline from three weeks ago read “Perfect Day’s Dairy-identical Alt Milk lands at Starbucks.”

Starbucks is among the multinationals testing Perfect Day’s DNA-altered yeast-excrement deemed as dairy analogs in select West Coast locations. The Perfect Day company claims to be “on a roll” with the brand valued at over $1.6 billion and recently raising $350 million in its admitted efforts to “remove cows from the dairy industry, without losing the dairy.”

One aspect of the Perfect Day ramp up is the company works B2B with processors, not making their own consumer-facing products. If other companies are experimenting with the goal stated by Perfect Day last year of 2 to 5% augmentation of dairy processing with the yeast-excrement protein analog by 2022, there’s a scenario in this to think about: These protein analogs may be deemed “identical” to whey and casein in processor application, but they do not bring along the healthy fats, minerals, vitamins and other components of real milk.

Could current chaos in cream markets and product availability be a glimpse of future disruptions by protein analogs as the B2B model seeks to dilute real dairy under the guise of cow climate action? That’s a story for another day, but it bears watching in the context of the current paradoxical supply and demand situation right now.

For its part, USDA Dairy Market News reported Dec. 1 that milk output was rising in the East, but demand was still beating it. Then the Dec. 8 report said Northeast milk production had flattened under the pressure of rising input costs and penalties on overbase production.

Specifically, USDA DMN cites steady to higher bottling demand and active cheese production schedules soaking up supplies.

“Cream demand is strong throughout the East,” the Dec. 1^st report said. “Some market participants have noted that widespread logistical issues – including driver shortages and delivery delays – pose a greater hindrance to cream-based operations than the tighter cream availability, itself, at this point.”

By December 8th, USDA DMN reported that eastern handlers were working to secure milk spot loads from other areas as local supplies are tight, noting that eastern cream supplies are “tight to extremely tight,” and some dairy processors reported very limited spot load availability.

The report also sought to explain the cream cheese shortage in retail and foodservice channels, noting multiple factors, including “logistics bottlenecks, labor issues and supply shortages at manufacturing facilities.”

While the report indicated stepped up butter production this week, one Pennsylvania milk hauler observed two empty silos and no trucks to be seen at the Carlisle butter/powder plant at the start of this week, which is unusual.

Related to cream cheese production in Northern New York, producers there say they were told plant worker shortages this fall meant less processing of their milk. This resulted in multiple occasions of having to dump milk that could not be processed, but the incidents were deemed “overproduction” with producers footing the bill.

Meanwhile, USDA DMN indicated more outside milk coming East to meet processing needs.

At the same time, dairy producers from multiple cooperatives in the Northeast and Mid-Atlantic region confirm they are still incurring stiff penalties on over-base milk. While some of the penalty levels have softened a bit from earlier highs, most are still being held to their base levels, or in the case of DFA, the Northeast and Mid-Atlantic producers are still being penalized for milk that is above 88% of their base.

This means in the face of reduced supply vs. strong demand, DFA continues its 12% reduction in base allotments that became prevalent, especially in the Northeast and Mid-Atlantic region, at the start of the pandemic.

Furthermore, producers with other cooperatives report they have been warned to expect further deductions on their milk checks this winter – even if they did not exceed their bases — because there is still “too much milk,” they are told.

Attempts to gain further insights on the situation from major milk cooperatives and USDA went unanswered at this writing, so stay tuned for updates.

Will DMI’s transformation strategy leave dairy unrecognizable?

Posted on October 14, 2021 by Agmoos

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

By Sherry Bunting, Farmshine, October 15, 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted on October 14, 2021 by Agmoos

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

By Sherry Bunting, Farmshine, October 8, 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“There’s hope,” said Gutrich.

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

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

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

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

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

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

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

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

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

To be continued

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

Posted on September 17, 2021 by Agmoos

By Sherry Bunting

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Look for more in a future Farmshine.

-30-

Ag Moos

Tag Archives: dairy markets

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

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