Covering Ag since 1981. The faces, places, markets and issues of dairy and livestock production. Hard-hitting topics, market updates and inspirational stories from the notebook of a veteran ag journalist. Contributing reporter for Farmshine since 1987; Editor of former Livestock Reporter 1981-1998; Before that I milked cows. @Agmoos on Twitter, @AgmoosInsight on FB #MilkMarketMoos
“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.
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. 1st 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.
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.
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?
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.
By the end of the 3-hour discussion on milk marketing and future viability of U.S. dairy farms, hosted by the American Dairy Coalition on Sept. 30, over 40 people — producers and others from east to west — had flowed into the Monona Room at World Dairy Expo and an estimated 30 people attended online.
By Sherry Bunting, Farmshine, October 8, 2021
MADISON, Wis. – A new and different – essentially vigorous — paradigm in milk marketing and promotion was the focus of an American Dairy Coalition discussion in Madison on Sept. 30th during the 54th World Dairy Expo in Madison, Wisconsin.
Bill Gutrich, senior director of food industry engagement-USA with Elanco Animal Health shared his insights and experience having spent his career in the consumer-packaged goods sector for global brands like Coca Cola, McDonalds and Samsung before coming into animal agriculture three years ago.
“We have a great product and producers do a great job, but we need to increase domestic dairy consumption, specifically,” said Gutrich to an in-person audience of over 50 people (flowing in and out of the Monona Room of the WDE Exhibition Hall). Another 30 people attending virtually online.
The ADC event attracted dairy producer thought leaders from east to west and generated follow up discussion and good questions. ADC CEO Laurie Fischer said the discussion is a starting point and hopes to see allied industries that are committed to animal agriculture join in on the bandwagon to shift the milk message, the animal protein message, in the face of the accelerated barrage of new plant-based and lab-grown lookalikes.
“We need a group such as yourselves to help us move forward,” said Fischer. “We are in this together.”
Using IRI data from DMI, Gutrich sees opportunity in targeting the largest group of most loyal customers — milk-only households — along with the next largest sector of households with both milk and alternatives to remind them why they love milk. ‘Own the why’ instead of getting caught up in the ‘hows’ and ‘whats’ and processes and blends that respond to criticisms from the smallest and least loyal subsets of consumers.
One statistic Gutrich shared that was quite revealing is that 51% of total sales in the milk section are fluid milk, but only 33% of the retail milk space is devoted to milk. On the other hand, he said, 9% of total sales in the milk section are plant-based non-dairy alternatives, but almost twice the space — 17% of the milk space is devoted to non-dairy alternatives because there are so many varieties.
With so many different brands and variations of non-dairy alternative products coming onto the market and ramping up rapidly, this supply chain effort is essentially crowding out real milk in a manner that is not consistent with true consumer demand.
Likewise, the anti-animal activists are small in number but loud in advocacy. In effect, the gap between perception and reality on messaging as well as shelf-space vs. sales is that smaller sales, smaller numbers flood milk’s space and take positive attention away from milk, but this is not necessarily by consumer choice.
If Gutrich had a magic wand, he’d likely look to make milk competitive in the total beverage market, to reframe the competition and look at milk’s share of all drinks instead of share of the milk aisle. For example, consumers love cold whole milk, so if the message puts that first, then already it is connecting with the most loyal sets of consumers and connecting to their ‘why’ to build growth from that solid point.
When innovation focuses mostly on sustainability, then fewer resources are devoted to getting the message right in connecting with what consumers want.
Bill Gutrich, senior director of food industry engagement for Elanco Animal Health had a positive and hopeful message about focusing on domestic consumption and shifting the milk message to “inspire consumer loyalty to animal protein.”
Gutrich’s insights and discussion are consistent with his role with Elanco engaging the food industry and connecting the food chain. He talks to companies and purveyors, and from those conversations, it’s clear, he said, the people attacking animal agriculture are from the outside, pushing in. They don’t want animal ag to exist, but these are not the people we need to connect with to build loyalty to animal protein.
As the son of a police officer, Gutrich said his personal mission is to elevate the level of respect people have for farmers, much like the efforts elevating respect for our country’s veterans and law enforcement.
He said it comes down to “inspiring consumer loyalty to animal protein.”
Having worked around talented marketers outside of animal agriculture, Gutrich said he has come into the animal protein sector seeing “how we market our beautiful, incredible products to consumers.
“Every dollar starts in the hand of a consumer over the counter,” he said, describing how good marketing starts with the ‘why’, not the ‘what’ and the ‘how.’
“What are the emotional needs you need to connect with?” he wondered aloud. “They will buy the why.”
Using a borrowed analogy of the Craftsman drill, he said the ‘what’ is the buyer wants a hole. The ‘how’ is the drill. But the ‘why’ is they want to do it themselves.
The ‘why’ is what wins customer loyalty and offers the potential for a premium, Gutrich explained, noting that the key is to identify the ‘why’ and attribute it, and then “own it. That’s what great brands do.”
For Starbucks, the ‘why’ is the whole coffee-drinking experience. For Mountain Dew it is the ‘energy.’
In the dairy sector, Gutrich gave the example of Sargento Cheese, where the ‘why’ is ‘The Real Cheese People.’
“What did Kraft do?” he asked. “They labeled their cheese ‘made without hormones.’ What does that have to do with my ‘why’?”
These types of labels introduce something scary to consumers, and it has been proven in surveys and market research that these claims have little to do with their ‘why.’
“What this actually does is undermine their trust in the brand and the category,” said Gutrich, “and in the long run it’s bad for both. People want to think about serving a rich protein food, and we’re talking to them about hormones.”
Good marketing talks about consumers. Bad marketing talks about products and processes, according to Gutrich.
“Loyalty is a feeling,” he said, explaining a successful strategy communicates with consumers about the why, not so much about the process, the sustainability. Yes, sustainability and processes need to be handled, but that’s not connecting with consumers on an emotional level about their ‘why.’
“Own your consumer’s ‘why’, don’t let your critics determine your ‘why,’” he said. “All great brands have critics, but they handle the criticism separately, and keep marketing to why people love them.”
Gutrich gave some vivid emotional-connection examples: “Don’t you love how butter melts on your raisin toast or your cold milk on your cereal?”
In another non-ag example, he showed how Michelin tires own the safety-why, Goodyear owns performance. They keep their whole message consistently on their consumers’ ‘why.’
“Protein is hot,” said Gutrich. “Why aren’t we owning protein?”
The peanut butter brands own protein, and people believe peanut butter to be higher in protein than it is.
“We own protein,” said Gutrich about animal agriculture. “But instead of owning it, we create confusing talking points about the ‘whats’ and the ‘hows’ instead of owning the ‘whys.’”
Gutrich noted that supermarket scanner data show how consumers vote with their dollars, but when producers are told that they must ‘own’ sustainability because 85% of consumers want to see it and want to prioritize climate impact in their food choices, the question becomes, how were those questions asked?
When consumers are questioned with an ‘aided awareness’ style of questioning, of course they will say yes. But that percentage drops to 9% when the question does not include ‘aided awareness.’
Among consumers under 23, the Generation Z, Gutrich shared surveys showing this generation to have a higher overall level of brand loyalty (68%) compared with millennials (40%).
“There’s hope,” said Gutrich.
On fluid milk sales, specifically, he observed the well-known saga of sales decline over time, and the steep decline since 2000, but he has a different perspective on it.
“The dairy industry did this to themselves with over 10 years of ‘buy my milk with no hormones,’” he said. “Instead of focusing on your consumer’s ‘why’, the industry opened this chasm of 13% for milk alternatives to climb in.”
He analyzed domestic consumption figures from 1950 to the present, noting that domestic consumption is the issue, and it’s where the focus most likely should be. When domestic consumption growth is put beside U.S. population growth, the sales growth ultimately shows that dairy has “lost its share of stomach.” This is looking at domestic data only, excluding export sales.
“Ultimately, this means we have work to do,” said Gutrich. “How do we get back to the 1950s?”
Well, there’s no time-machine; however, he had a positive message about this, stressing that the non-dairy alternatives “are not going to take us down. Milk is in almost 95% of households. Let’s worry about our own sales growth and not worry about the alternatives.”
Breaking out the percentages, Gutrich showed that 94% of households include milk, 42% have both milk and alternatives, 3% are exclusively plant-based, and 52% are exclusively milk.
A successful brand would look at that breakdown and say: “We want to grow our loyal customers and go after the people that are closer to the ones that love milk. We want to remind them why they love milk so much.”
But instead, there are all of these triggers in the way and all of these other conversations that move the message away from the consumer’s ‘why,’ – away from the ‘why’ of the loyal or closest to loyal consumers fluid milk can build from.
“If we can continue to do better on these triggers like animal welfare, environment, carbon footprint, that’s fine, but we make it worse by talking a lot about it,” he said. “Get the marketing right. It’s about balance. The packaging dynamics are also amazingly important.”
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.
DEERFIELD, Mass. — Danone confirmed it will drop 89 Northeast Horizon Organic dairy farms by this time next year. The global corporation headquartered in France had purchased WhiteWave — including Silk plant-based and Horizon Organic milk — from the former Dean Foods five years ago.
Receiving the letters in late August are the Horizon Organic family dairy farms in Maine (14), Vermont (28), Washington County, New York (17) and the balance located in New Hampshire as well as Clinton, Franklin, and Saint Lawrence counties, New York.
Producers in the affected Northeast region say they saw this coming, but no one expected it to be this fast and this impactful in a region such as the Northeast where the organic milk market has had a long and growing following among consumers and some of the first organic transitions were with Horizon more than two decades ago.
Organic producers in the region also say the commoditization of their product faces the same consolidation trends as conventional dairy farms, in part due to the inconsistent interpretation of organic standards by certifiers and the delayed publishing and enforcement of certain rules by USDA.
Vermont’s Agency of Agriculture, Food and Markets, as well as Senator Patrick Leahy are looking into the situation. Maine’s Governor Janet Mills and Ag Commissioner Amanda Beal also announced state support for these farms and the state’s overall dairy industry through a stakeholders working group with short- and long-term strategies.
For its part, Danone is unequivocal in saying it is focusing on buying milk from new partners that ‘fit’ its ‘processing footprint.’
“Danone is offering a 180-day notice, or farms can sign onto a one-year contract with no contract option after that. Apparently, the farmers who contract for the year can leave with 30 days’ notice if they find another market,” writes Edward Maltby, executive director of NODPA in a bulletin as the news broke August 22.
That’s a big IF.
Other of the region’s organic processors are not known to have much extra capacity to pick up new organic milk shippers. Even conventional milk buyers are mostly not taking on new dairy shippers with several still enforcing base programs and penalties on existing shippers in the Northeast. (However, during the second half of August into September, overall milk supply in the Northeast and Midatlantic has been reported by USDA Dairy Market News as “extremely tight.”)
Maltby notes that this round of contract terminations are mainly in New England and do not extend past four counties in New York (extreme northern and eastern New York) and do not include Pennsylvania. He and other sources indicate Danone is setting an arbitrary line for milk to come from farms within a 300-mile radius of the plants that process it, so as they shift their manufacturing footprint, the farm footprint incrementally shifts as well.
Is this the future of unsustainable ‘sustainability’?
Month after month, the Northeast Federal Milk Marketing Order statistical bulletin shows handlers bringing in milk — including and especially organic milk — to FMMO 1 from the Midwest and Southwest United States. In fact, large quantities of conventional and especially organic milk come into the Northeast in tankers and packages every month from as far away as Texas and Colorado.
Danone issued an emailed statement to NODPA late Tuesday (Aug. 24) that confirmed the rumors and the numbers.
“We greatly value our relationships with our farming partners and did not make this decision lightly. Growing transportation and operational challenges in the dairy industry, particularly in the northeast, led to this difficult decision. Eighty-nine producers across the northeast received this non-renewal notice. To help facilitate a smooth transition, we are offering each producer the opportunity to enter into a new agreement for us to purchase their milk until August 31, 2022 to provide additional time and support,” Danone stated in an email response to NODPA.
“We will be supporting new partners that better align with our manufacturing footprint,” the company statement continued. “We are committed to continuing to support organic dairy in the east, and in the last 12 months alone, we have on boarded more than 50 producers new to Horizon Organic that better fit our manufacturing footprint. This decision will help us continue providing our consumers with the products they love.”
Danone’s statement indicates it is still committed to organic dairy in the East; however, on July 29th, during its earnings call with investors, Danone announced its plans to offer new versions of its FAKE-milk brands with what they say will be “improved taste and texture” later this year (2021).
Furthermore, Danone built the nation’s largest fake-dairy plant in Dubois, Pennsylvania, where it makes plant-based non-dairy substances marketed as “yogurt,” certain soft cheese lookalikes and, yes, fake-milk beverages will be produced there also.
When the fake-dairy plant opened in Pennsylvania in February 2019, Danone officials linked it to their global goal “to triple our plant-based business by 2025.”
Toward that end, during Danone’s July 2021 earnings call, Shane Grant, co-chief executive officer of Danone and CEO of the North America division, said: “The opportunity we see is really the challenge of that (plant-based) convention. We know that in key plant-based markets like the U.S., 60% of consumers are not in the (milk) category. We know the barrier is primarily product taste and texture. We will launch against this opportunity new dairy-like technology under Silk NextMilk, under So Delicious Wondermilk and under Alpro Not Milk.”
Danone also reported to investors its net income jumped 5% in the first half of 2021.
NODPA’s Maltby observed in a Farmshine interview this week that the discriminating higher-price-point consumer of organic milk is a prime target for imitation brands. He noted that organic milk has been “very price stable” on the retail shelf at $4 per half-gallon for the past decade.
“Even now, at a $27 to $29 pay price for (organic) producers versus a prior pay price of $35 or $36, the retail price has remained the same, indicating some room for growth,” said Maltby.
In fact, organic milk sales volume has been inching higher over the past few years, and during the Coronavirus pandemic, when all whole milk sales grew dramatically, organic whole milk sales volume grew by an even higher percentage in volume gains. Plant-based imitations grew on a dollar sales basis although volume is not tracked by USDA the way real fluid dairy milk sales are tracked by volume. Sales growth in plant-based imitations are also a function of the increasing price point, not so much reflective of volume.
Fake-dairy doesn’t offer the nutritional standing of real dairy products, but consumers are duped by advertising campaigns (especially Danone’s Silk commercials on television) into believing real and fake milk are interchangeable in their diets.
Consumers are also being fed a steady diet of ‘save the planet’ rhetoric centered on plant-based and lab-cultured ‘alternatives’ thanks to regurgitated myths that do not tell the whole story about ruminant cows.
Danone has set a goal to be what it calls “the first carbon-positive dairy brand” by 2025. This includes its Horizon Organic brand. In a March 2020 Marketwatch report, Horizon was ranked as the world’s largest USDA certified organic dairy brand. A few months ago in April 2021, Danone released a report showing that its Horizon brand derived 18% of its carbon footprint from cow manure management, 14% from animal feed, and 9% from keeping milk cold in refrigerators. (That’s less than half, what is the rest?)
As dairy processing innovations continue to lengthen plant code to 30 to 40 days, and beyond, the processing trend in the fluid milk category – organic and conventional – is toward ultra high temperature (UHT) pasteurization and extended shelf life (ESL) aseptic packaging for extended warehousing, longer-distance transportation, and larger global circles of distribution where regional supply chains with fresher products will need to find ways to differentiate themselves.
Meanwhile, notes Maltby, it’s the total effect that consumers aren’t realizing because it’s not broadcast in advertising or on labels. The whole package, total effect of real dairy sales includes better nutrition, along with the components dairy farmers bring to their rural communities in terms of economic support and true environmental leadership.
“You don’t see this many organic farms dumped in a year. It’s unusual. This will have a dramatic effect on our rural communities and environment,” said Maltby.
In 2018-19 Danone began dropping organic dairies milking fewer than 500 cows in the western states, coming back to those farms offering conventional contracts using their proprietary “cost-plus” pricing method.
During a 2019 Western Organic Dairy Producers Alliance (WODPA) meeting in Nevada, some of those affected producers shared this news and blamed inconsistent enforcement of USDA organic rules on access to pasture, percentage of dry matter intake from grazing and other production standards.
Maltby noted that NODPA and other organic dairy organizations are advocating with USDA and their members in Congress to ensure the Origin of Livestock rule for organic certification is strong “to not allow transitioned animals to retain their organic certification for milk when transferred or sold.”
Maltby observed that USDA and certifiers have “created an un-level playing field with their failure to publish this regulation over the past decade.”
He says NODPA and other organic groups also seek better enforcement of organic production standards, explaining that some certifiers “are still not interpreting or enforcing the access to pasture regulation in their definition of the grazing season.”
NODPA is urging anyone with influence within the CROPP Cooperative and Lactalis/ Stonyfield, to encourage them to enter into discussion with the Northeast organic dairy community about ways to move forward.
“A year is a very short time,” said Maltby.
A boycott of Danone products is also mentioned in the bulletin at the NODPA website.
“We hope to direct people away from thinking too narrowly about Horizon and consider boycotting the Danone (Dannon) products instead, to raise the issue with some leverage for these family farms,” he said. “Danone obviously believes it has adequate supply in other areas of the U.S., at a lower cost and from larger operations, that make their trucking logistics cheaper and easier.”
While dairy producers pay the cost to transport their milk from farm to processing, the milk produced in the Northeast is considered higher-priced at the farm level in part because of the FMMO structure but also because the Northeast lacks capacity for “balancing” the organic fluid milk market with processing assets to take milk for Class III and IV products when Class I sales and processing ebb and flow seasonally.
In addition, more organic feeds are produced in the western U.S. and Canada, and there is a transportation component to that scenario from a carbon footprint modeling aspect that becomes a wash when they just bring the milk to the Northeast from elsewhere instead of inputs for cattle on Northeast farms.
The costs of assembling milk from multiple small farms in a region, including field inspections and interactions, is also considered a cost the global Danone company would like to control by sourcing from fewer and larger “new partners”.
However, remembering the food disruptions, waste, and shortages during the pandemic, especially from the centralized models of the meat and poultry industries, Maltby notes that, “If this is the cost of maintaining farms in our region, in our economies and our communities, isn’t that (food security) something for companies like Danone to consider?”
Bottom line, Danone appears to be looking to control the criteria of its environmental claims so that other companies can’t mimic them. The company is reportedly looking to build a “Regenerative Organic” certification to differentiate its products in the marketplace and capitalize on buzz terms in the climate discussion.
Meanwhile, current USDA-certified organic dairy producers, especially small and mid-sized family farms, feel abandoned in that conversation because they say they don’t see USDA defending what already are the organic standards and regulations, allowing two things to happen simultaneously – the dilution of standards commoditizing their product in the sourcing by companies like Danone, which then turn right around to reinvent real and fake dairy niche differentiation with new partners.
Fluid milk sales in 2020 were essentially unchanged from 2019, although 2020 had an extra day as a leap year, according to USDA data released this week.
Whole milk sales were the largest category of fluid milk sales in 2020 for the third consecutive year since surpassing 2% milk sales volume for the first time in decades in 2018. Compared with 2019 volumes, whole milk sales in 2020 were up 3.2% at 16.6 billion pounds, according to the annual USDA ERS report released Tuesday, Aug. 31.
At 15.8 billion pounds, 2% milk was the second highest volume category, up 3.5% from 2019. This marked the first year over year increase in 2% milk sales since 2010.
Sales of 1% low-fat milk fell 4.3% in 2020 to 5.8 billion pounds while fat-free sales volume fell 13.4% to 3 billion pounds, less than half of what it was in 2010.
Over the past three years, sales of flavored whole milk had been increasing annually back to levels seen in 2005, but dipped 2% lower than 2019 during 2020 at 765 million pounds.
Some this could be attributed to consumer purchase patterns, but also is a function of what processors and retailers choose to make and offer.
In the flavored milk category other than whole, sales volume was 2.9 billion pounds, down a whopping 33.3% — a combination of virtual schooling, reduced institutional feeding, consumers mixing their own at home, and other potential pandemic-related reasons. In general, the overall trends held in 2020 as consumers continued showing their preference for milk with more fat. Egg nog sales, incidentally, were up a whopping 8.5% on a volume basis.
Some in the industry have said to me that if schoolchildren are provided with the choice of whole milk, there won’t be enough cream for all of the other products the dairy industry makes.
That doesn’t make sense. Taken together, the USDA ERS annual milk sales breakdown showed the continued consumer shifts to higher-fat fluid milk products increased cream usage by 1.3% overall in 2020 vs. 2019.
Despite this shift to more fluid category use of cream, the availability of cream last year dragged down milk prices, pushed butter churns, and contributed to the price divergences.
Producers made more butterfat than the market used, and the industry also imported record levels of butterfat in the March through August 2020 time frame and near record levels for the 12-month year on the whole.
Reports this week (Sept. 1, 2021) indicate this butter inventory built up in 2020, and the current steady production, will control butter prices that have been rising the past few weeks. Butter inventory keeps milk price in check… mate.
The breakdown of all dairy product usage for 2020 will be released by USDA ERS on September 30.
Eligible producers to be paid by agreements with milk handlers, co-ops
By Sherry Bunting, Farmshine, August 27, 2021
WASHINGTON, D.C. — According to USDA, milk handlers and cooperatives were contacted Aug. 23-27 about entering into signed agreements to distribute the approximately $350 million in Pandemic Dairy Market Volatility Assistance payments the agency announced on Aug. 19.
The agreements will be to disburse funds to their qualifying producers and provide them with education on a variety of dairy-related topics.
Handlers and cooperatives have until Sept. 10, 2021 to indicate to USDA their intention to participate. USDA will then distribute the payments to participating handlers within 60 days of entering into an agreement. Once payment is received, a handler will have 30 days to distribute monies to qualifying dairy farmers.
These funds will be disbursed to “eligible” dairy farmers through “eligible” Federal Milk Marketing Order (FMMO) independent milk handlers and cooperatives, not through FSA. There will be no signups for this program, and payment rates have not been published.
What is unique about the volatility payments is they will be producer-specific and targeted based on FMMO records and agreements with milk handlers to be the payment conduit.
USDA indicates this program is a “first step” and is aimed at compensating producers for volatility and federal pricing policy changes. The payments will cover 80% of the calculated lost value on Class I fluid milk pounds for July through December 2020.
This language suggests the payments will be limited to producers whose milk was pooled on FMMOs during those six months.
One point of contention with the “volatility assistance” is that the eligible producers will be limited to payments associated with up to 5 million pounds of annual production — even though farms of all sizes incurred these losses due to a combination of pandemic volatility and federal pricing policy changes. The Adjusted Gross Income verification will also be required, like for the prior administration’s CFAP payments.
A special webpage at the USDA AMS Dairy Programs website has been created where more details were provided this week. Officials responding to Farmshine questions said this webpage will be updated on an ongoing basis with more details as they become available. The webpage link is https://www.ams.usda.gov/services/pandemic-market-volatility-assistance-program
The actual cumulative net Class I value losses to dairy producers over a longer 27-month period (May 2019 through July 2021) were more than twice the amount of the program, pegged at over $750 million.
During the six months covered by the volatility assistance program – July through December 2020 – the difference between Class III and IV milk prices was $5 to $10 per hundredweight. Further amplifying the impact of this volatility on producer blend prices was the 2018 Farm Bill change (implemented May 2019) to use an averaging method instead of the previous ‘higher of’ Class III or IV skim prices to set the Class I ‘mover.’
This change also led to massive de-pooling and severely negative producer price differentials (PPDs) for most of the past 27 months. Even in some of the positive PPD months, the PPDs were smaller than normal, representing lost value to producers in excess of $3 billion.
In disbursing these volatility assistance payments, milk handlers and cooperatives will be reimbursed for limited administrative and educational costs, according to the USDA brochure.
The education piece stipulates that each participating handler or cooperative “will provide educational materials to all producers by March 1, 2022. The USDA brochure indicates that they may provide the education in the form of mailings, recorded online trainings, live virtual webinars, and/or in-person meetings.”
This education revolves around federal dairy programs, according to USDA. Example topics are Federal Milk Marketing Orders; Dairy Margin Coverage, Dairy Revenue Protection, Dairy Mandatory Price Reporting, Chicago Mercantile Exchange, and Forward Contracting.
USDA will make these education materials available, or the participating handlers and cooperatives may use their own educational materials or training.
Each participating handler will have to verify how many producers were provided with the information and the methods that were used for the education.
The Pandemic Dairy Market Volatility Assistance Program was announced during meetings with farmers and a tour of farms with Senator Patrick Leahy in Vermont last Thursday. Back in June, Agriculture Secretary Tom Vilsack had committed to provide additional pandemic assistance for dairy farmers in an exchange with Sen. Leahy during an Appropriations hearing.
“This (program) is another component of our ongoing effort to get aid to producers who have been left behind and build on our progress towards economic recovery,” said Vilsack. “This targeted assistance is the first step in USDA’s comprehensive approach that will total over $2 billion to help the dairy industry recover from the pandemic and be more resilient to future challenges for generations to come.”
In a press statement this week, NMPF president and CEO Jim Mulhern stated that the $350 million only compensates for some of the damage resulting from the pandemic.
“NMPF asked the department to reimburse dairy farmers for unanticipated losses created during the COVID-19 pandemic by a change to the Class I fluid milk price mover formula that was exacerbated by the government’s pandemic dairy purchases last year,” said Mulhern. “When Congress changed the previous Class I mover, it was never intended to hurt producers. In fact, the new mover was envisioned to be revenue-neutral when it was adopted in the 2018 Farm Bill. However, the government’s COVID-19 response created unprecedented price volatility in milk and dairy-product markets that produced disorderly fluid milk marketing conditions that so far have cost dairy farmers nationwide more than $750 million from what they would have been paid under the previous system.”
NMPF and IDFA suggested and agreed to the Class I pricing change during 2018 Farm Bill negotiations, and no hearings were held before the FMMO method for calculating the ‘mover’ was implemented in May 2019.
Mulhern went on to say that the arbitrary low limits on covered milk production volume mean many family dairy farms will only receive a portion of the losses they incurred on their production last year.
“Disaster aid should not include limits that prevent thousands of dairy farmers from being meaningfully compensated for unintended, extraordinary losses,” Mulhern said, adding that NMPF is “continuing discussions about the current Class I mover to prevent a repeat of this problem.”
For its part, the American Dairy Coalition has been facilitating nationwide discussions with other dairy groups on the dairy pricing, de-pooling, negative PPD losses and risk management impacts since last winter, including a letter signed by hundreds of dairy producers and organizations sent last spring to NMPF and IDFA seeking a seat at the table on solutions for the concerns about the Class I ‘mover’ change and supporting a temporary return to ‘the higher of’ until other methods can be appropriately vetted with a hearing process.
ADC’s nationwide discussions brought attention to this issue and contributed to Senator Kirsten Gillibrand and 20 other U.S. Senators sending a letter to Agriculture Secretary Tom Vilsack seeking financial assistance for dairy farmers for these milk price value losses. A dairy situation hearing is anticipated in the Senate Subcommittee on Dairy, Livestock and Poultry that is chaired by Sen. Gillibrand.
— In addition, USDA announced on Aug. 19 an estimated $580 million in Supplemental Dairy Margin Coverage (DMC) to allow “modest increases” in the production history of enrolled dairy producers up to the 5 million pound annual production cap for Tier One coverage. Specific details for adjusting DMC production history have not yet been provided.
— Additionally, USDA announced the inclusion of premium alfalfa prices in the calculation of the feed cost portion of the DMC margin.
Farmshine readers will recall coverage of the U.S. Senate Ag Committee’s climate hearing in 2019, when Tom Vilsack, then president and CEO of U.S. Dairy Export Council, lobbied the Senate for climate-pilot-farm-funding. Remember, he announced DMI’s Net Zero Initiative at that hearing – five months ahead of its formal unveiling.
In that same June 2019 hearing, animal scientist and greenhouse gas emissions expert Dr. Frank Mitloehner of University of California-Davis explained the methane / CO2 ‘biogenic’ cycle of cows.
He said that no new warming, is produced when cow numbers are “constant” in an area because methane is short-lived and converts to CO2 in 10 years time, which is then used by plants, cows eat the plants, and the cycle repeats. It is always cycling.
Dr. Mitloehner also said that this cycle changes when cattle concentrations move from one area to another.
Nationally, dairy cow numbers are rising after decades of declining. However, in the Northeast and Southeast milksheds, cow numbers are declining — and by a wide margin.
This should indicate net methane reductions in the biogenic cycle or climate-friendly milk for the fluid milk regions of the Northeast and Southeast.
Here is a thought that could be helpful in the future for whole fluid milk bottled regionally to compete with emerging climate claims of dairy-‘based’ beverages that are made with ultrafiltered solids shipped by centralized cheese and ingredient facilities (without the water) to be reconstituted as mixtures with plant-based alternative beverages for population centers on the coasts.
The milk produced and bottled in the Northeast and Southeast milksheds is not just climate neutral, it’s already offsetting, producing not just no new methane, but less than prior-decades’ methane.
Bear in mind, these new dairy-‘based’ — blended — beverages are NOT Class I products. I have been informed that the 50/50 blends, for example, do not meet the standard of identity for milk, nor do they meet the milk solids profile that requires Class I pricing. This means that even though milk is part of a fluid dairy-‘based’ beverage, it is not priced as Class I.
The milk used in these emerging products that combine ultrafiltered solids with water, additives and maybe an almond or two, fall into Class II or IV, some are Class III if whey protein is used. Examples include products like DFA’s Live Real Farms ‘Purely Perfect Blend‘ that arrived recently in Pennsylvania and the greater Northeast after its first test-market in Minnesota.
Think about it. Unity is great on many levels, and is to be encouraged in an industry such as dairy, but when it comes to marketing, who is calling the shots for future viability within the DMI integration strategy, otherwise known as unity?
Pre-competitive alliances and ‘proprietary partnerships’ working on food safety are wonderful because all companies should work together on food safety. But animal care? Environment? Climate? Why not just offer quality assurance resources and pay farmers certain premiums for investing as companies would like to see and pay them for providing the consumer trust commodity — instead of implementing one-size-fits-all branches in programs like F.A.R.M.?
These so-called voluntary programs have the power to negate contracts between milk producers and their milk buyers even though consumer trust is a marketable commodity that producers already own and are in fact giving to milk buyers, and their brands, without being compensated.
Instead, producers are controlled by arbitrary definitions of the consumer trust commodity that the producers themselves originate. This goes for Animal Care, Worker Care, Environment, and Climate.
The pre-competitive model used in food safety is applied to all four of the above areas today. This is exactly the supply-chain model World Wildlife Fund (WWF) — DMI’s ‘sustainability partner’ — set in 2010 to “move the choices of consumers and producers” where they want them to go.
*footnote
In the 2019 Senate hearing referenced at the beginning of the above op-ed, Dr. Mitloehner stated that the mere fact there are 9 million dairy cattle today compared with 24 million in 1960 and producing three times more milk shows that dairy producers are collectively not only emitting zero new methane, they are reducing total methane as old methane is eradicated by the carbon cycle and less new replacement methane is emitted.
The problem may be this: Year-over-year cow numbers for the U.S. are creeping higher. While still much lower than four to five decades ago, the issue emerging for DMI’s Innovation Center for U.S. Dairy is how to accommodate growth of the new and consolidating dairy structures to attain the checkoff’s expanded global export goal and to accommodate massive new dual-purpose plants if dairy farms in other areas remain virtually constant in size, grow modestly, or decline at a rate slower than the ‘designated’ growth areas are growing.
DMI is at the core of this, you see, to reach it’s new collective net-zero goal, cow numbers would have to decline in one area in order to be added in another area, or they will all have to have their methane buttons turned off or the methane captured because now the emissions are being tracked in order to meet one collective “U.S. Dairy” unit goal under the DMI Innovation Center and F.A.R.M. We don’t even know if they are using this method of calculation. U.S. cows may be on global calculations where numbers are rising.
At that 2019 Senate hearing,Dr. Frank Mitloehner testified that dairies already create zero new methane but this can be tricky when cattle move from one area to another (as we see in the industry’s consolidation).Then we have DMI’s Dairy Scale 4 Good claiming the dairies over 3000 cows can be net-zero in 5 years and ‘spread their achievement’ over the entire milk footprint. Do we see where this is going?
Will all dairy farms have to meet criteria — set by organizations under the very umbrella of the checkoff program they must fund — to get to a ‘collective’ net-zero using the GHG calculator developed by the checkoff-funded Innovation Center in conjunction with its partner WWF (12 year MOU)? This GHG calculator has been added to the FARM program. These are the big questions.Where is the science and the math?
By Sherry Bunting, both parts of a two-part series in Farmshine, July 2021
The dairy industry continues to wait for USDA to provide details on three areas of dairy assistance already approved by Congress or mentioned as “on the way” by Ag Secretary Tom Vilsack.
The fly in the ointment, however, is the record-high 2021 milk production (Table 1) and accelerated growth in cow numbers (Table 2) at a pace the recent USDA World Agriculture Supply and Demand Estimates (WASDE) expect to continue into 2022.
USDA is reportedly looking at production reports — up vs. year ago by 1.9% in March, 3.5% in April, 4.6% in May — to determine how to assist without adding fuel to expansion that could threaten late 2021 milk prices in the face of rising feed costs and a worsening western drought. (The latter two challenges could temper those forecasts in future WASDEs.)
May milk production a stunner
U.S. milk production totaled 19.9 billion pounds in May. This is a whopping 4.6% increase above 2020 and 2018 and a 4.1% increase over May 2019.
Let’s look at year-to-date. For the first five months of 2021, milk totaled 96 billion pounds, up 2.3% vs. the 93.8 billion pounds for Jan-May of 2020, and it is 4.4% greater than the 91.9 billion pounds of Jan-May milk produced in pre-pandemic 2018 and 2019. Of the four years, only 2020 had the extra production day as a Leap Year.
Milk per cow was up 3% over year ago in May. Compared with 2019, output per cow is up 2.2%, according to USDA.
Cow numbers vs. 2018 tell the story
Milk cows on U.S. dairies in May 2021 totaled 9.5 million head, up 145,000 from May 2020’s 9.36 million, up 172,000 from 2019’s 9.33 million, and up 83,000 head from 2018’s 9.42 million.
Counter to the national trend, Pennsylvania had 48,000 fewer milk cows than May 2018 — dropping 30,000 into 2019; 10,000 into 2020, and 8,000 into 2021.
Elsewhere in the Northeast and Southeast milksheds, among the 24 major monthly-reported states, New York had 4000 more milk cows in May 2021 than 2018, Vermont 8000 fewer. Georgia dropped 1000, Florida 12,000, and Virginia 11,000. In the Central states, Illinois was down 10,000 head.
The total decline in cow numbers for the 24 lesser quarterly-reported states, the collective loss in cow numbers is 59,000 head from May 2018 to May 2021
Accelerated growth is coming from three key areas where major new processing assets have been built or expanded.
In the Mideast, where the new Glanbia-DFA-Select plant became fully operational in Michigan this spring, there is a net gain of 32,000 cows for 2021 vs. 2018, Ohio’s cow numbers that had been declining 2018-19, began recovering in 2020-21. Indiana had 18 months of substantial growth, and Michigan returned to its growth pattern in 2020. Taken together, the Indiana-Ohio-Michigan region had a loss of 8,000 cows heading into 2020, but gained a whopping 40,000 cows over the past year.
In the Central Plains, where new plant capacity is starting up this spring and summer — Minnesota, South Dakota and Iowa, combined, added 40,000 cows May 2018 to May 2021.
In the Southern Plains, where joint-venture processing capacity continues to grow, Texas has continued full-steam-ahead, gaining 87,000 cows from 2018 to 2021, along with 29,000 added in Colorado and 17,000 in Kansas. New Mexico regained earlier losses to be 2000-head shy of 2018.
The growth patterns in these regions somewhat mirrored dairy exits from other areas — until Jan. 2020 (Table 2). The past 17 consecutive months of year-over-year increases in cow numbers leave the U.S. herd at its largest number in 26 years (1995).
However, the assumption that ‘dairy producers are okay because the industry is expanding’ ignores several essential factors. The playing field has become more complicated and inequitable. There are four main factors at play. We’ll look at them one at a time.
Ben Butler of South Florida posted this photo that went viral on Twitter April 2, 2020 of milk being dumped in Florida because there was no home for it. A few days later, he tweeted photos of milk gallons also being donated to Palm Beach County families in need. Challenges abound in the dairy supply chain. The unofficial tally of milk dumped in the Northeast and Mid-Atlantic region the first week of April 2020 was north of 200 loads, with additional reports of 130 loads dumped in the Southeast. Meanwhile, stores were not well stocked, most were limiting purchases and foodbanks were getting more requests as over 10 million people were newly out of work.
Factor #1 — Milk dumping and base programs
A year ago in April and May 2020 — at the height of the Coronavirus pandemic disruptions — the dairy industry saw dumping of milk, stricter base programs and bigger milk check deductions. Producers culled cows, dried cows off early, changed their feeding programs, even fed milk in dairy rations.
But milk production still grew, according to the USDA data.
Some cooperatives and milk buyers, like Land O’Lakes, had base programs already in place and triggered them. Others made changes to prior programs or implemented new ones.
Dairy Farmers of America — the nation’s largest milk cooperative, largest North American dairy processor and third-ranked globally by Rabobank — quickly implemented a new base program in May 2020, seeking 10 to 15% in production cuts from members, varying by region, with overage priced on ‘market conditions.’
It is difficult to assess the ‘equity’ in these base programs and the cross-layers among producers between and within regions, or to know how these ‘bases’ are being handled presently. When questioned, spokespersons say base decisions are set by regional boards.
Meanwhile, product inventory and pricing schemes affect all regions, and milk rides between FMMOs in tankers and packages — with ease.
According to USDA, the 11 FMMOs dumped and diverted 541 million pounds of milk pooled as ‘other use’, priced at Class IV, during the first five months of 2020, of which 350 million pounds were in April alone. This is more than three times the ‘other use’ milk reported by FMMOs during the first five months of pre-pandemic 2019 (171.4 million pounds). By June, the amounts were double previous years.
Of this, the largest amount, by far, was the 181 million pounds of ‘other use’ milk in the Northeast FMMO 1 during Jan-May 2020, comprising one-third of all the dumped and diverted milk pooled across all 11 FMMOs in that 5-month period.
In the Southeast milkshed, the Appalachian, Florida and Southeast FMMOs 5, 6 and 7, together pooled 88 million pounds of ‘other use’ milk in the first five months of 2020. The Southwest FMMO 126 had 106.2 million pounds of ‘other use’ milk; Upper Midwest FMMO 30 had 46.1 million pounds; Central FMMO 32 had 36.7 million pounds; Mideast FMMO 33 had 30.7 million pounds; California FMMO 51 had 28.9 million pounds; Arizona FMMO 131 had 21.7 million pounds; and Pacific Northwest FMMO 124 had 1.3 million pounds.
The dumping had begun the last week of March 2020 and was heaviest in the month of April. Producers also saw deductions as high as $2/cwt. for balancing costs, lost quality premiums, and increased milk hauling costs. Unaccounted for, were the pounds of milk that had reportedly been dumped on farms without being pooled on FMMOs.
All of this against a backdrop of pandemic bottlenecks and record-high March-through-August imports of butter, butteroil, milkfat powder, and blends — adding to record-high U.S. butter inventories and contributing to the plunging Class IV, II and I prices vs. Class III (PPD).
Meanwhile, not only did production growth in key areas move ahead, so did strategic global partnerships. Just one puzzling example in October 2020, after eight months of deflated producer milk checks, depressed butterfat value, burdensome butter inventory, record butterfat imports, and a plunging Class IV milk price that contributed to negative producer price differential (PPD) losses, Land O’Lakes inked a deal to market and distribute cooking creams and cream cheeses — Class II and IV products that use butterfat — from New Zealand’s Fonterra into United States foodservice accounts.
The New Zealand press reports were gleeful, citing this as a big breakthrough that could be followed by other of their cheeses entering the “huge” U.S. foodservice market through the Land O’Lakes distribution.
Factor #2 — Class price wars and de-pooling
As reported in Farmshine last summer, dairy farmers found themselves in uncharted waters. As Class IV prices tumbled from the get-go with all of the ‘other use’ dumping and diverting, butter inventory building as butter/powder plants tried to keep up with diverted loads at a disruptive time, the USDA Food Box program started drawing products in the second half of May, and really got going by July 2020.
Cheese, a Class III product, was a big Food Box winner. The cheese-driven Class III milk price rallied $7 to $10 above Class IV, and massive volumes of milk were de-pooled by Class III handlers, which has continued through May 2021.
Reviewing the class utilization reports, an estimated 80 billion pounds of Class III milk normally associated with FMMOs has been de-pooled over the past 26 months.
At the start of this ‘inequitable’ situation, academic webinars sought to explain it.
“We’re seeing milk class wars,” said economist Dan Basse of AgResource Company, a domestic and international ag research firm in Chicago, during a PDPW Dairy Signal webinar a year ago.
He noted that under the current four-class pricing system, and the new way of calculating the Class I Mover, dairy farmers found themselves “living on the edge, not knowing what the PPD (Producer Price Differential) will be” (and wondering where that market revenue goes).
“A $7.00 per hundredweight discount is a lot of capital, a lot of income and a lot of margin to lose with no way to hedge for it, no way to protect it, when the losses are not being made up at home as reflected in the PPD,” Basse said in that summer 2020 webinar.
What does this have to do with year-over-year milk production comparisons?
Two words: Winners. Losers.
Some handlers, and producers won, others lost — between and within regions.
Here’s why all of this matters from a production comparison standpoint: Dairy economists — Dr. Mark Stephenson, University of Wisconsin, and Dr. Marin Bozic, University of Minnesota — are both on record acknowledging that USDA NASS uses FMMO settlement data, along with producer surveys, to benchmark monthly milk production.
So, on the one hand: How accurate are these data for comparison over the past 26 months, given the inconsistent FMMO data from dumping, diverting and de-pooling?
On the other hand: Did the negative PPDs and de-pooling, resulting in part from the 2018 Farm Bill change in the Class I Mover, allow Class III handlers to capture all of that additional market value and use it to fuel the 2020-21 accelerated milk growth for regions and entities connected to the new Class III processing assets?
Factor #3 — New dual-processing concentrates growth
Accelerated growth in cow numbers is fueling record production in 2021. It is patterned around ‘waves’ of major new processing investments in some areas, while other areas — largely fluid milk regions — are withering on the vine or growing by smaller margins with fewer cows.
In the 24 major milk states, production growth was even greater than the All-U.S. total — up 4.9% vs. year ago. In part one, the breakdown was shown vs. 2018.
Here’s the breakdown for just the 12 months from May 2020 to May 2021 — a time in which the industry dealt divergences that created steep losses for some and big gains for others, while FMMOs became dysfunctional.
In just one year, over 40,000 cows were added in Indiana, Ohio, and Michigan, combined, and milk production was up in May 2021 by 12.6, 3.2 and 5.1%, respectively. The draw is the massive new Glanbia-DFA-Select joint-venture cheese and ingredient plant that began operations late last year in St. Johns, Michigan. Sources indicate it reached full capacity this spring. Add to this the 2018 Walmart fluid milk plant in Fort Wayne, Indiana and other expansions in Ohio and Michigan.
Ditto for the Central Plains, where new cheese and ingredient line capacity became operational this spring and summer. Supplying these investments, Minnesota grew production 6%, South Dakota 14.6%, and Iowa 6.2% over year ago.
Number two Wisconsin grew by 5.6% in May 2021 vs. year ago.
Milk production was up 5% in number one California, even though cow numbers were down by 1000 head, and dairy farmers in a referendum voted recently by a slim margin to keep their quota system. They are also dealing with a devastating drought that news reports indicate is now impacting both the dairies and the almond growers.
Then there’s Texas, where growth continues to be a double-digit steamroller, up 10.8% in May 2021 vs. 2020 — pushing New York (up 4.2%) to fifth rank.
The Southern Plains has had several strategic investments, starting in Texas and New Mexico (up 6% vs. year ago).
In Colorado, where production was up 5.3% in May, DFA’s joint ventures and strategic partnerships with Leprino, Kroger and others have fueled growth.
Kansas grew milk production 7.3% vs. year ago. In 2018, a state-of-the-art whole milk powder and ingredient plant became fully operational in Garden City, Kansas. The plant was to be a joint-venture between DFA and the Chinese company Yili but ended up as a joint-venture between DFA and 12 of its member farms that are among the 21 Kansas dairies shipping milk to it.
DFA’s Ed Gallagher gave some insights on this during a May 2021 Hoards webinar. He said, “We went through a period of investing in powder plants in the U.S. It seems like there is a follow-the-leader approach when deciding on investments, and it goes in waves. The industry just completed a wave of a lot of investment in Class IV manufacturing plants, and now… it’s flipping to Class III.”
Looking back on the Class IV ‘wave’ 2013 through 2018, there were several times in those years that Class IV beat Class III, leading to FMMO de-pooling, but not to the extreme extent seen in the past 12 months as Class III now beats all other classes, including Class I, leading to negative producer price differentials (PPDs).
Gallagher sees Class III and IV prices “coming together” in the “next period of years” because the ‘wave’ of capacity investment has flipped from Class IV to III. He predicted more Class III capacity will be added.
Are these past 26 months of PPD net losses for producers the industry’s answer to, in effect, increasing processor ‘make allowances’ without a hearing?
The average PPD value loss (see chart) across the seven multiple component pricing FMMOs was $2.57 per hundredweight for 26 months, which began with implementation of the new Class I pricing method May 2019 through the most recent uniform price announcements for June 2021 milk.
Applying a conservative 5-year average PPD (prior to Class I change) for each FMMO, only the few gray blocks on the chart represent ‘normal.’
This means even positive-PPDs show margin loss for farm milk pooled on FMMOs. In fact, the CME futures markets as of July 14 show August through December divergence between Class III and IV above the $1.48 mark, indicating Class I value loss and negative PPDs or smaller positive PPDs could return after barely a two-month reprieve.
Many handlers that don’t pool on FMMOs also use the uniform prices as a benchmark.
This $2.57 net loss for seven MCP FMMOs across 26 months represents almost a doubling of the current make allowance levels.
Current USDA make allowances and yield factors add up to a processor credit of $3.17 per hundredweight on Class III and $2.17 on Class IV. This already represents 11 to 25% of farm milk value, according to 2018 analysis by John Newton, when he was Farm Bureau’s chief economist.
Why is this important? Because we are already seeing additional margin transfer from Class I to Class IV as the industry moves to blended beverages that mostly use ultrafiltered (UF) milk solids. Blends using whey would fall under Class III.
Looking ahead, DFA now owns most of the former Dean Foods’ Class I fluid milk plants since May 2020. New manufacturing synergies are undeniable, considering the direction of dairy checkoff’s fluid milk revitalization plan emphasizing these dairy-based-and-blended beverages and ‘dual-purpose’ processing facilities.
Dairy + Almond is a Live Real Farms beverage made by DFA and was launched through DMI’s Innovation Center with checkoff funds paid by all dairy farmers. The milk in this beverage is not priced as Class I, though it competes in the dairy case and is being promoted as a “Purely Perfect Blend.”
As low-fat UF milk solids are blended with other ingredients in a manufacturing process to make new combined beverages, the result is a competing beverage, and the milk in the beverage drops from Class I to Class IV.
Meanwhile, these beverages cost more at the grocery store, and the ingredients are not part of the USDA end-product pricing ‘circle’. Therefore, no new make allowances should be requested because processors are already getting a reduced class value, and a higher margin.
DMI’ vice president of global innovation partnerships, Paul Ziemnisky, gave some insights into this “future of dairy beverages” — and how it ties into new processing plants investments during the virtual Pennsylvania Dairy Summit in February.
Ziemnisky went so far as to say new processing facilities will “need to be built as beverage plants able to handle all kinds of ingredients” for the blended products of the future. In essence, he said, the future of fluid milk is “dual purpose” processing plants.
DMI’s usdairy.com website touts the checkoff launches of ‘blended’ dairy-‘based’ beverages — key to DMI’s fluid milk revitalization plan. Not flavorings, these blends dilute milk out of Class I, the highest farm-level pricing, and mainly into Class IV, the lowest. The resulting beverages compete in the dairy cooler with Class I fluid milk. Screen view
While 11 of the top 24 states had milk production increases of 5% or more in May, the 13 states with increases below 5%, or negative, are mainly located within traditional Class I fluid milk marketing areas: Florida, up 0.5%, Georgia up 2%, Virginia down 2.3%, Illinois up 1.9%, Arizona, down 0.5%, Washington, down 0.9%, Pennsylvania and Vermont both up 1.8%, and New York up 4.2%.
Idaho and Utah, up 2% and unchanged, are outliers and largely unregulated by FMMOs. Some beverage assets are coming to that region in the form of ultra-filtration and aseptic packaging, including a plant renovation to make Darigold’s FIT beverage. Additionally, a new Fairlife filtration membrane plant was opened near Phoenix, Arizona in March, and Kroger is doing filtration and aseptic packaging in Colorado.
Meanwhile, Pennsylvania is often described as a ‘fluid milk state’ with a Milk Marketing Board setting minimum prices for fluid milk, and a string of independent milk bottlers that figure prominently in their communities.
Ranked fourth in milk production in 2006, Pennsylvania was passed by Idaho in 2007. By 2016, Michigan had pushed Pennsylvania to sixth. The very next year, in 2017, Texas leapfrogged both Pennsylvania and Michigan. Now, Minnesota has pushed the Keystone State to eighth.
How does the future of dairy affect traditionally ‘fluid milk’ states like Pennsylvania, or the Southeast for that matter?
New dairy-‘based’ beverage innovations can be made anywhere and delivered anywhere, often as shelf-stable products. Most are not Class I products unless they meet the strict FMMO definition which was last spelled out in the USDA AMS 2010 final rule.
For now, this also includes the Pa. Milk Marketing Board. Executive secretary Carol Hardbarger confirms that the 50/50 drinks are not regulated under PMMB, which generally uses federal classification, but that a legal interpretation of the Milk Marketing Law with regard to blends may be in order.
The 50/50 blends are already in some Pennsylvania stores and elsewhere in the Northeast, which is the second phase of the ‘undeniably, purely perfect’ marketing plan for fluid milk revitalization.
Factor #4 — USDA, industry coalesce around climate
Ag Secretary Tom Vilsack has been outspoken from the outset about using and aiming every available USDA program dollar in a way that also addresses the Biden administration’s strategies for equity, supply chain resiliency, and climate action.
Speculating a bit as to why USDA is taking so long to announce details about already funded dairy assistance, it could be that Sec. Vilsack is looking at the fit for ‘climate impact.’
Paid around a million a year in dairy checkoff funds to serve 4 four years as CEO of the U.S. Dairy Export Council — between prior and current Ag Secretary posts — Vilsack understands the future plans of the dairy industry’s checkoff-funded proprietary precompetitive alliances on a global scale.
Vilsack has been privy to the DMI Innovation Center’s discussions of fluid milk revitalization through ‘dual purpose’ plants and blended beverages. He is no doubt looking at the accelerating growth in milk production that is occurring right now for ways to tie dairy assistance to measured climate impacts in the net-zero file.
Producers on the coasts and fringes of identified growth areas have a target — fresh fluid milk and other dairy products produced in regional food systems for consumers who have a renewed zeal for ‘local.’ Fresh fluid milk will have to find a path outside of the consolidating system and cut through the global climate-marketing to directly communicate fresh, local, sustainable messages about a region’s farms, animals, environments, businesses, economies, jobs and community fabric.
Ag Moos 