Tag Archives: ESL milk

USDA to complete producer vote before new administration comes to town

Posted on by
Reply

Final FMMO rule adds more to make allowances, shortens delay on composition updates, restores higher-of, keeps controversial ESL adjuster.

By Sherry Bunting, Farmshine, Nov. 15, 2024

WASHINGTON, D.C. – The USDA released on Nov. 12 the Secretary’s nearly 400-page final decision on the Federal Milk Marketing Order (FMMO) price formula changes, with a few changes from the July ruling.

USDA rejected comments seeking to forestall the make allowance increases or to reduce their size. All make allowances are further raised in the final rule vs. preliminary rule by a fraction of a penny for marketing costs. Also, USDA has added more than a penny per pound to its earlier decision on the nonfat dry milk make allowance. These are milk check deductions that are embedded in the class and component formulas.

USDA also plans to stick with its earlier decision to introduce a rolling adjuster for extended shelf life (ESL) milk, which creates essentially two-movers for Class I that was not part of the hearing scope. The Department further defined ESL milk by processing method to be all milk using ultra-pasteurization, not just relying on the shelf life designation of 60 days or more.

The broad range of changes in the proposed final rule are the result of the national hearing and rulemaking process that began in 2023. It will be made final for implementation after dairy producers vote to approve these changes in the Order-by-Order referendum that will be completed before the new administration takes office on January 20th.

USDA AMS will mail voting ballots to eligible producers and qualified cooperative associations — which may bloc-vote on behalf of their eligible members — after the final rule is published soon in the Federal Register. Ballots must be returned with a postmark of December 31, 2024 or earlier and be received by the Department by January 15, 2025 in order to be counted.

Not all producers in a Federal Order will be eligible to vote. Only producers with milk pooled on a Federal Order in the month of January 2024 are eligible to vote in that Federal Order.

A ‘yes’ vote accepts all parts of the final rule. A ‘no’ vote rejects the changes but also rejects the continuation of that Order. Any of the 11 Federal Orders that does not meet the two-thirds majority requirement for acceptance of these changes will be terminated. The two-thirds majority is calculated among eligible producers in the Order who return a ballot.

USDA AMS will host three public webinars to further inform stakeholders of the changes and referendum process on Nov. 19 and Nov. 25 at 11:00 a.m. ET and Nov. 21 at 3:00 p.m. ET. A link to access the webinars will be provided at the AMS hearing website along with supplementary educational documents. 

Using its backward-looking analysis of applying the changes to actual 2019-23 pool test data, the combined net benefit for all 11 Federal Orders of all the changes in the final rule is estimated at +$0.26 per hundredweight. However, an average does not tell the full story, and it does not include the positive orderly marketing impact of restoring the higher-of method for calculating the Class I base price mover.

USDA’s Table 5 above is the backward-looking static analysis of the weighted Statistical Uniform Price (SUP) – at actual pool component test – showing net benefits for the following Orders: Appalachian +$1.90 per hundredweight, Southeast +$1.80, Florida +$1.43, Central U.S. +$0.52, Mideast +$0.50, Northeast +$0.35, Southwest +$0.07. 

Table 5 shows net-negative impact for California -$0.27, Upper Midwest -$0.13, Arizona -$0.11, and Pacific Northwest -$0.05.

However, this analysis does not factor-in the positive impact of restoring the higher-of method for calculating Class I. The Orders showing net negative impacts above have more liberal policies for jumping in and out of FMMO pools. Since USDA did not quantify the benefit of its restoration of the higher-of method for the Class I mover, it’s important to note that this can soften the blow. 

According to experts consulted by Farmshine on this matter, the potential average benefit for the same 2019-23 period of orderly marketing under the higher-of method in a low-Class-I FMMO like the Upper Midwest is 7 to 10 cents per hundredweight.

More importantly, the orderly marketing restored by this part of the final rule has a protective effect on the month-to-month hits taken by pooled producers from opportunistic depooling and negative PPDs. Why? Because the higher-of method — used for two decades, before the legislative change in 2019 — encourages functional class price relationships that promote orderly marketing.

In short, producers should realize that the restoration of the higher-of reduces the prevalence of very large negative PPDs that can disrupt performance of their risk management tools and treat pooled producers inequitably during black swan events and times of major market imbalances — like have been experienced over the past five years under the average-of method. This is a benefit that is difficult to quantify, but is contained in this decision nonetheless.

On the positive side for dairy farmers, the USDA will also shorten the delay from 12 months to six months for implementing the updated skim milk composition factors. These updates are shown above, which witnesses testified would raise Class I prices in all Federal Orders by an estimated 70 cents per hundredweight (based on 2022 data), while also increasing the manufacturing class prices in the four fat/skim Orders.

Raising the skim component standards helps bring the Class I, III, and IV in alignment, reduces the frequency of negative PPDs, and reduces the incentives for depooling that undermine orderly marketing.

The manufacturing class prices in the other seven Orders that use multiple component pricing are already paid on actual components, not by standardized levels.

Standardized butterfat composition at 3.5% will not be updated in this decision because this is a paper number that does not affect how producers are actually paid. Each pooled producer’s individual minimum price in all Federal Orders is already based on their actual butterfat test for pounds shipped.

The updates to county-by-county Class I location differentials were also tweaked in places, compared with the July preliminary decision, and the base differential for all counties at $1.60 per hundredweight remains in place.

Butterfat recovery within class and component formulas will be updated from 90% to 91%. Several proposals had requested a larger increase.

The Secretary’s final decision on the Class I base price mover remains unchanged from July.

USDA will restore the higher-of formula, which had been changed to an average-of formula in the 2018 farm bill. USDA is also sticking with the ESL adjuster, creating what is essentially a two-mover system for fluid milk.

Processors will separately report sales of conventionally processed (HTST) and ultra-pasteurized (ESL) fluid milk product sales each month. The higher-of method will set the base price mover, and USDA will apply the new ESL adjuster to the sales of ultra-pasteurized milk to determine their final pool obligation.

The ESL adjuster represents the difference between the higher-of vs. the average-of the Class III and IV advance pricing factors over a 24-month period with a 12-month lag. USDA states that it sees this adjuster “stabilizing” the difference between HTST and ESL over time.

USDA also rejected comments that had raised competitive concerns, stating: “The record does not contain evidence to support the implication that manufacturers of dairy products, the majority of which do not manufacture ESL products, would make business decisions to gain an advantage in the fluid market where they do compete.”

On the negative side for dairy farmers, the large increases in processor make allowance credits were made a bit larger, not reduced, after the 60-day public comment period.

USDA relied on the voluntary surveys of processor costs that were presented at the hearing as customary data sources from past make allowance adjustments. While USDA did not fully meet the requests of International Dairy Foods Association (IDFA) and Wisconsin Cheesemakers Association (WCMA), it does recommend much larger make allowances than what National Milk Producers Federation (NMPF) had proposed.

Make allowances represent the costs of converting raw milk into the four manufactured dairy products surveyed by USDA. They are embedded in the pricing formulas, not line items on a milk check, and they aggregate to an impact of 75 cents to $1.00 per hundredweight — depending on product mix and Class utilization.

USDA responded to processor comments about marketing costs, adding $0.0015/lb to its previously proposed processor make allowance credits for cheese, butter, nonfat dry milk, and dry whey. USDA also responded favorably to the processors’ request to adjust the nonfat dry milk make allowance to be more than a penny per pound higher than previously proposed.

The final decision will raise the make allowances on the four products used in class and component pricing – per pound — as follows:

Cheddar cheese will be increased from the current make allowance of $0.2003 to $0.2519 per pound; dry whey from $0.1991 to $0.2668; butter from $0.1715 to $0.2272, and nonfat dry milk from $0.1678 to $0.2393.

In its rationale, USDA stated that NMPF member-cooperative-processors supported the NMPF proposal as “a more balanced approach” to consider impacts on producers and processors. However, they also testified that the smaller increases proposed by NMPF “did not cover their costs.”

This put USDA in the position of having to rely only on the cost data provided by IDFA and WCMA because NMPF offered no cost data to support their smaller proposal. USDA said it rejected consideration of the impact on dairy farmers because the Agricultural Marketing Agreement Act does not include producer profitability as a factor for the Secretary’s consideration on this matter.

USDA chose not to wait for the mandatory and audited cost of processing survey that Congress is expected to authorize and require USDA to utilize in the future. This language is included in all versions of the new farm bill and is reportedly supported by NMPF, IDFA and American Farm Bureau Federation (AFBF).

The final rule also removes 500-pound barrel cheese prices from the protein and Class III formulas, meaning only 40-pound block Cheddar price surveys will be used going forward. USDA rejected proposals that sought to add 640-pound block Cheddar, bulk mozzarella cheese, and unsalted butter to the pricing survey.

-30-

What’s the future for fluid milk?

Posted on by
2

Fluid milk sales are up, Whole Milk for Healthy Kids Act is moving. Meanwhile industry globalists put big bets on ESL, shelf-stable, with favor from Vilsack  

By Sherry Bunting, Farmshine, October 18, 2024

EAST EARL, Pa. — Protein is all the rage right now, and consumers are turning back to real milk as they realize its natural high quality protein benefits. Year-to-date fluid milk sales continue to outpace year ago, and that’s good news. Here are some key factors in the future of fluid milk in the U.S.

Fluid milk sales up!

July’s total packaged fluid milk sales more than recovered the June slump — in a big way, and August looks promising too.

USDA estimated packaged fluid milk sales at 3.4 billion pounds in July, up 4.3% year-on-year (YOY). This amplifies the pivotal year-to-date trend above year ago for the first time in decades (except the 2020 pandemic year).

Specifically, USDA’s Estimated Fluid Milk Product Sales Report for July, released in late September, noted conventional fluid milk sales total 3.7% higher YOY, with organic up 11.7%.

Conventional unflavored whole milk sales were up 4.7% YOY in July, while organic whole milk sales were up 17.1%.

Flavored whole milk sales were mixed because these sales rely upon what processors are willing to make and offer on store shelves, not necessarily reflecting what consumers want to buy. When fewer packages of whole flavored milk are offered, the full potential of sales are restrained.

Year-to-date (YTD) sales of all fluid milk products for the first seven months of 2024, at 24.7 billion pounds, are up 0.7% YOY, adjusted for Leap Year. Of this, YTD conventional whole milk sales for the first seven months of 2024, at 8.8 billion pounds, are up 2.1% and organic whole milk sales at 914 million pounds are up 12.6%.

The August report to be released in the coming weeks is shaping up similarly. August Class I utilization pounds reported last week by USDA are up 1.1% YOY and 1.1% YTD (Jan-Aug).

Making more fat, importing it too?

Meanwhile, the monthly World Agricultural Supply and Demand Estimates (WASDE) released Oct. 9 reduced its milk price forecasts for the rest of 2024 and into 2025, expecting Class III prices to fall from September highs as cheese price declines are expected to more than offset the higher whey prices.

This report is looking at all the major new cheese capacity coming online in the next 12 months, which is expected to saturate the cheese market to drive prices lower so that U.S. cheese makers can be globally competitive and continue exporting record amounts of cheese.

But is the milk available to do this? Likely not without robbing from Classes I, II and IV channels. Still, the WASDE forecasts lower Class IV prices also due to the abruptly declining butter price being only partially offset by the higher nonfat dry milk prices.

In short, dairy farms are making higher-fat milk, and the food industry is importing more milkfat, especially in the form of whole milk powder. WMP imports have been up by a record amount YOY in each of the past four years, especially 2024.

Restoring whole milk choice for kids!

Now would be a particularly good time for whole milk choice to be restored in our nation’s schools since we apparently have too much milkfat and not enough skim. Given this scenario, how can anyone in this industry still believe the whole milk in schools would hurt the industry’s ability to make enough butter and cheese. 

Unless it is excess butter and cheese that is needed to push prices down in order to continue beating record exports at reduced prices paid to farmers. 

Getting whole milk choice into schools would help. IDFA has been touting the Whole Milk for Healthy Kids Act. NMPF says they are on board too. This means the industry is united, right?

What are the chances that GT Thompson’s bill to bring whole milk choice back to schools will finally make it all the way to the President’s desk?

For starters, it passed the House by an overwhelming bipartisan majority last December. The Senate bill, S. 1957, has 11 Republicans, one Independent and five Democrats signed on, including notable Democrats such as Amy Klobuchar of Minnesota, Peter Welch of Vermont, Kirsten Gillibrand of New York, and John Fetterman of Pennsylvania who chairs the Senate Ag Subcommittee on Nutrition. 

The main sponsor is Republican Senator Roger Marshall of Kansas, a doctor. States represented are Pennsylvania, Vermont, Wisconsin, Idaho, New York, Iowa, Ohio, Indiana, Tennessee, Maine, and Mississippi.

In fact, Pennsylvania now has both Senators signed on. Senator Bob Casey Jr. (D-Pa.) is late to the party, but he has finally signed on as a cosponsor of S. 1957 on Sept. 19. It’s nice to see both senatorial milk jugs filled on the map for the Keystone State, but the bill needs more cosigners to fend off the blockade by Senate Ag chairwoman Debbie Stabenow (D-Mich.).

GT has included the Whole Milk for Healthy Kids Act in the House Ag Committee-passed farm bill. Word from Washington over the past few weeks is that a new farm bill is expected to get done after the elections in the lame duck session, and that GT will fight to keep the Whole Milk for Healthy Kids Act in the bill. Let’s hope so.

USDA: two movers for Class I?

Also related to Class I fluid milk sales, the dairy industry awaits a final decision on USDA’s proposed changes to federal milk pricing formulas, which includes a surprise for fluid milk: splitting the baby and adding a fifth class of milk in the form of two Class I mover announcements each month. 

The hearing record is woefully inadequate. No proposal. No evidence. No testimony. No analysis. No parameters. No definition. Even USDA’s own static analysis shows these two movers would be as much as $1 or more apart in any given month.

Fresh, conventionally processed (HTST) milk would go back to being priced by the the higher of the Class III or IV advance pricing factors to determine the Class I skim milk base price portion of the mover. 

However, milk used to make extended shelf life (ESL) fluid milk products, defined only as “good for 60 days or more,” would continue to be priced using the average of these two pricing factors, plus-or-minus a rolling adjuster of the difference between the higher-of and average-of for 24 months, with a 12-month lag.

With two movers, fluid milk costs could be different for plants in the same location based on shelf life, with no clear definition for the new class, nor parameters established to qualify. Could we see label changes to move between movers?

Processors will know the rolling adjuster 12 months in advance, due to the “lag.” They will know the two advance-priced calculations (higher-of and average-of) a month in advance. They will have it charted in an algorithm no doubt and make decisions accordingly.

Farmers, on the other hand, will find out how their milk was used and priced two weeks after all their milk for the month was shipped. Those milk checks will be even less transparent than they are now.

Big bets on ESL, shelf stable

The dairy checkoff has openly identified ESL, especially shelf stable aseptically packaged milk, as its “new milk beverage platform,” using dairy farmer funds to research and promote it and to study and show how consumers can be “taught” to accept it.

The whole deal is driven by the net-zero sustainability targets. So, follow the money.

Dr. Michael Dykes of IDFA, at the Georgia Dairy Conference in January 2024, told dairy producers that “this is the direction we (processors) are moving… to get to some economies of scale and bring margin back to the business.”

He said the planned new fluid milk processing capacity investments are largely ultra-filtered, aseptic, and ESL — 10 of the 11 new fluid plants on the IDFA map he displayed are ESL. Some will also make ultrafiltered milk, and some will make plant-based beverages also.

Meanwhile, the linchpin of regional dairy systems is conventionally pasteurized (HTST) fluid milk, prized as the freshest, least processed, most regionally local food at the supermarket.

To be sure, this two-mover proposal fits the climate and export goals set forth by the current Ag Secretary Tom Vilsack when he was working as the highest paid dairy checkoff executive in between the Obama and Biden administrations. 

The pathway to rapidly consolidate the dairy industry to meet those goals is to tilt the table against fresh fluid milk, something he already put a big dent in when removing whole milk from schools.

They decided thou shalt drink low-fat milk and like it. Apparently, they are equally convinced about ESL / shelf stable milk as the way of the future and will continue using mandatory farmer checkoff funds to figure out how to get consumers to like that too.

Just this week, the food writer for The Atlantic did a piece on shelf-stable milk, calling it “a miracle of food science” and lamenting in her Op-Ed that it’s a product “Americans just can’t learn to love.”

Author Ellen Cushing took jabs at America’s preference for fresh natural milk from a global perspective, without a thought for the local dairy farms and regional food systems that are tied to fresh milk. She states that by worldwide standards, other countries have gone shelf-stable milk, which she describes as “one of the world’s most consumed, most convenient and least wasteful types of dairy.”

Processors are making big bets on consumer conversion to ESL and shelf-stable.  There are cards to play in every hand. TO BE CONTINUED!

-30-

There is NO basis for two Class I movers in FMMO recommended decision!

Posted on by
4

AUTHOR’S NOTE: Who’s the wizard behind the curtain on USDA’s last-minute milk pricing surprise, the splitting of the Class I baby to favor ESL? Vilsack, of course, with a little help from his checkoff cronies at Midwest Dairy and DMI — masquerading as ‘dairy farmers.’

By Sherry Bunting

USDA’s recommended decision on Federal Milk Marketing Order Class I (fluid milk) formulas brought a big surprise getting very little attention. That surprise: “splitting the Class I baby” and adding what constitutes a “fifth Class” of milk — TWO Class I movers announced each month.

ZERO proposals to divide Class I into a two-mover system were aired at the national hearing. Even USDA’s analysis shows the two movers would differ by as much as $1 apart — or more — in any given month.

The hearing record is woefully inadequate, indeed completely void of testimony for a second Class I mover. No proposal. No evidence. No testimony. No analysis. No parameters. No definition.

What does this surprise two-mover decision mean? 

Fresh, conventionally processed (HTST) milk would go back to being priced by the prior method, using the higher of the Class III or IV advance pricing factors to determine the Class I skim milk base price portion of the mover. 

On the other hand, milk used to make extended shelf life (ESL) fluid milk products, defined only as “good for 60 days or more,” would continue to be priced using the average of these two pricing factors, plus-or-minus a rolling adjuster of the difference between the higher-of and average-of for 24 months, with a 12-month lag.

Confused yet? 

The industry is calling this surprise two-mover twist ‘innovative’ and ‘creative’, even ‘brilliant.’ But let’s hold the horses a moment. 

With two movers, fluid milk costs could be different for plants in the same location based on shelf life. Could processors change the label to move between the movers and pay whichever mover was lower? Who knows? There is no clear definition for the new class, and the parameters to qualify are non-existent.

ESL processors will know the rolling adjuster 12 months in advance, due to the “lag.” They will know the two advance-priced movers a month in advance. They will have it charted in an algorithm no doubt, and make decisions accordingly.

Dairy farmers, on the other hand, will find out how their milk was used and priced two weeks after all their milk for the month was trucked off the farm. If the two-price Class I system becomes law, dairy producers’ milk checks will be even less transparent than they are now!

Not only does the USDA hearing record and decision fail to clearly define ESL, the industry doesn’t even have an exact and generally-accepted definition or standard for ESL.

ESL is both a loose and specific term.

Generally speaking, ESL is a term covering a broad range of products — ranging from UHT (ultra high temperature) or ultra pasteurization, aseptic packaging, to the inclusion of a process that combines microfiltration, skim separation, and indirect heating (in stages). These processes yield what is more specifically referred to as ESL fresh milk with a longer shelf life in refrigeration, but is not shelf-stable.

What’s at the root here?

Dairy checkoff personnel have openly identified ESL — especially shelf stable aseptically packaged milk — as its “new milk beverage platform.” Dairy farmers’ promotion funds are being used to research and promote ESL milk, as well as studying and showing how consumers can be “taught” to accept it.

For the past few years, the four research centers supported by the checkoff have been drilling into milk’s elements to sift, sort, and test different combinations to reinvent milk as new beverages.

In 2023, North Carolina State researcher Dr. MaryAnne Drake —speaking at the 2023 Georgia Dairy Conference — talked about this “new milk beverage platform. We are after a shelf-stable milk that tastes great and meets our consumer’s sensory needs and our industry’s sustainability needs,” she said.

Bingo. Dairy checkoff funds for ESL are being driven by the net-zero sustainability targets. And now USDA’s federal milk order changes are proposing to lower dairy farmers’ Class I income and/or competitively favor, and in a way subsidize, ESL processors over fresh HTST fluid milk processors. Follow the money.

Dr. Michael Dykes of IDFA, at the Georgia Dairy Conference in January 2024, told dairy producers that “this is the direction we (processors) are moving… to get to some economies of scale and bring margin back to the business.” He said the planned new fluid milk processing capacity investments are largely ultra-filtered, aseptic, and ESL — 10 of the 11 new fluid plants on the IDFA map he displayed are ESL. Some will also make ultrafiltered milk and plant-based beverages too.

The linchpin to regional dairy systems and markets for milk from farms that fit USDA’s description of small businesses is the processing of fresh, conventionally pasteurized (HTST) fluid milk.

Meanwhile, dairy checkoff overseers, in cahoots with processors, are making big bets that consumers will embrace the obvious conversion underway to the consolidating shelf stable ESL milk, emboldened by the average-of pricing that has failed farmers miserably over the past five years and is now part of the proposed two-price Class I system mysteriously added to the USDA recommended decision when a two-price Class I system was never noticed as part of the hearing scope.

In the recommended decision, USDA notes that ESL currently represents 8 to 10% of total fluid milk sales but does not present the full picture of how the industry began aggressively converting to ESL since 2019 when Class I average-of was implemented. More of these accelerated investments will become operational in 2024-26.

Before we know it, the industry will have converted to ESL, and dairy farmers will once again experience disorderly marketing, depooling, and the basis risk of the mysterious average-of mover.

Dairy farmers have seen this movie before. 

In 2018, the average-of method — which changed how the Class I base was calculated — was portrayed by National Milk and the IDFA as “revenue neutral.” But at the recent national milk order hearing, testimony revealed that farmers experienced Class I revenue losses totaling nearly $1.25 billion from May 2019 through July 2024… and other impacts. 

Disorderly markets via the ‘average-of’ continue to result in losses and disrupt performance of risk management tools that fail to protect farmers against the intervals of extreme basis risk.

Proponents say the proposed rolling 36-to-13-month ESL adjuster on the second mover in USDA’s decision provides compensation to farmers for the difference between average-of and higher-of. However, that occurs gradually — over time — with a lagged interval. If tight milk supplies boost commodity prices and drive up all classes of milk, then dairy farmers’ incomes will at least partially lag years behind real-time markets!

ESL processors like Nestle and fairlife testified that the average-of method over the past five years allowed them to use Class III and IV hedges on the CME to offer flat 9- to-12-month pricing to wholesale customers and increase their sales. Nice to know the big corporations made money on that inequitable Class I pricing system.

Would a two-mover system ultimately reduce farmers’ access to milk markets in some regions and diminish the food security of those consumers? Watch the impact of a new, unregulated ESL plant now being built in Idaho!

Many legitimate questions lack answers

Milk is commonly prized as the freshest, least processed, most regionally local food at the supermarket. Will the USDA recommended decision accelerate consolidation and a reduction in fresh fluid milk availability for consumers?

Has USDA considered the purpose of the FMMO system is to promote orderly marketing and the adequate supply of fresh fluid milk? Will consumers accept the taste of the not-so-fresh ESL, or migrate faster to other beverages if fresh fluid milk is less available to them?

How will the two-mover system impact dairy farms located outside of the industry’s very specific identified growth centers? 

Will this perpetuate the wide divergence between Classes III and IV that has been an issue since 2019, further punishing dairy farmers with disorderly marketing and opportunistic depooling?

Who knows? The hearing failed to define, examine, or obtain evidence on any such questions… or any other questions that the hearing process is meant to be open to because this decision falls outside of the hearing scope!

Vilsack strikes again?

This proposal — a price break favoring ESL milk — fits the climate and export goals set forth by Ag-Secretary-then-DMI-executive-then-Secretary-again, Tom Vilsack. The pathway to rapidly consolidate the dairy industry to meet those goals is to tilt the table against fresh fluid milk. This is something Vilsack already put a big dent in by removing whole milk from schools.

It’s like one well respected veterinarian in the industry observed recently in conversation: “Someone decided: Thou shalt drink low-fat milk and like it.”

That “someone” is apparently equally convinced that the industry shall move to ESL and aseptic milk processing… while using dairy farmers’ checkoff funds to figure out how to get consumers to like that too.

-30-

While fakes campaign to BE ‘milk’, dairy checkoff aims to REINVENT milk. New ‘milk beverage platform’ deemed ultrafiltered, ESL, shelf-stable

Posted on by
Reply
As new milk beverage platform is developed, it sounds to me like people want the many attributes fresh whole unfooled-around-with fluid milk already delivers. It checks all the boxes! Maybe children just need to be allowed to have whole milk at school and daycare where they eat most of their meals, and maybe new generations of adults need the education about why and how the dairy protein and natural nutrition in real milk beat the imposters, hands down.

By Sherry Bunting, republished from March 2023 editions of Farmshine

SAVANNAH, Ga. — Dairy checkoff-funded researchers say a new milk beverage platform is being developed to provide “the keys to the kingdom.”

Their consumer studies show people want clean labels, and at the same time they want more attributes. On the one hand, they want energy and protein. On yet anotherhand, they want indulgent creaminess. 

Consumers also want flavor, but they want less sugar. They want sweeteners, but not artificial sweeteners. They want thickness without the thickeners. They do not want gums or gels, but they are okay with fibers and starches. 

Some consumers want higher protein products. Others want everyday nutrition that is reasonably priced. 

These are some of the highlights that were shared back in January 2023 during the Georgia Dairy Conference in Savannah. There, Dr. MaryAnne Drake, professor of food science at North Carolina State University and director of the Southeast Dairy Foods Research Center talked about the fluid milk innovation work funded through DMI.

The ‘new milk beverage platform’ leverages different processing applications for flavor and functionality around dairy protein, based on global protein trends in a rapidly growing nutritional drink market.

ESL shelf-stable milk: key to kingdom?

“We are after a shelf-stable milk that tastes great and meets our consumer’s sensory needs and our industry’s sustainability needs,” said Drake about the work of the four university research centers, including North Carolina State and Cornell, that are drilling into milk’s elements to sift, sort, and test different combinations, as part of the checkoff-funded Innovation Center for U.S. Dairy, under the DMI umbrella.

Through processes like membrane technology, ultrafiltration, and aseptic packaging, the physical, nutritional and sensory elements of milk are being isolated at a molecular level to create beverages that aim to deliver this broad list of what consumers say they are looking for. 

At the same time, researchers are using interpretive surveys to understand how consumer desires actually translate into purchases, and then work with processors to build relationships with retailers to get these new beverage products into stores.

Reinventing milk

What does all of this mean? Reinventing milk by focusing on the domains in which real milk has a clear advantage for consumers among so many plant-based and now cell-based options. 

For example, said Drake: “Consumers want to know from a credible source what the immune-boosting elements are in milk, not what we have added. They tell us they want to know the science. That’s new.” 

Drake explained that the findings from their interpretive surveys represent a huge and divergent set of innovations to sort through and capitalize on as part of a new strategy.

“Consumers don’t see the perceived value of animal protein vs. plant protein, so we had them graph what they want and don’t want, what they know and don’t know,” she said, adding that consumers gave the slight edge to plant protein over dairy protein. They rated the top three protein categories as plant protein, whey protein, and milk protein — in that order. (A large percentage believed whey protein is plant protein.)

As their familiarity with the differences between plant and animal protein increased, their liking of dairy protein increased, the researchers learned.

In other words, consumers do not know the science about the nutritional differences between plant and animal protein, and if they knew the differences, they would rank milk protein as number one. 

Clearly, this is a failure in consumer education and messaging. Isn’t that the domain of the dairy checkoff?

New strategy

Drake indicated that educating consumers about dairy protein as a ‘complete protein’ is one thing that can help. However, she said, the functionality around dairy protein is the innovation strategy that is being pursued by the industry.

“The number one label claim consumers are looking for in a protein beverage is ‘naturally sweetened.’ We own that, and this is where we can deliver,” Drake declared.

“We own protein functionality. We understand the process parameters that impact flavor and functionality, and we can leverage this over plant proteins on this platform,” she said.

Bottom line: The surveys and flavor panels showed that consumers want “desirable flavor, texture and appearance. They want a protein drink that is nutritious, naturally sweetened, and has a clean label with simple ingredients,” said Drake. 

“They also want education, messaging and positioning, and they are looking at sustainability,” she added.

“We are working on what does clean label mean? It’s not what we think it is,” Drake reported. “It’s costing us sales if what they actually want is not on the shelf. We have the opportunity to deliver what consumers still want. We just have to find those things they want — that we have — and be more strategic in how we deliver them.”

Food technology and engineering was a big part of the picture painted for attendees that day.

Diversify processing

Producers were urged to challenge the status quo and to not just add processing, but to diversify it. They were also reminded that the 10 southeastern states had lost eight fluid milk plants in the previous roughly two-year period (2020-22).

During his annual market outlook that year, retired co-op executive Calvin Covington hit the nail on the head with this reminder, saying “that’s done some damage. The major challenge for milk markets in the Southeast is we need more of them,” he said. “A lot of the fluid milk products that are sold in the Southeast are not processed here. If we are going to have a viable dairy industry in the Southeast, we need growing and stable markets for milk produced in the Southeast.”

Covington also differentiated the trends for domestic and export demand, showing that both lagged their respective 5-year-average annual growth in 2022, with domestic demand growing by just 0.5%, while exports grew by 3.5%.

Keeping in mind as exports are expected to top 20% of U.S. milk production on a total solids basis in the next two years and fluid milk sales as a percentage of total milk production have fallen to just under 20%, seismic shifts are already occurring in the heavily fluid milk market of the Southeast.

Transformation brings investors

Geri Berdak, CEO of Dairy Alliance, the Southeast regional checkoff organization, talked about “creating a path forward” with objectives centered on driving milk volume, increasing dairy’s reputation and transforming dairy while building checkoff support.

She said transformation is necessary to “identify high-growth opportunities and stimulate outside investment, technology and innovation.”

The need for processing is big as plants are closing in response to declining fluid milk demand, leaving the the need for more diverse processing assets.

Exports drive innovation

“The biggest thing exports do is to drive value and innovation,” said Patti Smith, a food technology specialist and CEO of DairyAmerica, now wholly-owned by California Dairies Inc. (CDI) milk cooperative. Earlier in her career, Smith held a leadership position with Fonterra and has served at board and officer levels with IDFA and USDEC.

“Exports are a lot more than powder today. Our biggest item is still excess powder,” she said. “But we also export many other products — even UHT (ultra high temperature) and ESL (extended shelf life) fluid milk and cream.”

What Smith sees into the future are “opportunities for the right products and the right product configurations. We have the opportunities to capitalize on them and the technologies to grow them.”

Smith said the biggest benefit of exports to-date is to have a home for milk that grows the dairy industry without relying on core domestic demand for that growth, but that U.S. dairy processing infrastructure is not quite reflective of the new export era.

“We need to make our industry world renown, through a strategic plan that the whole industry will work on together, with digitized supply chains and infrastructure for growth that is reliable and can be consistently demonstrated, and that includes shipping,” said Smith, citing the Innovation Center for U.S. Dairy as the nexus, where the industry’s “strategic plan” for global trade is being built.

Developing ‘new milk beverage platform’

Emanating from the DMI-founded and checkoff-funded Innovation Center for U.S. Dairy is the marketing and promotion arm of new product alliances and the National Dairy Research arm through several universities looking to essentially create a milk beverage platform by drilling into milk’s elements, sifting, sorting and testing different combinations.

Dr. Drake said the new milk beverage platform holds the “keys to the kingdom” as global protein trends were valued at $38.5 million in 2020 and projected to grow. Meanwhile, the nutritional drink markets are growing steadily, with 42% of consumers eating healthy as a higher priority since Covid, and the number of conversations about protein (95% positive) steadily flowing across social media platforms. 

Those keys, she said, are membrane technology, ultrafiltration, aseptic packaging and research exploring all of the physical, nutritional and sensory elements of milk at the molecular level to bottle up what consumers say they are looking for, while also gauging through interpretive surveys how this translates to purchases, and then working with processors to build relationships with retailers to get new products into stores.

Drake shared details about the roadmap to play to dairy’s strengths through nutrition, education, capitalizing on calming and immune benefits and using dairy protein functionality to limit added ingredients in beverages to satisfy the clean label trend.

She talked about how elements like fat, protein and lactose at different levels impact milk’s flavor and appearance: “We want to determine the impact of ultrafiltration levels for different concentrations of fat and protein for different sensory or physical experiences.”

She talked about ultrafiltration in conjunction with aseptic packaging for shelf-stable storage using an elaborate diagram of processes.

Bottomline, she said: “The chemistry of these (aseptic) milks is different.”

She described consumer flavor panels where shelf-stable and fresh fluid milk were served cold and compared. The flavor panels evaluated two different storage temperatures for the shelf-stable milk.

The North Carolina researchers worked with their Northeast Dairy Foods Research counterpart at Cornell and with Byrne Dairy, running grad students from North Carolina to Syracuse, New York when batches were available for study. (The Southeast and Northeast as well as Midwest and California Dairy Foods Research Centers all receive funding from checkoff and other sources.)

‘Training consumers’

“Consumer panels still liked the HTST (fresh fluid) milk best overall, but in 14-day and 6-month follow up, we found we can train them,” said Drake, reporting the two best storage temperature options for aseptic milk saw longer-term increase in acceptance.

HTST is the acronym for High Temperature Short Time pasteurization that is basically commodity fresh fluid milk vs. ‘value added’ UHT (ultra high temperature) and ESL (extended shelf life) as well as aseptically-packaged, which is milk processed for longer shelf life and then bottled in a special sterile process and package to last months without refrigeration, but will taste best served cold.

Schools are the gateway

“For 25 years, consumers have not liked aseptic milk,” said Drake, “but we are changing that. Consumers may not like it or want it, yet, but it is great for schools.”

She reported the practical applications to come up with “great tasting school lunch milk that contains no lactose (no natural sugar).” Another practical application is to  “determine the impact of storage temperature of 1% aseptic milk on physical and sensory properties.”

This partially checkoff-funded research is also working on “changing the chocolate milk formula to have zero sugar,” she said. “When we think about school milk, the question is how to get the sugar out of it. We want a chocolate milk that tastes great and new government standards on low- or no-added-sugars. Right now, chocolate milk has 8.5 grams of added sugar and 12 grams of natural sugar (lactose).”

In addition to ultrafiltration removing natural sugar, or lactose, they are exploring “non-nutritive” sweeteners like monk fruit and stevia. Additionally, they are looking at “lactose-hydrolized” to boost the flavor profile at much lower levels of sugars or other sweetener.

Whether talking about consumers or children, parents, and schools, the milk beverage platform is tricky “They want to know from a credible source what the immune-boosting elements are in milk, not what we have added. They tell us they want to know the science. That’s new.

“We have a huge and divergent set of innovations to sort through,” said Drake. 

-30-

Hearing looks at fluid milk pricing differences for fresh vs. ESL

Posted on by
Reply

By Sherry Bunting, Farmshine, October 6, 2023

CARMEL, Ind. – USDA’s federal milk pricing hearing continued into its 7th week on Wednesday, Oct. 4, and USDA announced another virtual farmer testimony session for Friday for Oct. 6, with the signup notice and link posted at the hearing website with just three days notice on Oct. 3.

Farmer testimony was heard virtually also on Friday, Sept. 29, including from two Pennsylvania producers and a third from the Keystone State testified in person on Tues., Oct. 3. More on their testimonies in a future edition.

Here are some observations as I’ve listened on and off over the past several weeks as the testimony and cross-examinations dug into this issue of the Class I mover formula.

As one can imagine, daily testimony from 8 to 5 with exhibits and cross-examination add up to a lot of material for USDA to parse through.

This is particularly daunting with the introduction of significant testimony about the CME futures, hedging, risk management and other such business management by farms and processors and how FMMO changes affect these practices.

Last week, Pittsburgh milk bottler Chuck Turner of Turner Dairy Farms testified in support of the Milk Innovation Group’s concept of modifying the current ‘average of’ method for calculating Class I to create a floor under which the add-on adjuster cannot fall below.

The fairlife CEO also testified about the MIG proposal for the Class I mover last week, explaining that fairlife relies on hedging so the company can offer 9 to 12 month pricing of extended shelf life fluid milk products to foodservice, institutional food buyers and convenience stores that purchase plant-based alternatives and other beverages with annual contracts.

He explained that if the Class I price goes back to the ‘higher of’, companies like fairlife and Nestle (also testified), and others will not be able to hedge that annual price without introducing increasingly volatile price risk to their businesses.

The Nestle rep noted that Nesquick sales increased since late 2019. That’s when they started offering buyers longer-term pricing because the Class I mover was changed to the averaging formula in 2019.

For his part, even Turner said hedging on the CME butter, powder and cheese markets might work to build a protected price for selling fresh fluid milk to schools and other buyers that want longer term pricing.

He was asked several questions about the role of the Pennsylvania Milk Marketing Board in his payment of farmers and competition in the state and region.

Here’s the problem: Grocery stores still largely receive fresh milk a few times a week direct-ship to stores.

On the other hand, the extended shelf life milk, aseptically packaged (shelf stable) milk, and various milk based innovations are shipped to a warehouse. They are not treated the same as fresh fluid milk from a pricing and supply standpoint.

Additionally, the foodservice, institutional, convenience stores, and schools want to know a price for 6 months, 9 months, one year. Bottlers say they can’t offer that if they can’t protect their risk.

So, to minimize risk for processors, the ‘average of’ formula for the Class I mover was put into legislative language in the 2018 Farm Bill with the acknowledgment that it could be changed in two years by a USDA hearing process like the one in Indiana the past six weeks.

That change ended up introducing significant risk to dairy farmers, who found their ability to hedge THEIR risk was jeopardized.

Just as there are two classes of Class I processors — fresh milk and ESL fluid products, there are two classes of dairy farmers. On the one hand, producers whose milk routinely goes to Class I fluid milk plants or pool distributing manufacturing plants cannot be depooled, but milk routinely going to manufactured dairy products can be depooled.

When manufacturing class prices are higher than the Class I mover, a ripple effect occurs that disrupts the class pricing alignments. When higher priced milk is depooled, the processors can keep that money, or pass it on to their own shippers — disrupting one of the functions of the FMMOs to have orderly marketing and uniform pricing.

As one market analyst noted in her testimony last week, it’s like the story of Goldilocks and the Three Bears. These alternate Class I mover proposals are complicated with rolling adjusters to be added to the averaging formula.

For the function of the FMMOs, the ‘just-right’ porridge is the ‘higher of’ for the Class I mover, many have testified.

Trouble is, some regions may see more processors leave the FMMOs if they can’t make it work for them, and the bifurcation in the Class I fluid milk market will leave some processors unable to adapt to long-term pricing for large institutional buyers.

Which way is fluid milk consumption heading? That may be the question to answer first.

In the Eastern U.S., one thing’s for sure, the current flat milk production is being soaked up by strong bottling demand, and the market is paying above class prices right now to get milk for other uses.

The Class I pricing question, along with the other proposals in the lengthy USDA hearing, are being looked at by USDA through the lens of the FMMO’s purpose, especially “orderly marketing.”

However, USDA has no concrete definition for orderly marketing. Will we see that intuitive definition change? What do farmers have to say about it?

For its part American Farm Bureau Federation has been orderly in its presentation of testimony. Economists Roger Cryan and Danny Munch have testified. Farm Bureau members have testified.

This week, Cryan testified on removing the “advance pricing” from the Class I and II formula as this function of using two weeks of product prices to determine four weeks of pricing the following month is another piece of the puzzle bringing more volatility into the equation that can lead to depooling.

However, processors say they want advance pricing, and they want long-term hedging too! They want it all!

According to AFBF data presented at the hearing, advanced pricing has disrupted the orderly marketing of milk and led to unfair marketing conditions for dairy farmers. This disruption is caused when the price of other classes of milk rises above the announced advanced price of Class I and Class II milk. A full explanation of advanced pricing is available via AFBF’s Market Intel.

AFBF supports several proposals by the National Milk Producers Federation, which would increase Class I prices, drop barrel cheese from the Class III price formula, and return to the “higher-of” Class I formula. AFBF also supported in testimony its proposals to add salted butter and 640-lb block cheese to the pricing survey.

The hearing website posts updates at https://www.ams.usda.gov/rules-regulations/moa/dairy/hearings/national-fmmo-pricing-hearing