Milk Market Moos, June 25, 2021

By Sherry Bunting, published weekly in Farmshine Newspaper

Cutting through consumer confusion

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

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

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

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

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

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

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

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

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

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

USDA joins global school lunch deal

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

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

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

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

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

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

Okay, let’s hear those details.

Will USDA do dairy?

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

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

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

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

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

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

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

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

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

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

July Class I advance $17.42

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

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

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

Class III/IV milk futures plunge

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

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

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

Dairy commodities all lower

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

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

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

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

Dairy Exports: Jekyll and Hyde

MilkMarketMoosHeader070914web.jpgDairy Exports: Jekyll and Hyde

By Sherry Bunting, Milk Market Moos, Farmshine, February 2, 2018

Talk to dairy farmers and industry observers about dairy exports and the response runs the gamut from enthusiastic full-court-press to cautious optimistic pursuit to a pessimistic skepticism about the profitability they bring to the table.

awGDC18-Day1-56.jpgNo matter where you are on the scale of good, bad or indifferent, exports are essential for agriculture and for dairy.

The hands of time do not turn backward on technology and progress, and so we are in a global market. If we want to be competitive in our domestic market, we need to also be competitive globally.

The food industry is increasingly served by global players and multinational companies that can source and supply from all corners of the globe. People would be surprised to learn how relatively small the transportation cost is in exporting ag commodities, especially further processed dairy products, overseas compared with cross country, on a per-unit basis.

If our ships are not arriving at other ports because we can’t compete, then other ships will arrive at our ports because we can’t compete.

That said, forward progress in supplying markets overseas needs to be pursued, not with reckless abandon finding ‘homes’ for excess milk, but with strategic thinking that includes the marketing and a consideration for the well being of our dairy farm sector.

As Secretary of Agriculture Sonny Perdue pointed out in his visit to Pennsylvania last week, America’s food security is America’s national security. Our farmers are the thin green line that, along with our military, keep our nation safe. After 9/11, the U.S. set out to be energy independent within 25 years and accomplished this in 10, according to a talk, given by Dr. David Kohl, Virginia Tech professor emeritus, in Lancaster County, Pennsylvania last Friday.

Just as our growing economy became at one point dependent on other nations for a portion of its energy needs, to its peril, we should take care that we do not become dependent in the future on other nations for our food.

A laughable thought, perhaps, but the rapidly consolidating agriculture industry needs its wide and varied base of family farms, small independent businesses, that support a varied and competitive rural infrastructure and provide the safety net of food security for American consumers through their independent pursuit of partnering with industry and academia to producer more, with less.

Kohl talked about how important trade is to American farmers, including the dairy industry, which currently exports 1 out of every 7 days’ worth of milk.

He made some observations about China’s agriculture. That Chinese interests purchase of Smithfield was largely to purchase the food safety protocols to ensure their food security. Here’s a statistic Kohl shared that got me thinking. He said that while there are 2 million farmers in the U.S., there are 314 million farmers in China.

“They are not taking on technology there as rapidly because there are 800 million people living in rural China and they need something to do,” said Kohl.

Just think about that for a minute. Technology is as essential to the future in agriculture as are our trade negotiations and exports; however, this statistic made me think about our rural youth both on and off the farm.

Dairy farming, like the hog business in the 1990s, is at a crossroads. Farmers, through their cooperative memberships, partnerships and other arrangements, own some of the largest and most aggressive processing assets that are strategically consolidating markets and distribution.

They hold in their hands their futures as individual small businesses — parts of the whole, contributors to a market, dairy farmers who not only are improving their own business acumen but continually improving how they manage their herds and possess a passion for what they are doing, a passion that is being called upon to directly market their farming lifestyle to consumers to counteract the negative attacks of anti-animal activists casting doubt wherever they turn.

U.S. Dairy Export CEO Tom Vilsack has set a lofty goal of getting U.S. dairy exports to 20% of production vs. the current 14. That would be nearly one and a half days’ worth of milk production out of every seven.

That sounds exciting, but when have we heard percentage of increase goals set for the fluid milk category? Could that incremental effort not also be exciting?
There are reasons why we are not seeing this, and in some respects, those reasons bring us back full circle to the export discussion.

Beverage milk is not exported on the scale that dairy commodities and dairy products are. Yes, DFA is among those exporting shelf stable milk to China for supermarkets, but this is not a globally traded product as are cheese, butter, and particularly dairy indgredients and protein powders.

While dairy processors eye up the opportunities and build inventories around allocated sales, and manage their risk with offsets, dairy farmers are in the price-taking position with the promise that if exports grow, they and their families can grow their businesses, without a serious discussion about the profitability in that proposition.

All of this to say, that the main market for U.S. farm milk is here at home as not only a beverage but also a growing number of dairy products finding good demand.
We are not New Zealand, which exports most all of what they produce.

The U.S. has, already, a strong robust customer base for cheese, yogurt, butter and a host of dairy products, as well as a sector of our industry (beverage milk) that needs our committed attention through dynamic labeling, comparative promotion vs. the imposters, consumer education about MILK, not how many situps and pushups to do each day. It needs people in charge who truly believe it is important, not an offhand remark by a checkoff-paid employee for U.S. DEC speaking at a conference, saying that fluid market is a dead horse as he proceeded to dig into the exciting team of horses (exports) waiting in the wings to save the day.

Having said all of this, it is imperative that U.S. dairy farmers be competitive to be involved in the global marketplace because it is here, with all of its pluses and minuses, but that does not mean we turn way from the prize in which the Federal Orders place high value and for which other products are taking over because we have, in effect, laid down and allowed the incremental loss of beverage milk sales.

But let’s examine the fluid milk dilemma further in the next edition.

Author’s Note: Re-inventing this Ag Moos blog for the times….  Milk Market Moos is a column I have been writing in Farmshine since 2003. It became a weekly feature in 2007. Find some of this content here, at Ag Moos, along with other dairy and beef market related stories, agriculture news, and, in between, the stories and images of the inspirational people of agriculture… but you can get it first, and you can get it all, in Farmshine Newspaper, just $15/year. Farmshine is a weekly newspaper published in Brownstown, Pennsylvania — now in its 39th year of publishing all-dairy, all-the-time.