by Sherry Bunting, Farmshine, Sept. 3, 2010

Increases in the all-milk price are finally beginning to outpace feed costs by a margin that is approaching $10 per hundredweight -- close to where it was in early 2008 before the long dairy crisis began. The milk price will need to continue improving to stay ahead of the rising cost of grain.

Dairy farmers will be glad to know that cheddar cheese prices hit new highs for 2010 this week on the CME: Blocks were quoted at $1.71/lb and barrels just over $1.67/lb Wednesday (Sept. 1). Butter continued its rally, at $2.22/lb Wednesday, and nonfat dry milk blinked at $1.21/lb.

This, along with higher prices Tuesday on Fonterra’s internet auction for whole milk powder ($1.60/lb) skim milk powder ($1.45/lb) and milkfat ($2.12/lb), helped push future contracts higher in the close up months. However, futurets for 2011 declined this week with April through July setting new contract lows.

Tuesday’s USDA Ag Prices report pegged the August all-milk price at $16.60, up 60 cents from July and the highest since Nov. 2008. Manufacturing milk was up $1.00; fluid was up 60 cents. (The Sept. advance Class I base price for fluid sales was announced last week at $15.50/cwt, which is 27 cents lower than the August Class I base.)

Meanwhile, the USDA Ag Prices report estimated corn was 16 cents higher than July at $3.65/bu.; soybeans up 31 cents at $10.10/bu.; and alfalfa hay down $1 at $116/ton.

The cost of feed to produce 100 pounds of milk was estimated at $7.03, putting "income over feed costs" (or milk margin) at $9.57/cwt, up 47 cents from July, according to calculations derived from USDA numbers as reported by Alan Levitt in Tuesday’s Daily Dairy Report.

Leprino goes BIG in Colo.

Monday’s Denver Postthe Colorado-based Leprino Foods plans to build a $270 million mozzarella factory near Greeley.

To supply the plant, Colorado dairy producers are expected to double the state's current production by adding a collective 80,000 cows to their herds in the coming years.

At full capacity, the plant "expects to produce a staggering two billion pounds (of mozzarella) per year." That is said to be enough to cover 2.6 billion pizza pies annually.

The Denver Post story noted that Leprino’s closely guarded, proprietary process "turns milk into frozen shredded mozzarella in five hours," versus processes taking days or weeks.

In addition to being the world’s largest mozzarella producer, with pizza kitchens and taco kitchens that replicate the cooking processes used by major pizza and restaurant chains, Leprino is also a major producer of whey and lactose as byproducts of making cheese.

Fonterra USA ramps up its warehousing for imported ingredients in Chicago

According to New Zealand press reports Monday, Fonterra rented a big new warehouse just down the highway from its U.S. headquarters near Chicago’s O’Hare Airport. The 500,000 square feet of warehouse space is "expected to channel significant amounts of Fonterra’s billion-dollar exports to the U.S."

The Shorewood, Illinois location has access ramps to I-55 and I-80. It is also close to the research and development center Fonterra opened two years ago in nearby Rosemont (a stone’s throw away from the Innovation Center for U.S. Dairy, which was funded and established by U.S. dairy farmers through DMI.)

According to the New Zealand press, Fonterra plans to develop its Rosemont, Illinois technical center into "a major sensory application center to work directly with North American customers for dairy proteins and other ingredients, including HP Hood, Nestle and Unilever."

Fonterra USA is estimated to have annual turnover of nearly $1 billion (U.S. dollars) from its imports of caseins, whey powders, proteins, protein concentrates, hydrolysates, cheese, cream products and milk powders.

Dennis Wolff is a lifelong dairy farmer, former state ag secretary and partner in Versant Strategies, Harrisburg, Pa.

When news came to the countryside that the U.S. House and Senate Agriculture Committees were including dairy products in the reauthorization of the mandatory electronic reporting bill in July, the response from dairy farmers was: "Finally," we are moving in the right direction to improve price discovery. 

Unfortunately, when we received a copy of the bill we discovered the magic word "DAILY" was not included in S. 3656 nor H.R. 5852. As currently proposed, the only change would be that USDA would receive the price information via email instead of by fax, and the information would still be five to 10 days old when released by USDA. 

DPAC (Dairy Policy Action Coalition) questioned why the dairy products would not be reported daily like the beef and pork processors are required to report. We were informed it was because of the cost.  What?? The cost, according to USDA, was to write the program and educate the users.  How could daily reporting change the budget number?  Their reaction to this point was, well, so maybe it isn't the cost after all…  but the processors have told us it would be burdensome to report their sales and prices daily. 

I guess pushing that ‘send’ key each day is a considerable burden for them! But, compared with the burden of trying to cash flow a dairy farm with the new debt incurred last year, this “reason” for opposing DAILY reporting fails the common sense test, and that is one thing dairy farmers have: common sense.  To use President Obama's favorite phrase, "someone just got bamboozled".

It sure seems like 60,000 dairy farmers should have an advantage in this debate because we way out number the 97 processors required to participate in the reporting to USDA.  But when you consider the 97 processors are very large companies and united in their policy requests to Congress, while the 60,000 dairy farmers are hard working individuals—more focused on managing their herds than the decisions being made in Congress—you start to realize where the power is.  

It’s like Joe Nichols popular country song "Size Matters", and it applies here.  In this case it isn't the number of farmers versus the number of processors, it unfortunately is the size and power of the lobbying effort.

So why do we need daily electronic reporting?  I think the Chair of the Senate Agriculture Committee, Blanche Lincoln said it best in her analysis of another important bill H.R. 4173—known as "Restoring America’s Financial Stability Act"—reforming Wall Street and the banking industry, which was signed into law recently.  Sen. Lincoln’s opening bullet point regarding that bill was:  “This reform brings100% transparency to the market with real time reporting. They will no longer be able to make excessive profits by operating in the dark. Exposing these markets to the light of day will put money where it belongs."

This is a basic fundamental rule in any market.  Dairy product pricing needs some of this "light of day" to insure farmers are getting a fair market price for their milk.

As the 2007 GAO (Government Accountability Office) report requested by Senators Clinton, Specter, Feingold, Kohl and Schumer states on page 27: "The CME spot cheese market continues to be a surplus market where a few large participants buy and sell cheese and less than one percent of the cheese produced in the United States is traded. In addition, market participants continue to use the CME spot cheese market prices to set most cheese prices in the United States. As a result, concerns about price manipulation will likely remain." 

Dairy farmers, in all parts of the country, agree: We need to dilute the impact of the CME.  We need daily electronic reporting for improved transparency in the pricing of dairy products that ultimately are reflected in our milk checks.

Unfortunately, the Senate already passed their version of this bill.  The House will take up H.R. 5852 when they return on September 13th.  Please contact your Congressmen and Congresswomen, as well as your Senators, and express your opinion on the importance of having DAILY electronic reporting in H.R. 5852 to bring transparency and improved price discovery to federal dairy policy.  We think David still has a chance here. 

To find your Representative or Senator, click here

 For a list of U.S. House Ag Committee members, click here

Learn more:

Read about the June 29 Senate Ag Committee hearing

Audio replay of the hearing

Read this account  in the July 19 Reading Eagle (Berks County paper)

Berks and Schuylkill County producers have an upcoming opportunity to share their concerns about dairy pricing and other agriculture issues at a "Town Hall Meeting" to be hosted by State Senator David G. Argall (R-29) on Wednesday, Sept. 8, at 6:30 p.m. State Senator Michael Brubaker, Chairman of the Senate Agriculture Committee, will be Argall’s special guest. In addition, State Senator Mike Folmer (R-48), State Representative Jerry Knowles (R-124), as well as other elected officials will be in attendance. Contact Sen. Argall’s Hamburg District Office at (610) 562-3411 for more information about this Town Hall Meeting on Agriculture.

Globalization has forever changed traditional measures of market conditions. For example, analysts predict a large harvest of corn and soybeans. Yet grain prices are rising and quite volatile on news that other nations—like China and Russia—may be hefty buyers of American grain due to drought.

While U.S. dairy farmers are still struggling to regain their footing, and milk prices have inched their way barely back into the black, uncertainty about grain prices poses a new concern for dairy margins here in the U.S.

And, the milk prices really could be better. Even though milk production continues to top year ago—up 3% in July according to USDA’s report last week—commercial use of cheese was up nearly 3% in the second quarter on the combination of stronger domestic use along with a big gain in exports. Total U.S. dairy exports, in fact, broke records for the first half of 2010. At the same time, retail prices here at home are rising (not that they ever fell much in the first place during 2009).

Cream supplies are very tight from coast to coast. Butter surged to $2.18 per pound by Friday, August 27 on the CME, which also pegged cheddar blocks at just over $1.6950 per pound, barrels at $1.6650.

The reason given for the comparatively slow rise in milk prices at the farm gate—along with uncertainty about milk prices for the rest of the year—is: Consumer confidence is low. Restaurant traffic remains low. Sales of packaged fluid milk are down 1.4% (which is really still above 2008 levels since 2009 was nearly 2% higher than 2008). Then comes the familiar chorus: “Who’s going to eat all that cheese in inventory?”

The World Agriculture Supply and Demand Estimates (WASDE) August report foresees continued growth in U.S. dairy production through 2011, and with it, the milk price forecasts were lowered.

By Sherry Bunting, Farmshine, Aug. 27, 2010

ROCK SPRINGS, Pa.—Daily reporting is not dead yet, according to board members of the Dairy Policy Action Coalition (DPAC)—a coalition of grassroots dairy producers, corresponding with their peers in 23 states and operating on donations from dairy farmers, farm organizations, and farm service and supply businesses now from 13 states.

During Ag Progress Days near Rock Springs, Pennsylvania on August 17, DPAC had an impromptu meeting with three members of the U.S. House Agriculture Committee: Rep. Tim Holden, who is the House Ag Committee vice-chair and represents Pennsylvania’s 17^th district covering portions of Lebanon, Berks, Schuykill, Dauphin and Perry Counties; Rep. Kathy Dahlkemper, representing Pennsylvania’s third district covering seven counties in Northwestern Pennsylvania; and Rep. Glenn Thompson, representing Pennsylvania’s fifth district covering 17 North Central and Northwest counties.

“We explained the need for “daily” (not “weekly”) in the language for electronic reporting of dairy product prices and volumes,” said Dennis Wolff, a lifelong dairy farmer and former state ag secretary who serves as DPAC’s government relations consultant. Wolff arranged the meeting between the members of Congress and DPAC board members. Chairman Cliff Hawbaker, a Franklin County dairy producer, vice-chair Daniel Brandt, a Lebanon County dairy producer, and Jeremy Meck, a Berks County producer attended—along with a dozen other dairy farmers who heard about the meeting.

“DPAC discussed their concerns with the electronic reporting language in the bill that passed the Senate and will be voted on in September by the House,” Wolff explained. “Dairy farmers want to see ‘daily’ reporting (not weekly) because improving the timeliness of the report is the key to it.”

Representatives Holden, Dahlkemper and Thompson agreed to help get a meeting together in Washington D.C. to look at options before the House vote.

“DPAC looks forward to continuing this discussion with House Agriculture leadership and staff in Washington D.C. after Labor Day,” said Wolff. This will be DPAC’s fifth trip to Washington since January on this issue, as the coalition first targeted its educational efforts toward the Ag Appropriations Subcommittees to seek funding for Section 1510 of the 2007 Farm Bill, which already authorizes the electronic reporting system, along with “more frequent” reporting and quarterly auditing. DPAC also met with USDA in April and with U.S. Ag Secretary Tom Vilsack’s Dairy Industry Advisory Committee in June.

Then, in July, an opportunity presented itself via the Ag Committees of the House and Senate. They included electronic reporting for dairy within their reauthorization of mandatory reporting for beef and pork, for which the current authorization is due to expire on September 30.

“It was good to see dairy included in this reauthorization, along with beef and pork,” said Wolff. He gave an update on “daily” electronic reporting during DPAC’s August 12 board meeting and that evening during a meeting for dairy producers in Kinzers, Lancaster County, Pa..

“This is a step in the right direction to go from a NASS Survey to electronic reporting,” said Wolff. “But the frequency of reporting (under these bills) is the same as the way it currently is, except for the fact that the reporting time would be shortened by two days to every Wednesday instead of every Friday. The issue here is the need for ‘daily’ reporting.”

The House and Senate Agriculture Committees passed separate versions of the Mandatory Reporting Act of 2010 (H.R. 5852 and S. 3656) earlier this month, which included this first step for dairy—directing USDA to establish an electronic reporting system as called for in the 2007 Farm Bill. But while the Act reauthorizes daily reporting for beef and authorizes new daily reporting for pork, the reporting requirement for dairy is described in the bill as “weekly”—not “daily.”

Dairy farmers have been hoping for the “more frequent” (daily) reporting and quarterly auditing promised in Section 1510 of the 2007 Farm Bill: a promise that DPAC has been striving to remind Congress to deliver.

On August 3, producers in many states responded to a DPAC email alert, calling their Senators on the Ag Committee and expressing the need for an amendment of the bill language to “daily” (not weekly) reporting for dairy products. But, after a late night lobbying effort by the International Dairy Foods Association (IDFA) against potential amendments for “daily” reporting of dairy product prices and volumes, the Senate Ag Committee whisked the bill through, without amendment, to the full Senate, where it passed by unanimous consent rules in early August, just before the Congressional summer recess.

The full House will vote on the measure when Congress resumes session sometime between September 13 and 20.

“This is an excellent example of why DPAC is critical as a grassroots dairy farmers effort,” said DPAC vice-chair Rob Barley at the board’s August 12 meeting. “The ‘daily’ electronic reporting is our focus right now so we need to double-down on this.”

Dairy producers across the country are encouraged to contact their members of Congress (by phone or fax) on this issue, simply to say that if USDA implemented  “daily” electronic reporting of dairy products, the effect of the Chicago Mercantile Exchange (CME) would be diluted. This is important because the CME is thinly traded and the market of last resort where only 0.4% of the US cheese production is traded. 

“What we need is for the Mandatory Reporting bill (H.R. 5852 or S. 3656) to be amended so that dairy product prices and volumes would be reported “daily” just like beef and pork processors are required to do,” said DPAC chairman Cliff Hawbaker. “Mandatory daily reporting helps insure dairy farmers have timely information, instead of outdated information, and access to a fair market price for their milk.”   

 To find your Representative or Senator, click here

 For a list of U.S. House Ag Committe members, click here

By Sherry Bunting, Farmshine, August 13, 2010

ATHENS, Tenn.—They came from all corners of the Southeast -- 22 dairy producers from 10 states -- and by the end of the day last Thursday (August 5), the group assembled had identified six key action items for short- and long-term dairy policy. During the daylong meeting, they also shared consensus to form a southeast action group with DPAC (Dairy Policy Action Coalition), setting their next meeting for early September in Atlanta, Georgia, where they will chart a course of next steps.

The idea for the "summit" came from DPAC’s southestern ad hoc board members at the conclusion of the coalition’s July teleconference meeting. Chairman Cliff Hawbaker, Chambersburg, Pa. and vice-chair Rob Barley, Conestoga, Pa. traveled to the Athens, Tennessee meeting, primarily to listen, but also to bring a few ideas to the table.

Maury Cox, executive director of the Kentucky Dairy Development Council and Julie Walker of Agri-Voice worked together on the preparations. Several years ago, Cox had been involved in a "Southeast steering committee," which at that time had identified some changes to seek through the USDA administrative hearing process. But the result didn’t come through as hoped at that time.

This time, the group assembled reaches further and covers more states. It was a grassroots group of dairy producers, spanning virtually all milk cooperatives and southestern producer groups. A few state Farm Bureaus were represented there as well: To observe.

There is a sense of urgency in the Southeast these days. On August 5, the 22 producers who participated in the grassroots meeting were thoughtful and motivated.

It was truly a "meeting of the minds" among these grassroots industry leaders. Unity of purpose was the hope laid out on the table.

Topping the list of milk pricing and dairy policy actions the group focused on was the American ideal: A true vote for every dairy producer in the policies and regulations that affect the future survival of the region’s dairy farms and the infrastructure of businesses and jobs that rely on them.

"Bloc voting has to go," they agreed.

The short list of action items at the end of the day included:

1) Reforming the producer voting process for Federal Order Administrative Rule changes. (Change the "all or nothing" voting procedure.)

2) Elimate "bloc voting" so producers have a vote.

3) Increase Federal Order Location Differentials.

4) Eliminate Transportation Credits for Federal Orders 5 and 7.

5) Influence National Milk Producers Federation’s Foundation for the Future.

6) ·Work towards Country of Origin Labeling and sustaining dairy product Standards of Identity.

Full Story

Big-time increases in Mozzarella production

Here is something else to say "cheese" about: Mozzarella production has skyrocketed the first half of 2010, up seven percent from last year. June’s output, alone, was a record high mozzarella production for any single month ever.

Trade analysts point to a pickup in pizza sales by major restaurant chains that are running specials and using more cheese on each pie.

Dominos’ sales are up a reported 9% over last year and Pizza Hut up 8%.

The Cold Storage Inventory reports that have kept a damper on market morale, still showed plenty of cheese at the end of June; however, much of that cheese is Italian and "other" category cheeses. The dairy producer’s milk price does not even factor the value of mozzarella, even though production of Italian cheeses (of which mozzarella is the majority) are poisted to surpass cheddar production this year.

Butter topped $1.90 this week as inventories have declined dramatically in the past three months, to a five-year low at mid-year.

At the same time, butter consumption is up 15-20% compared with five years ago, so that inventory is not satisfying the demand.

This is pushing cream multiples dramatically higher as cream supplies also remain tight due to above-normal temperatures throughout most dairy regions, including the Northeast and Upper Midwest.

Farmers everywhere are talking about their butterfat components being lower than usual for their herds. Some blame the heat, others blame last year’s forages. Either way, this is contributing to the tight butterfat situation in the country, and worldwide. Look for this to have some impact going forward.

By Sherry Bunting, Farmshine, Aug. 13, 2010

EPHRATA, Pa.—Farmers need to be involved. That was the message as their culture and future was on the front burner Tuesday night here at the Martindale Mennonite Fellowship Center, where 120 gathered for an informational meeting on milk pricing and dairy policy and to hear from DPAC organizers.

Formed last November, the Dairy Policy Action Coalition (DPAC) is run by a board of grassroots dairy farmers as an outcome of meetings across Pennsylvania and in eastern Ohio, kicked off by a pasture meeting of 500 in Gordonville, Pa. last August. In nine months, the coalition has focused on truth and transparency and attracted active participation from dairy farmers, farm organizations, and agribusinesses in 23 states—from the Northeast and Mid-Atlantic, to the Southeast, Midwest, and Upper Midwest.

While DPAC is making progress in Harrisburg on the issue of ‘stranded’ over-order premiums—paid by consumers but not reaching the dairy farmers in Pennsylvania—the road to positive change in Washington proves a bit bumpier. But progress is happening there as well, said DPAC board members during Tuesday night’s meeting.

Questions and discussion centered on topics that have been covered in depth over the past several months in Farmshine and at DPAC’s website: www.dpac.net. Farmers were quick to thank organizers for giving them time to ask the questions that were on their minds.

Many of these questions were about the Chicago Mercantile Exchange (CME), the futures markets and how dairy prices are figured, set, and reported.

At the federal level last week, the Senate and House Agriculture Committees added a section on electronic reporting for dairy products to a bill reauthorizing daily reporting for beef and pork. DPAC has been pushing for Congress and USDA to implement “daily” electronic reporting as authorized in the 2007 Farm Bill, but the measure that passed both Congressional Ag Committees last week simply requires “weekly” electronic reporting.

DPAC organizers told farmers this is a good first step, but that the International Dairy Foods Association (IDFA) lobbied late last Tuesday night to prevent Senators from offering amendments to the bill on Wednesday morning to require “daily” reporting. The processors and cooperatives say they want electronic reporting to stay “weekly,” at least until the Federal Order milk pricing system is reformed.

At the state level, discussion continues to move forward on legislative changes. Senator Mike Brubaker—a Republican representing northern Lancaster County and chairman of the Pennsylvania Senate Committee on Agriculture and Rural Affairs—joined the meeting later in the evening. He reported that state lawmakers are studying Pennsylvania’s milk marketing law and considering legislative changes to help ensure farmers are receiving what is due them under the law.

The Senator said that if a change in the law is needed, a vote could happen by the end of this year.

At issue are loopholes in the current law, which cause 20 to 30% of the 25-cent premium paid by consumers on every gallon of milk to be swallowed by the system instead of being passed back to the dairy farmers this over-order premium is intended to support.

“In state government, we hear from farmers who want more government involvement and from farmers who want less government involvement,” said Sen. Brubaker, as he talked about the dilemma for lawmakers as they discern: What is the “right kind” of government involvement? He noted that DPAC’s formation from the grassroots, and in building consensus, helps lawmakers answer that question.

“Government involvement ought not occur in your industry without your insight and involvement (as dairy farmers),” the Senator said. “It takes a team of people—from the haulers to the cooperatives and processors—on top of the farmers. You need these entities. But one point of the market chain should not be able to exert undue influence to disadvantage another point in the market chain. When that happens, the government should step in and right the ship.”

Sen. Brubaker encouraged the dairy farmers to continue connecting with each other and to be involved in the future of their industry. “It is encouraging when landowners—producers like yourselves—get together and talk about what is right for you,” he said.

“There is support from lawmakers in Harrisburg. We may get this,” said Bernie Morrissey about potential changes to the Pennsylvania milk marketing law. As founder of Morrissey Insurance based in Ephrata, he is “retired” but going full steam ahead as a supporter of the DPAC coalition he was instrumental in getting up and running. He talked about how the coalition began and the philosophy of farmers “controlling their own destiny.”

DPAC lobbies lawmakers on behalf of dairy farmers, and is represented by former state ag secretary Dennis Wolff, now a partner in the Harrisburg, Pa.-based Versant Strategies.

“Things have changed while we were busy running our farms,” said DPAC board member Paul Horning, a dairy farmer from Stevens, Lancaster County, Pa. “We don’t have the time to leave our farms and do all of these things, that’s why we need a guy like Denny Wolff. He has the contacts and knows the political system. Even if we are successful in getting changes to dairy policy, it still may be necessary to have a guy like Denny Wolff keeping an eye on things for us farmers.”

Horning encouraged his peers to talk to their friends and neighbors and the people they do business with.

“There are 7300 of us in Pennsylvania,” added DPAC board member Nelson Troutman, who operates a dairy farm with his brother in Richland on the border of Berks and Lebanon counties. “If everyone gives a little, we can do a lot. You can’t just go to a meeting like this and then go home and think everything’s going to be alright. We have to stay involved.”

“When you go to the lawmakers, you have to speak with one voice,” added Morrissey, who is well-versed in how politics work.

Answering questions about why DPAC isn’t targeting more aspects of failed dairy policy—all at once—Troutman said: “It’s like trying to make hay, chop corn silage, fix machinery and take care of the baby all at once. How is that going to turn out? Right now we are making hay.”

DPAC organizers stressed the fact that this is not simply about raising the milk price. “If the price went to $20 or $25 tomorrow, we’re not done,” they said. “The system would still be broken.”

The DPAC board is committed to continuing this effort even as prices go higher. That’s what has been lacking in the past: The price goes up and everyone loses interest in seeing things through for a positive change.

“We have to stay unified, and we have to stay focused. If we don’t fight like a pit bull, they will walk all over us,” said Horning.

“This is what it’s all about. We’re contributing to this effort because we feel we owe it to our dairy farmers to help in this effort. I can’t think of anything more worthwhile to give to right now,” said Mike Sensenig of Sensenig’s Feed Mill, New Holland, Pa., who organized the two meetings for local farmers this week and is one of seven agribusinesses that are providing substantial monthly donations to DPAC as the coalition continues to build momentum. He recognized Alan Graves of Mark Hershey Farms and Dennis Milhoan of Lancaster Dairy Farm Automation, who were also on hand for Tuesday’s meeting. In addition, Hoober Inc., Binkley & Hurst, and E-Zee Milking Equipment were recognized for their monthly support.

“This is a David and Goliath situation,” Sensenig added. “We know how that story ended. It’s about keeping the faith.”

Read story in Aug. 11 Reading Eagle (Berks County, PA hometown news)

Photo: EphrataMeeting0808

Invited guest, Pennsylvania State Senator Mike Brubaker addresses the crowd of 120 dairy farmers during a meeting hosted by Sensenig’s Feed Mill near Ephrata Tuesday evening. DPAC supporter Bernie Morrissey (center) is flanked by board members Paul Horning (left), a dairy farmer from Lancaster County, and Nelson Troutman (right), a dairy farmer from Berks and Lebanon counties. They updated local farmers on the coalition’s efforts in Harrisburg and Washington.

The bill reauthorizes the beef and livestock reporting, which is daily, and adds a section to establish daily reporting of pork product prices. Dairy products would be reported by an electronic system (versus NASS Survey) but remain a weekly report. 

The Dairy Policy Action Coalition (DPAC) continues to work with members of Congress for language to require daily electronic reporting, instead of week. The authority for daily reporting is already provided under Section 1510 of the 2007 Farm Bill.

Dairy farmers are encouraged to contact their United States Representatives during their Congressional recess this month, to tell them how important daily reporting is for dairy farmers to have timely information and to bring truth and transparency to the dairy industry. Stay tuned for details!

A main reason for IDFA’s opposition to “daily” reporting is they say such reporting would not give any new information to justify the cost.

But, according to economic analysis reported by USDA to its Dairy Industry Advisory Committee in June, “daily” electronic reporting of dairy product prices would cost processors a mere $381 per plant per year to implement.

The cost to the federal government is about $1 million a year to implement “daily” electronic reporting for dairy, mainly because the Farm Bill section authorizing it also calls for more frequent audits of the information. This is “peanuts” compared with the billions and trillions that have the federal deficit going out of control.

DPAC will continue to work with Senate Ag Appropriations Committee as their bill also contains reference to Dairy Price Reporting, and there are still opportunities for amendments to S. 3656 on the Senate floor.

For more information about IDFA's reasons for opposing this common sense implementation of Section 1510 of the 2008 Farm Bill, read their news release posted Monday at "Perishable News."  

WASHINGTON, D.C.—The Dairy Policy Action Coalition is pleased to see Congress moving forward on mandatory electronic price reporting for dairy via the Senate Agriculture Appropriations Bill and through language included in the House and Senate Agriculture Committees’ reauthorization of existing electronic reporting for beef and pork.

“Testimony at the USDA / DOJ Dairy Competition Workshop in Madison, Wisconsin last month identified the CME cash cheese exchange as being too thinly traded and not a good price discovery vehicle,” said DPAC Chairman Cliff Hawbaker, a dairy producer from Chambersburg, Pennsylvania. “We are pleased to see Congress taking important steps in the right direction to establish electronic reporting for dairy, and we urge lawmakers and USDA to continue moving forward to achieve price reporting that is daily, not weekly, and which reflects more of the products in the marketplace that are made with the milk produced by America’s dairy farmers.”

On Wednesday, July 28, the House Agriculture Committee passed H.R. 5852—The Mandatory Price Reporting Act of 2010. The five-year reauthorization bill directs USDA to establish an electronic reporting system for dairy products within one year of passage.

"Mandatory price reporting programs ensure that producers have access to transparent, accurate and timely market information that helps them make the best decisions for their businesses,” said Chairman Collin Peterson (D-Minn.), who introduced H.R. 5852, in an official statement about the committee’s approval of it.

On July 28, Senate Agriculture Committee Chair Blanche Lincoln (D-Ark.) and Ranking Member Saxby Chambliss (R-Ga.) introduced a bill with similar language for dairy, stating that the purpose of the Act is to “guarantee transparency… and help improve producers’ ability to access fair market prices.”

While the reporting is daily for wholesale beef cuts—and the new mandate for wholesale pork cuts is also daily—the new language on reporting for wholesale dairy products, on the other hand, is described as weekly in H.R. 5852, and would be released every Wednesday for the previous week’s sales.

Meanwhile, the Senate Appropriations Committee, on July 15, also included a section on Dairy Price Reporting within its Agriculture Appropriations bill, encouraging the Secretary of Agriculture to consider the recommendations of the Dairy Industry Advisory Committee (DIAC) regarding implementation of Section 1510 of the 2008 Farm Bill, which already provides the authority for electronic reporting of dairy products that is “more frequent” (daily) versus weekly, and auditing the reports quarterly instead of yearly.

The July action by the Senate Ag Appropriations Subcommittee, chaired by Sen. Herb Kohl (D-Wis.), follows a May 3, 2010 letter authored by Senator Arlen Specter (D-Pa.), a member of the Subcommittee, and Rep. Tim Holden (D-Pa.), Vice-Chair of the House Ag Committee, and signed by 24 members of Congress from 12 states. The letter conveyed bipartisan support for the inclusion of $1 million to fund the “more frequent” electronic reporting system.

“Congress wrote Section 1510 into the last Farm Bill, with the words: ‘pending funding.’” said Dennis Wolff, a consultant for DPAC who worked on this issue as a former state ag secretary and who is also a lifelong dairy farmer. “DPAC has been working to move that funding forward so this section of the last Farm Bill can be implemented.”

According to Dairy Industry Advisory Committee (DIAC) Vice-Chair Erick Coolidge, who was in Elizabethtown, Pa. for a community forum hosted by the local Grange on July 27, the DIAC’s subcommittee on dairy profitability meets in Washington D.C. next week, and dairy price reporting is on the agenda.

In June, Wolff and DPAC Vice-Chair Rob Barley, a dairy producer from Lancaster, Pennsylvania, presented DPAC’s “Cornerstone for Change” to the full DIAC at their second meeting in Washington, D.C. The primary focus of their comments was market transparency and price discovery and the role of daily electronic reporting to improve the timeliness and accuracy of USDA-reported prices and sales volumes for wholesale dairy products.

According to the DIAC June meeting minutes, USDA officials said the cost to dairy processors is estimated at $381 per plant per year to electronically submit sales data on a daily basis, as is currently done by beef processors.

“The value centers in the dairy industry are changing with new products and new uses,” said Barley. “To make business decisions as dairy producers, we need price reporting that reflects daily negotiated trades, not a volatile and thinly-traded CME exchange, where less than one percent of U.S. cheese and less than two percent of U.S. butter is traded. Under the current system, this market of last resort is captured in the weekly NASS Survey that is a week old by the time we farmers see it.”

*********

DPAC is a coalition of grassroots dairy producers actively participating, with a unified voice, in the policies and issues affecting milk pricing. The coalition, formed in November 2009, is organized into action groups and is funded by donations to represent the grassroots community of dairy farmers across the U.S. DPAC has a 20-member charter board made up of active dairy producers from Pennsylvania, Ohio and New York, along with ad hoc members—to-date—from Maryland, Virginia, Tennessee, Kentucky, Georgia, Indiana, and Wisconsin. They have contracted the consulting services of Dennis Wolff, a former state ag secretary and lifelong dairy farmer who is now a partner in Versant Strategies. DPAC is corresponding with producers and organizations in 23 states. In its first eight months of existence, the coalition has received donations by individual dairy farmers and producer organizations, accounting for a combined 6,500 dairy producers in 12 states. DPAC has also received substantial donations from agribusinesses that supply and provide services to the nation’s dairy farms. Combined, these contributing businesses account for thousands of jobs. For more information, visit www.dpac.net or call 800.422.8335.

"We know this is not a sprint to the finish line. It is a marathon..."

Full Story

Seven companies have stepped forward in a big way to help fund the efforts of the Dairy Policy Action Coalition (DPAC), which was formed last November as a grassroots coalition of dairy producers actively participating in the policies and issues affecting milk pricing. Bernie Morrissey of Morrissey Insurance, Mike, Karl and Scott Sensenig of Sensenig's Feed Mills, Dennis Milhoan of Lancaster Dairy Farm Automation, Alan Graves of Mark Hershey Farms, Chad Burkholder of Binkley & Hurst, Charlie Hoober of Hoober Inc., and Amos Stoltzfoos of E-Zee Milking Equipment tell why. DPAC is a national organization that got its start in Pennsylvania. More than 40 other agribusinesses and producer organizations have also provided one-time donations ranging from $50 to $5000, and individual dairy producers from 11 states have also contributed. DPAC's 20-member board of directors includes dairy producers from Pennsylvania, Ohio and New York, with adhoc members on action groups from other states in the Southeast and Midwest.

Coast-to-coast gathering in Chicago reviews economic models

By Sherry Bunting, Farmshine, July 30, 2010

CHICAGO, Ill.—The quest for clear-cut answers filled the room at the Westin O’Hare near the airport where nearly 60 people, representing 30 organizations from coast-to-coast, flew in or drove to evaluate preliminary findings of "An Analysis of Programs to Reduce Dairy Price Volatility."

The economic model was built by Dr. Mark Stephenson, University of Wisconsin-Madison (formerly at Cornell), and Dr. Chuck Nicholson, Cal Poly-San Luis Obispo, to independently evaluate the long-term impact of leading supply management / dairy policy plans.

Included in the analysis were: the Costa/Sanders bill, known as the Dairy Price Stabilization Act of 2010 (formerly known as the Holstein plan or California Milk Producers Council growth management plan), the primary portions of National Milk Producers Federation’s Foundation for the Future, and the Marginal Milk Pricing Proposal put forward by Agri-Mark.

Traveling to Chicago for DPAC were Dennis Wolff, government relations consultant; board member Duane Hertzler, a Pennsylvania dairy producer; board member Alan Kozak, an Ohio dairy producer; and ad hoc member Dave Forgey, an Indiana dairy producer.

The two-day meeting was informative and a good opportunity to connect with producers and industry leaders from across the country.

In addition to the long list of producer organizations and cooperatives, a legislative contact also attended from Senator Bernie Sander’s office. Also attending was Andrew Novakovic, chairman of the Dairy Industry Advisory Committee.

The bottom line is: This is an historic time of grassroots producer involvement in future dairy policy.

The two-day meeting was very interactive. Participants were schooled in the workings of the economic models developed by Drs. Stephenson and Nicholson. After a thumbnail sketch and examples of how the modeling works, the group looked at sets of introductory charts and graphs provided by the economists with a few general and prelimary findings.

However, as participants began to pose questions and provide input, further analysis was conducted in "real time" and the charts and graphs began to reveal the deeper dimensions as to how these plans would potentially affect the:

1) degree of variability in milk prices;

2) effect on dairy industry structure or consolidation;

3) cost to the federal government;and

4) effect on cumulative net farm operating income.

Because of the in-depth nature of this analysis, the meeting participants wanted more work to be done before releasing the preliminary economic analysis to a widespread audience. A final report is expected in early September.

All growth management scenarios were shown to reduce the price volatility for farmers and the cost to the federal government. But the group also wanted a better idea of the effect on cumulative net farm operating income and on structural change in the industry.

While the results are still preliminary, the differences were more clear-cut in how each proposed program would operate.

Like DPAC, many groups at the table have not endorsed a supply management plan and were hoping to get a better handle on the economics. At the end of the two days, it seemed there is as much philosophical discussion yet to be had as there is the need for further economic analysis.

DPAC’s Hertzler, Kozak and Forgey were among the 15 to 20 active dairy producers participating in the two-day meeting. They appreciated the invitation and the opportunity to build relationships with other dairy producers and industry leaders.

Meals were the time for sharing ideas and to talk not only about the proposals being analyzed, but also ideas for milk pricing reforms as DPAC board members met up with individuals from other regions.

California dairy producers Doug Maddox and Hank Van Exel, with Holstein USA, along with Sherm Pollinder of Northwest Dairy Association, shared their views that dairy producers lack an appropriate degree of leverage in the marketplace, and in the political arena. They see supply management as a first step to give producers a better position for discussing other changes in dairy policy.

Vermont dairyman Bill Rowell, of Green Mountain Dairy, shared his concerns about the future vitality of the dairy industry. "The knuckles are pretty white up in our area," he said. Rowell is a member of Dairy Farmers Working Together (DFWT).

DFWT is part of the coalition that has funded the economic analysis, and they sent out this News Release at the conclusion of the Chicago meeting.

A contingent from the Southeast—Maury Cox, executive director of the Kentucky Dairy Development Council, Everett Williams, of Georgia Milk Producers, Ben Shelton, a Virginia dairyman and member of Upper South Milk, and Calvin Covington, retired dairy industry executive with Southeast Milk—also traveled to Chicago.

They were interested in the preliminary analysis, but wondered how it would look in the Southeast, where dairies are under the pressure of low margins and milk price erosion in a region that is milk-deficit.

"We have arrived at a time in history where farmers ideas are being put on the table and the grassroots are becoming more involved in dairy policy," Hertzler reflects.

Andrew Novakovic, Cornell University dairy economist and chairman of Ag Secretary Tom Vilsack’s Dairy Industry Advisory Committee made a similar observation. "The grassroots groups are having aan effect on the national discussion," he said after the meeting. "I’m not sure we would be where we are right now without that."

"The document they are working on for September will be helpful for the industry to look at to make informed decisions," noted Dennis Wolff. "There was good information here and the significant time the researchers put into this was very evident."

The coalition of groups that funded Stephenson and Nicholson’s research has been meeting for months now, and it was evident that this is still "a process" more than an "answer."

One key message was the importance of "staying engaged and connected to the process."

The coalition that funded the study included the following organizations: AgriMark, AMPI, Dairy Farmers Working Together, DFA, Dairylea, Holstein Association USA, the Milk Producers Council of California, National Farmers Organization, Northeast Dairy Leadership Team, NEDLT - Upstate Niagra Cooperative, Family Dairies USA, Northwest Dairy Association, St. Albans Cooperative Creamery, and Western United Dairymen.

Other organizations attending last week’s meeting in Chicago included: Dairy Policy Action Coalition (DPAC), California Dairy Campaign, Continental / Select Milk Producers, Dairy Producers of New Mexico, Georgia Milk Producers, Kentucky Dairy Development Council, Land O’Lakes, National All Jersey Inc., National Farmers Union, National Milk Producers Federation, Oregon Dairy Farmers Association, Southeast Milk Inc., Upper South Milk Producers Association, Utah Dairy Association, and the USDA Dairy Industry Advisory Committee.

Stay tuned for more details on the differences between the leading supply management / dairy policy plans.

Printable PDF

USDA announced the Class I advance base price or "mover" for August at $15.77. This is 11 cents higher than July and $5.73 higher than August of 2009. The August Class I "mover" is the highest since November of 2008. Class IV continues to be the "higher of" as the advanced pricing factors for Class IV skim peaked at $2 over Class III for the first two weeks of July. This is the determining factor for the advance Class I base price for next month.

Butter continues to chart a strong path--hitting $1.80/lb Thursday (July 22) on the CME. Cheese prices have been rallying as Block Cheddar topped $1.60 and Barrels closed the week at $1.56/lb on July 23.

Milk production in the 23 major States during June totaled 15.2 billion
pounds, up 2.7% from a year ago. The USDA milk production report was released July 19 for June (23-states) and the second quarter (50-states). The report also revised May's production upward by 40 million pounds (0.3%) to 15.8 billion pounds for the month, which was 1.5% higher than May 2009.

Production per cow averaged 1,816 pounds for June (60.5 lbs/cow/day), which is up by 2.25 lbs/cow/day from June 2009. The number of milk cows on farms in the 23 major States was 8.35 million head, down 87,000 head from year ago, but 10,000 head more than the previous month.

Second Quarter: April-June Milk Production up 1.7%

Milk production in the U.S. during the April - June quarter totaled 49.7
billion pounds, up 1.7% from the same quarter last year. The average number of milk cows in the U.S. over those three months was 9.11 million head--151,000 head less than the same period last year.

In the Northeast and Mid-Atlantic: Pennsylvania held steady on milk production for the quarter despite losing 9,000 cows compared with second quarter of 2009. New York held steady on milk production despite losing 13,000 cows. The New England States gained almost 1% in milk production and lost 2,000 cows.

Total milk production in the Southeastern states for the second quarter of 2010 fell 9.5% below the same quarter a year ago. Cow tallies for the states of Virginia, West Virginia, Kentucky, Tennessee, North Carolina, South Carolina, Georgia, Florida, Mississippi, Louisiana, Alabama, and Arkansas--combined--represented a loss of 23,000 cows from the region. This includes the gain of 5,000 cows in Georgia; however Georgia's production was off 1.9% despite the gain in cow numbers.

California milked an 67,000 fewer cows during the April-June period compared with a year ago, and produced nearly 2% less milk.

The Southwestern states milked 78,000 fewer cows in the second quarter compared with a year ago. Production losses in the region were pegged at 9% below year ago in Colorado, 4.5% below year ago in New Mexico, and 3.7% below year ago in Texas.

The Northwestern states milked 9,000 more cows. Washington state's production was up 6.6% over year ago. Oregon was 2.5% higher and Idaho was 3% above year ago.

In the Midwest and Mideast: Wisconsin milked 5,000 more cows with production up 5.6%. Minnesota and Indiana each reported 2,000 more cows and production up 2.4% and 1.2% respectively. Iowa and Illinois were up less than 1%. Michigan had 1,000 more cows and 3.5% more production. In Ohio, producers milked 7,000 fewer cows, but total production was 1.3% higher.

They hope to stop some milk processors from keeping money meant for them

By Darrin Youker, Reading Eagle

For each gallon of milk bought in Pennsylvania supermarkets and grocery stores, 25 cents is set aside with the intent to help state dairy farmers.

But, in some cases, that money never gets to the farm.

Under a complex pricing system designed to give Pennsylvania farmers a bit more money, shoppers who buy milk that is produced, bottled and sold in Pennsylvania pay what is known as an “over-order” premium.

But agricultural experts say that Pennsylvania farmers are not getting that premium when milk companies briefly ship the milk out of state for storage.

Even though consumers continue to pay the additional charge, those payments, totaling about $16 million annually are the amount that can become “stranded” and remain with milk processors.

Full Story

PDF

By Sherry Bunting, Farmshine, July 2, 2010

MADISON, Wis—With strong words for the dairy industry last Friday (June 25), U.S. Senators Herb Kohl and Russ Feingold—both representing the Dairyland State—stressed the need for market transparency and raised questions about the disparity between what consumers pay and what farmers receive. Both issues quickly rose to the top among two roundtables and three panels during the third in a series of USDA/Department of Justice (DOJ) hearings on consolidation and competition issues in agriculture.

The daylong workshop—specifically on dairy—drew 500 people to the Union Theater at the University of Wisconsin-Madison to hear testimony from producers, consumers, cooperatives, economists, law professors, attorneys, regulators, processor trade organizations, and others.

Among the video cameras set up in the center of the auditorium was a film crew planning a documentary on what is happening in the dairy industry today.

Kohl, who chairs the Senate antitrust subcommittee and ag appropriations subcommittee, described the problem as “few bidders and tough terms of sale. When processors gain too much market power or leverage, farmers suffer.”

“Since the spot cheese market moved to the CME (Chicago Mercantile Exchange), concerns persist,” he explained. “The CFTC (Commodity Futures Trading Commission) reports the volume of cheese traded on the CME is less than 1%. This is important because this spot market sets the price of milk directly and indirectly. It’s the tail wagging the dog, and it can be manipulated.”

Sen. Kohl’s comments gave hope for some immediate action. During the producer panel, he pledged to “undertake all necessary steps to see that the CME and CFTC operate effectively.”

“The dairy industry must have market transparency, with more frequent reporting that is expanded to include more products,” he said in his opening comments. “The USDA has the authority to do it, and Congress wants to work with USDA to make it happen.”

For the dairy producer board members of DPAC (Dairy Policy Action Coalition), who traveled to Wisconsin for the hearing, these words were a high point after six months of working with members of Congress and USDA in the quest for funding to implement section 1510 of the current Farm Bill.

Sen. Feingold echoed the need for market transparency, saying oversight and enforcement are good for markets and for producers. He identified what three panels would later delve into: The link between the widening farm-to-retail price spread and the increased consolidation within the industry.

“Something is amiss,” said Feingold. “Someone between the farmer and the consumer is making money, but given the complexity of the milk market it’s difficult to target a specific culprit.

Full Story (Part One)

Part Two

Part Three

By Sherry Bunting, Farmshine, July 2, 2010

HARRISBURG, Pa.—‘Stranded’ milk premiums were the focus of Tuesday morning’s hearing called by Pa. Senate Agriculture and Rural Affairs Committee Chairman Mike Brubaker. The June 29 hearing included four panels representing sectors of the dairy industry from farm to retail and a fifth panel representing the Department of Agriculture and Milk Marketing Board.

"We have a state-mandated over-order premium that is intended to go to the dairy farmers," said Sen. Brubaker. "It is important for us to understnand how and how much of this premium is stranded when considering legislative solutions."

Minority Chairman Mike O’Pake said he looked forward to "forming a consensus," and he stressed the need to focus on long term relief to all corners of the Commonwealth. He said the testimonies in December, along with the efforts of the Governor’s office, Department of Agriculture and the PMMB, have helped identify areas within the state’s jurisdiction.

Out of that has come the first step, which changes the way of calculating the over-order premium on in-state milk for plants that buy and sell milk both in- and out-of-state. PMMB’s June 2 decision on that aspect will become effective October 1.

What became evident through Tuesday’s testimonies and the Senators’ questions is that the language of the law is at the root of the problem because it requires payment of the over-order premium by consumers on every gallon of milk, but does not require the payment on every gallon of fluid milk sales back to producers.

Sen. Brubaker read portions of the law to witnesses during testimony, asking for their perspectives to bring information to the table and begin building consensus for potential statutory changes.

At issue is how to account for the 25 cents (premium) paid by consumers on every gallon of milk, and the breaks in the chain back through the system from retail to farm.

Pa. Secretary of Agriculture Russ Redding said it comes down to the question: "Where does the milk lose its qualification under the three-part rule? (produced, processed and sold in Pennsylvania)"

Chief Counsel Brook Duer provided a road map. "It’s easy to get lost in the weeds and to get confused," said Duer, illustrating the ways in which milk that may qualify for the premium, under the intent of the law, is not receiving the premium at the farm level because of a "break in the chain."

On the producer panel, Lebanon County dairy producer Daniel Brandt testified that revenue flow from retail back to the farm was also a major issue at the national level during the USDA/Department of Justice hearing in Wisconsin last week. "U.S. Senators were asking the same question of ‘where is all the money going?’"

Brandt, a vice-chair of the Dairy Policy Action Coalition (DPAC) also showed a graph illustrating Pennsylvania’s mailbox milk price compared with neighboring Ohio and with the U.S. average.

"From 2008 through 2010—when the Pennsylvania over-order premium has been at its highest—our mailbox price has been 20 to 50 cents below Ohio’s and within five to 30 cents of the U.S. average," he said. "How is it that a state with a mandated ‘farmer premium’ paid by consumers... winds up with a mailbox price that looks like this?"

"Does Ohio have a state-mandated premium?" Senator Brubaker later asked Earl Fink—testifying for the Pennsylvania Association of Milk Dealers, along with Counsel Chip English. The answer was "no." But Ohio does have a voluntary cooperative premium.

The Department of Agriculture (PDA) and others who testified Tuesday pegged the ‘stranded’ premium total at $16 million for 2009, but at the high point of $3.18 / cwt for June, the stranded revenue could go higher. Witnesses testifed that about 25% of what is paid by consumers is ‘stranded’ in the middle.

Sen. Brubaker quoted from the Milk Marketing Law, where it talks about the PMMB setting the milk price based on a reasonable rate of return to producers, processors, and retailers. He drilled down on the point that the "reasonable rate of return" is defined for the dealer-handlers and for the retailers but not for the producers.

He asked David DeSantis, PMMB accounting and enforcement officer, to define reasonable rate of return. DeSantis said there is a wide range, but that any business would be happy to get 2.5 to 3.5%. That is the percentage defined in the law for the dealers and retailers.

Sen. Brubaker explored the "reasonable rate of return" with each panel. He also delved into the definition of "producer" in the statute. He went back and forth with Attorney Marvin Beshore, who testified for the Greater Northeast Milk Marketing Area (the cooperatives) on this definition as it appears in different areas of the statute.

He asked if the cooperatives pay all of the premium to the farmer members. Beshore explained that cooperatives collect the premiums and pay them out... minus expenses.

"The farmer owners determine the formulas for how much of the different premiums to pay out," he said. "Cooperatives can only pay out what they take in."

In addition to Brandt, Bellville area dairy producer Keith Spicher testified on behalf of the Professional Dairy Managers of Pennsylvania and Westmoreland County dairy producer Rick Ebert testified for the Pa. Farm Bureau.

Testifying from the retail sector was Robert Schupper, dairy category manager for Ahold, which includes Giant Foods of Carlisle.

Schupper noted the trend toward consumers wanting local milk and that the Giant store wants to provide 100% Pennsylvania milk.

"We’re at about 99% because with the blending of milk from the cooperatives, they can’t tell us 100% is from Pennsylvania farms." He said, adding that they also sell local brands.

Two legislative solutions are being considered. One would declare the sale of the milk occurs at the farm pick-up for the purpose of the premium pricing. The other would authorize retail licensing, reporting and auditing of all retail sales of milk.

Duer also put forward some options for evaluating how the over-order premium is distrubuted.

Look for more from this hearing in next week’s Farmshine.

Testimony and audio of the proceedings are available at: http://www.senatorbrubaker.com/agriculture/2010/062910/agenda.htm

DPAC tells DOJ/USDA daily price reporting is needed

Dennis Wolff on "transparency" panel in Wisconsin

MADISON, Wis.—USDA and the Department of Justice heard from the Dairy Policy Action Coalition (DPAC) last Friday, June 25 during the joint workshop on dairy markets at the University of Wisconsin-Madison. Former Pennsylvania Secretary of Agriculture Dennis Wolff, who is now a partner with Versant Strategies and serves as government relations consultant for DPAC, was invited to participate in the panel discussing marketplace transparency.

 “The CME trading volume represents only 0.4% of the cheese produced and sold in the U.S. and 1.7% of the butter,” Wolff stated. “Does this accurately reflect supply and demand? No. It is a market of last resort. We need to dilute the influence of the CME through daily electronic reporting, and this needs to cover more products with auditing that also extends to inventory reporting.”

During the morning roundtable moderated by U.S. Secretary of Agriculture Tom Vilsack and Assistant Attorney General Christine Varney, Sen. Herb Kohl (D-Wis.) and others agreed.

“The dairy industry must have market transparency, with more frequent reporting that is expanded to include more products,” said Sen. Kohl. “The USDA has the authority to do it, and Congress wants to work with USDA to make it happen.”

For the dairy producer board members of DPAC, who traveled to Wisconsin for the hearing, these words were welcome news after six months of working with members of Congress and USDA in the quest for funding to implement section 1510 of the current Farm Bill. 

USDA officials told DPAC in April that the cost is $1 million. In May, Sen. Arlen Specter (D-Pa.) and Rep. Tim Holden (D-Pa.) wrote a letter to Senate and House ag appropriations subcommittees with signatures from more than 20 other members of Congress from 10 states. Since then, adhoc members of DPAC in the Northeast, Southeast and Midwest have done their part to keep this issue on the front burner. The request is now in appropriations as the fiscal 2011 USDA budget is negotiated.

During the DOJ / USDA panel on market transparency, Wolff said the daily electronic reporting injects accountability into the pricing system in several ways, including accuracy and timeliness.

“If I am pricing cheddar cheese on June 24, the only game in town is the CME as the only NASS Survey data available on that date is from June 7-11,” he explained, adding that NASS simply captures and delays the prior activity of the thinly-traded CME.

He cited a parallel quote from a news article about financial market reforms that are making their way through Congress: “This reform brings 100 percent transparency to the market with real-time price reporting. They will no longer be able to make excessive profits by operating in the dark. Exposing these markets to the light of day will put money where it belongs.”

“That comment about financial market reform could just as easily describe the reform that is needed for price reporting in the dairy industry,” said Wolff. A transcript of Wolff's comments during the USDA / DOJ "market transparency panel" are posted here.

Traveling to Wisconsin for the hearing were DPAC chairman Cliff Hawbaker, PA; board members Duane Hertzler, PA, and Alan Kozak, OH; adhoc members Laura Covert, NY, and Jack Fritz, TN, along with Maury Cox, who is the executive director of Kentucky Dairy Development Council. They all arrived a day early to connect with producers from around the country at a dinner meeting organized by David Cooper, general manager of Family Dairies, a member of the Midwest Dairy Coalition.

*********

DPAC is a coalition of grassroots dairy producers actively participating, with a unified voice, in the policies and issues affecting milk pricing. The coalition was formed in November 2009 and has a 20-member board made up of active dairy producers from Pennsylvania, Ohio and New York, along with adhoc producer members serving on action groups from Tennessee, Kentucky, and Indiana. DPAC has received donations from producers in 11 states and is corresponding with producers and organizations in 23 states. For more information, visit www.dpac.net or call 800.422.8335.

Meanwhile the number of block and barrel cheese loads traded today (June 18) on the Chicago Mercantile Exchange (CME) was the highest single day total -- ever. Bids on Cheddar blocks began the brief trading session higher at $1.41/lb, but as sellers continued to offer, the price slipped to $1.040/lb. Barrels sold $1.3850/lb. A total of 35 loads of barrels actually traded and 14 loads of blocks. The new "cheese futures and options" trading begins Monday, June 21.

Butter prices continued the daily upturn through the week to finish at $1.6350/lb Friday. Nonfat dry milk remains at $1.25/lb where it has been for a couple weeks.

USDA's World Agriculture Supply and Demand Estimates were released today (June 18), projecting a little higher all-milk price for 2010 and 2011 than earlier forecasts, even though production is also projected to be higher than earlier estimates.

The higher projected all-milk price is based on forecasts that butter and powder (Class IV) will continue to drive the pricing in the dairy complex, as the WASDE forecasts for Class III were reduced slightly for 2010 due to weak prices expected for cheese and whey for the remainder of the year. Cheese stocks remain high and international whey prices are weaker. The  The all milk price for 2010 is forecast to average $15.75 to $16.15 per cwt.

For 2011: The WASDE foresees domestic and export demand supporting increased powder prices, and the cheese price forecast next year is also raised as the higher butter/powder values are expected to divert milk from cheese production. Tighter supplies of milk are also expected, along with reduced imports in 2011, which leads the forecasters to peg the 2011 all-milk price average at $15.80 to $16.80/cwt.

Read charts and individual state breakdowns

Southeast surplus? Producers asking questions about transportation credits.

(By Sherry Bunting, Reprinted from Milk Market Moos - June 16, 2010 in Farmshine)

After reporting on June 4, 2010 that volumes of milk shipped out of the Southeast had climbed 23% above year ago in April and May to an average of 235 loads or 11.2 million pounds a week, Alan Levitt in his CME Daily Dairy Report Wednesday, June 16, noted these shipments have increased further to an average of 314 loads or 15 million pounds per week over the past five weeks. That’s up 45% over year ago.

The shipments of milk out of the Southeast and Florida have reportedly gone for processing in the Midwest, Southwest and Northeast.

Federal Order 7 (Southeast area) and Federal Order 5 (Appalachian states) both collect, pool and disburse transportation credits to attract milk for the Class I fluid markets to ensure adequate fluid milk for consumers.

According to the Market Administrator’s office for Order 7, these transportation credits are collected on all Class I milk that is qualified in Federal Orders 5 and 7 (but not 6, which is Florida). The amount paid into the two separate transportation credit pools is 15 cents per hundredweight in Order 5 and 30 cents per hundredweight in Order 7.

Milk handlers and cooperatives then submit requests to receive credits for transporting milk from other Orders into the Southeast (more than 85 miles) where the Class I differential is high and the area is milk-deficit for part of the year. The money is then disbursed by the Market Administrator from July through February, based on eligible requests by handlers and cooperatives.

The regs state July as the beginning of the disbursement period for transportation credits, but last year it began in June in Federal Order 7. This year, disbursement of transportation credits may begin in June again, even though reports indicate that the surplus shipments from the Southeast and Florida are not expected to stop until August

... But, Friday's milk production report (June 18) showed May's production in Florida was already down 2.5% below year ago....

As the heat and humidity begins to suppress milk production in the summer months, these surplus "spot" shipments out of the Southeast and Florida are expected to decline by mid-August, writes Levitt, noting that the Southeast typically becomes a milk-deficit region from mid-August to late-October, when milk dealers and handlers typically import 200-400 loads per week from other regions of the U.S. to offset their local shortages.

In May, a petition was granted by the Market Administrator to pay transportation credits in June for hauling supplemental milk into the region. Payments from the transportation credit pool to milk handlers bringing supplemental milk into the area are based on the availability of funds and the eligibility of the request and follow a formula that considers the distance the milk traveled and the difference between the Class I differentials in the Order of origin versus destination.

One day’s production from a producer in another Order can qualify all of that producer’s milk for pooling on these Orders each month, but there are some diversion and "touch base" limits on the outside milk.

For the first two months of 2010, the Transportation Credit Balancing Fund for Federal Order 7 brought in $2.3 million in transportation credit assessments on Class I sales and paid out roughly the same amount in eligible requests. However, the dollars claimed were more than twice this amount at $5.1 million based on 278.1 million pounds of supplemental milk. The pounds versus dollars paid averaged 83 cents per hundredweight in transportation premium. The pounds versus dollars claimed averaged $1.83 per hundredweight.

No funds were disbursed in March, April and May of 2009 or 2010; however January and February 2010 disbursements were roughly equal to January and February of 2009. But the pounds of milk claimed in 2010, at 278.1 million pounds, was up 15% over the first two months of 2009 when 240.8 million pounds of milk were claimed.

There is more to this story, and it is food for thought as the Southeastern U.S. figures prominently in any discussion of dairy policy and federal milk pricing today.

Wherever assessments and premiums are regulated in a marketing area, whether by a Federal Order or by a State Board, it can be difficult to separate the positives from the pitfalls of such policies in order to figure out the net impact on dairy producers.

To read more on this subject, check out Kentucky Dairy Development Council's "Milk Matters" newsletter.

Dairy producers, consumers applaud PMMB decision as first step, questions remain about ‘stranded’ premiums

PA Senate sets June 29 hearing

download printable PDF    or read below

HARRISBURG, Pa.—An estimated $60 million in over-order premiums were paid by Pennsylvania consumers in state-minimum retail milk prices last year, but conservative estimates are that $16 million did not reach dairy farmers, who are the intended recipients. This issue of ‘stranded’ premiums was revealed in testimony during a public hearing on milk price transparency conducted last December by Senator Mike Brubaker, Chairman of the Senate Committee for Agriculture and Rural Affairs.

This premium portion of the consumer milk price rose from 21 cents per gallon at the start of 2009 to over 25 cents by November. For June 2010, it is close to 27 cents per gallon ($3.18 per hundredweight).

Set by the Pennsylvania Milk Marketing Board (PMMB), in accordance with the Commonwealth’s Milk Marketing Law, the over-order premium is intended to help Pennsylvania dairy farmers when the federal minimum milk prices are insufficient to cover production costs. Last year, dairy farmers received milk prices that averaged $100 per cow per month less than it cost them to produce the milk, and this year’s prices hover around breakeven.

"If Pennsylvania consumers have to pay the 25 cents extra per gallon, they want to know this money is going to the farmers," observes Lance Haver, director of the Consumer Affairs Office for the City of Philadelphia. "The milk dealers and retailers already have their cost recovery and a profit margin built separately into the retail price that we as consumers pay for milk. Then there is this premium consumers pay that is specifically meant to help the dairy farmers in undue times. If some of this money is not being passed through, then who is keeping it?"

The Dairy Policy Action Coalition (DPAC) of grassroots producers would also like to know the answer to this question. DPAC is focused on milk pricing and market transparency at the federal level, but the coalition’s state issues action group has been attending PMMB hearings and meeting with state lawmakers, seeking transparency and future direction for Pennsylvania’s Milk Marketing Law.

Part of the problem is milk plants on the state’s borders have been able to ‘swap’ their in- and out-of-state milk purchases and sales through creative accounting. Until now, regulations allowed milk handlers to reduce their obligation to Pennsylvania farmers by the percentage of out-of-state milk they purchased—even if they had regulated Class I fluid milk sales within the state that were equal to the amount of milk they purchased from in-state farms.

In February, the PMMB staff, with the support and blessing of Governor Ed Rendell and the Pennsylvania Department of Agriculture, brought a proposal to the Milk Marketing Board seeking to end the ‘swap.’

In a 3-0 decision on June 2, the Board favored the staff’s proposed change in the premium calculation for dealers and handlers that have sales of Class I fluid milk products within the state and purchase the milk from both in- and out-of-state farms. The move is expected to recover between $5 and $7 million in ‘stranded’ consumer-paid premiums to be passed through in the price paid to farmers.

According to the PMMB decision, effective October 1, 2010, the full over-order premium rate will be payable by milk dealers to Pennsylvania producers on either the pounds of milk purchased from in-state farms or the pounds of Class I fluid milk sold to in-state consumers—whichever is the lower.

"Any step toward collecting any ‘stranded’ premiums should be applauded, but we are a long way from the end," said Annville dairy farmer and DPAC vice-chair Daniel Brandt. "That might account for $5 to $7 million, but there are still concerns about where the rest of this money is going and how well it is distributed to the dairy farmers."

he original purpose of the PMMB," adds Womelsdorf dairy farmer Zach Meck, also a DPAC charter board member. "The decision of the PMMB in June is only one small piece of the entire puzzle."

Richland dairy farmer and DPAC board member Nelson Troutman sees the PMMB’s recent unanimous decision as an example of what can be accomplished if people "work together and don’t give up. If we as farmers had not been involved in talking with our legislators or being present at the PMMB meetings, we may not even be at this point," he relates. "As dairy producers, we need to stay informed and involved through the DPAC network."

Vigilance may be more important than ever. During the PMMB hearing in February, witnesses stated that a board decision in favor of the farmers could prompt dealers to replace Pennsylvania milk with more out-of-state milk for sale to Pennsylvania consumers, or to divert Pennsylvania milk to out-of-state distribution centers before resale to Pennsylvania retailers and consumers, thus avoiding any obligation to pass the premium through to the farmers.

"It doesn’t matter if the dealer’s milk comes from in or out of state, that premium should not even be figured into their business model," says Brandt. "That premium should be set aside for the dairy producers. There should be no incentive to the milk dealers to get out-of-state milk. Every penny of that premium should go into a pool and be paid back to the farmers because the law says that is what that premium is designed for."

The concerns of farmers and consumers are not lost on the Pennsylvania State Legislature. In early December, Senator Mike Brubaker (R-36th), Chairman of the Agriculture and Rural Affairs Committee, conducted a public hearing on milk pricing transparency.

Later that month, DPAC sent letters to the State Attorney General and State Auditor General asking them to look into the issue of ‘stranded’ premiums. Attorney General Tom Corbett’s office responded with an information gathering meeting on April 1, and Auditor General Jack Wagner’s office sent an April 20 reply, stating that it would monitor the concern in consideration of a performance audit.

Since then, DPAC dairy producers have had separate meetings with Sen. Brubaker, Senate President Pro Tempore Joseph Scarnati (R-25th) as well as House Ag Committee Chairman Mike Hanna (D-76th) and House Ag Committee Minority Chair John Maher (R-40th) on the issues surrounding the state’s Milk Marketing Law. On June 29, ‘stranded’ premiums will be the subject of a Senate Ag Committee hearing at the Capitol.

"This is a bi-partisan issue," notes Meck.. "We appreciate the interest of the Governor and lawmakers because there are more loopholes to sew up. That was obvious at the PMMB hearing in February, where a witness for the milk dealers actually stated they would find ‘new shell games’ if the Board voted in favor of the PMMB staff’s request. This shows us that changes in the law are necessary to carry out PMMB’s original purpose, which has become unrecognizable today. Much has changed over the past 10 to 20 years while we as farmers were busy working hard, taking care of our animals, and planting and harvesting our crops."

****

DPAC is a coalition of grassroots dairy producers actively participating, with a unified voice, in the policies and issues affecting milk pricing. The coalition was formed in November 2009 and has a 20-member board made up of active dairy producers from Pennsylvania, Ohio and New York, along with adhoc producer members serving on action groups from Tennessee, Kentucky, and Indiana. Funded by donations instead of dues, DPAC is corresponding with producer groups in seven states and with more than 2000 producers in 23 states. For more information, visit www.dpac.net or call 800.422.8335.

By Sherry Bunting, Farmshine, June 11, 2010 - Download full story as PDF

WASHINGTON, D.C.—Trust. That was a word that resonated with the Dairy Industry Advisory Committee (DIAC) during their second meeting at the USDA Whitten building here last Thursday.

"We connected," observed the Advisory Committee’s vice-chair Erick Coolidge after the Dairy Policy Action Coalition (DPAC) presented its "Cornerstone for Change" at the June 3 meeting. "We were all leaning forward. They caught everyone’s attention."

He said DPAC has given some things the Committee’s chairman Andrew Novakovic can begin writing for September-the first of two deadlines from Ag Secretary Tom Vilsack.

"Right now, the bottom line is we don’t trust the tools we have. We need to make the tools better," Rob Barley told the Advisory Committee. Barley is a Lancaster County, Pa. dairy producer who serves as a vice-chair of the DPAC charter board. "To look forward, to make decisions, or to get protection, we have to first understand what is going on in our market.

"The CME is not heavily traded enough to justify having the influence it does right now on our milk price," he said further. "We need price reporting that is done on a daily basis and includes more products, so farmers can see every day what happened every day. We as dairy farmers feel very inadequate in being able to look at what’s happening in our market the way it’s done right now."

Barley was joined at the podium by former Pennsylvania Ag Secretary Dennis Wolff, who serves as DPAC’s government relations consultant.

"Dairy farmers feel strongly that we need improved price discovery with good information and a broad cross-section of products," Wolff explained.

Full Story

Trouble is... the Ag Committees are authorizing committees, but the Ag Appropriations Subcommittees will decide if this funding is to be included in the fiscal 2011 appropriations bill. This is why it is so important to contact the specific lawmakers who are on Ag Appropriations in the Senate and House.

DPAC is issuing a call to action to dairy farmers and organizations across the country to look at this list of Ag Appropriations Committee members and if they represent your state or your legislative district, please call their office and let them know how important Daily Electronic Reporting is as the cornerstone of much needed change in the dairy industry. 

Download the Congressional letter, and mail or email it to the Senator or Congressman's office. Be sure to key-in on two main points: 1) You are asking for the funding to be included in the Ag Appropriations bill currently being written so that section 1510 of the current Farm Bill can be implemented by USDA; and 2) You are asking your Senator or Representative to realize how important it is that this electronic product price reporting be implemented by USDA as DAILY reporting, not weekly surveys, and that the auditing is quarterly, not annual.

You can also use the many resources available on the DPAC website if you are sending a letter or email and can reference the information in a phone call to your Senator or Representative's office.

DPAC thanks the individual dairy producers and organizations who have already joined us in this effort to make sure Daily Electronic Reporting is included in the Ag Appropriations bill.

The next few weeks are critical.

Several DPAC board members will also travel to Wisconsin to meet with producer groups there on June 24 and to attend the DOJ / USDA workshop on June 25, where Wolff will present on behalf of DPAC

Visit the DOJ website for more information about the DOJ / USDA workshop in Madison

This graph, available at the Univ. of Wisconsin Understanding Dairy Markets website, illustrates how Italian cheese production has really ramped up since last October and especially into 2010. The category is poised to surpass the American-style cheddar/colby category after 2009 production brought the two cheese categories neck-and-neck in production totals. What does this tell us about the need for expanded price reporting of more products? Below is the 2009 dairy production totals as reported by USDA on May 3, 2010:

USDA DAIRY PRODUCTS, 2009 ANNUAL SUMMARY

Total cheese production, excluding cottage cheeses, was 10.1 billion pounds, 2.0 percent above 2008 production. Wisconsin was the leading State with 26.0 percent of the production, followed by California with 20.4 percent and Idaho with 8.2 percent.

American type cheese (cheddar/colby) production was 4.20 billion pounds, 2.3 percent above 2008 and accounted for 41.6 percent of total cheese in 2009. Wisconsin was the leading State with 20.2 percent of production, followed by Idaho with 16.0 percent and California with 15.3 percent.

Italian varieties, with 4.18 billion pounds were 1.4 percent above 2008 production and accounted for 41.4 percent of total cheese in 2009. Mozzarella accounted for 78.2 percent of the Italian production followed by Provolone with 8.3 percent and Ricotta with 5.9 percent. Wisconsin was the leading State in Italian cheese production with 29.5 percent of the production, followed by California with 29.1 percent and New York with 9.1 percent

Butter production in the United States during 2009 totaled 1.57 billion pounds, 4.3 percent below 2008. California was the leading state in butter production and accounted for 33.1 percent of the production, followed by Pennsylvania with 5.0 percent.

Ice cream, Regular totaled 920 million gallons, down 1.1 percent from 2008. Lowfat ice cream, at 381 million gallons, was down 0.6 percent.

Nonfat dry milk for human food totaled 1.51 billion pounds, down 0.7 percent. California was the leading state with 55.2 percent of the production. Skim milk powders totaled 222 million pounds, down 40.6 percent.

Dry whey for human food production, at 951 million pounds, was down 7.2 percent. Lactose, Human and Animal production was 723 million pounds, down 3.1 percent.

Dairy Plants: During 2009, there were 1,178 dairy plants in the U.S. manufacturing one or more dairy products, 53 more than in 2008.

Source: "Dairy Products 2009 Summary," Da 2-1(10), National Agricultural Statistics Service,

Agricultural Statistics Board, USDA.

To take advantage of these higher prices, however, be sure to keep your bull calves on the farm for at least 3 days and until the navel is dry. They should also receive colostrum. Weak, unstable, wet-naveled calves do not command the good market prices because they are a high mortality risk for buyers.

Market cull cows shared in the advance this week with White Cows averaging $64 per 100 lbs livewight; Breakers $61.50; Boners $58.60; and Lean cows $54.10. These prices are fully $6 to $8 above the average prices for the corresponding week a year ago.

In contrast to the rocking beef market, dairy replacement prices are being pressured below the already low prices of a year ago. Where cull cows are bringing $100 to $200 more per head, mature replacements are bringing $100 to $300 less per head!

Comparing auction prices on dairy replacements this week to the corresponding week a year ago: Fresh cows averaged $100 per head less at $1450; Bred heifers averaged $150 less at $1100; Springing heifers averaged $300 less at $1200; Open heifers 300-900 lb averaged $250 less at $700. Bred and Springing cows have been scarce at auction for the past four weeks compared with year ago offerings.

High beef prices are prompting dairy producers to pull the trigger and cull marginal cows from their herds as milk prices turned lower since March.

As Holstein cattle raised for beef are bringing premium prices as high as $90 per 100 lbs liveweight on May 5 and averaging $84.50 for the week, now may be a good time to consider raising Holsteins for beef.

In fact, with dairy replacement heifer prices under pressure, the beef market this year may be a good outlet for extra commercial grade heifers. The outlook for the beef industry is said to be positive for the next three years, according to cattle supplies and market fundamentals.

JBS-Packerland (formerly Mopac) in Souderton, Pa. (as well as plants in the Midwest, Arizona and California) has contracts available for calf-fed Holstein steers and heifers. They supply beef to Costco and prefer Holstein beef for its uniformity. They look for Holsteins that are started on high-energy diets beginning at around 350 pounds instead of those that are backgrounded on grass before the feedlot phase. This yields a beef product that meets the Choice quality grade criteria they are looking for with less trim-fat and better portion sizes of case-ready trimmed cuts boxed for retail.

Because Class IV topped the Class III price, previous predictions of MILC payments in May will not occur. Those predictions were based on the dismal CME cheese market and its effect on the downtrending Class III milk price. The May Class I "mover" is based on commodity sales for the first two weeks of April. At $13.80, next month's Class I "mover" is $2.83 higher than in May of 2009.

Butter should continue to rock and roll for awhile. According to USDA's Cold Storage report Thursday, butter stocks were down 7% below year ago in March. Stocks usually increase from February to March, but this year, butter stocks fell 3% from February to March. Reports indicate butter exports have been brisk. This is not surprising given the fact that the U.S. price, even though it's on a roll, is still 20 cents/lb below the world price, as is powder.

Export demand for powder is also picking up and sales are made at prices more than 15 cents above domestic. But that is not translating to producer pay prices because it's not being reported. In February, U.S. powder sold to the international market at $1.19/lb while the NASS average was $1.07. As export volumes and prices increase, we'll see how much of that "benefit" is reported to NASS for the milk pricing formulas. 

Farmers urged to contact their lawmakers by next week to sign and support Appropriations letter on daily electronic reporting for dairy

By Sherry Bunting, Farmshine, April 23, 2010

WASHINGTON, D.C. and HARRISBURG, Pa.--Just one day after price discovery was highlighted by virtually all who testified Tuesday (April 20) at the U.S. House Ag Committee field hearing on Farm Bill dairy policy, Sen. Arlen Specter (D-PA) and Rep. Tim Holden (D-17th) championed the way forward on USDA’s implementation of daily electronic reporting for dairy products.

Specter, a member of the Senate Ag Appropriations Subcommittee and Holden, Vice-Chair of the House Agriculture Committee, co-authored a letter to the leadership of House and Senate Ag Appropriations Subcommittees Wednesday, which is being circulated for supporting signatures from other members of Congress this week and next.

The letter specifically supports funding to implement section 1510 of the 2007 Farm Bill, which calls for the more frequent electronic reporting and quarterly auditing.

“I’m concerned about what’s going on in the dairy industry,” said Specter during a Pennsylvania Press Club luncheon in Harrisburg Monday (April 19), where he was the guest speaker and spoke on a variety of current topics. “In order to ensure fair and accurate prices for farmers, Congressman Holden and I are leading the fight to implement Farm Bill section 1510, which requires increased electronic reporting of dairy commodities. This simple yet significant change in dairy price reporting will greatly enhance market transparency, price discovery, and producer confidence.”

Holden had also highlighted his support for daily electronic reporting during a February meeting with dairy farmers in Lebanon, Pa.

The Dairy Policy Action Coalition (DPAC) has been working with members of Congress and USDA on this issue. Government relations consultant Dennis Wolff reported Wednesday that USDA is supportive of implementing the daily electronic reporting provision, provided the funding is included in the upcoming agriculture appropriations bill. During meetings with DPAC earlier this month, USDA estimated the cost of implementation at $600,000 for technical start-up and $1 to $2 million per year in human resources to facilitate the price reporting and increased auditing.

The letter initiated by Sen. Specter and Rep. Holden seeks to provide this funding.

Sen. Specter and Rep. Holden seek as many Congressional signatures as possible before they deliver this letter next week to Senate Ag Appropriations Chair Herb Kohl (D-WI) and Ranking Member Sam Brownback (R-KS) and to House Ag Appropriations Chair Rosa DeLauro (D-CT) and Ranking Member Jack Kingston (R-GA).

Dairy producers are encouraged to personally contact their Senators and Representatives this week to ask for their support of funding for daily electronic reporting. To add their signatures to the letter, members of Congress should contact Adam Tarr at Sen. Specter’s office (adam_tarr@specter.senate.gov) or Jake Kuhns at Rep. Holden’s office (jake.kuhns@mail.house.gov).

A full copy of the Congressional letter to the leadership of the the House and Senate Ag Appropriations Committee can be found here.

Click here for a sample letter you can use and edit for contacting your Senators or Representatives about supporting this funding for daily electronic reporting.

Witnesses highlight price discovery, long-term stability

By Sherry Bunting, Farmshine April 23, 2010

HARRISBURG, Pa.—Price discovery and long-term stability rose to the top of Tuesday’s dialog between two panels of witnesses and members of the U.S. House Agriculture Committee, who traveled from Washington, DC to the Farm Show Complex in Harrisburg for the nation’s first “full committee” field hearing on Farm Bill dairy policy.

Testifying were four dairy producers and the owner of a family-owned milk bottler, along with Pa. Ag Secretary Russell Redding, Penn State ag economics professor Jim Dunn, and Center for Dairy Excellence executive director John Frey.

The hearing was attended by nearly 130 people, of which three-fourths were rank-and-file dairy producers from Pennsylvania, New York, and as far away as Tennessee.

Chairman Collin Peterson, from Minnesota, said additional Farm Bill hearings could be scheduled as early as May, and that working groups would likely get started in June after National Milk Producers Federation has a final board-approved plan to present to Congress.

In response to a question from Rep. Leonard Boswell of Iowa, witnesses agreed price discovery was the number one thing needed to improve dairy farm profitability. Also getting high marks was the concept of “margin” insurance, which was explained in detail by Sec. Redding. Witnesses were also united in their belief that the government price support program has outlived its usefulness.

In short, there was a palpable desire by both the witnesses and the members of Congress to seek long lasting alternatives that lead to stability. Furthermore, it was oft said that the effects of the low prices threaten the survival of the nation’s dairy farmers, and that the band-aid approaches solve nothing and rarely reach far enough to do enough good at the farm level anyway.

Concern about access to credit for crop loans this season was also top-of-mind as new federal lending regulations tie the hands of lenders who want to work with their longtime customers. For many, the problem is that last year’s devastating losses are pushing many dairy farms into the 90-day bracket, which now means they must be listed as “troubled assets” because of new banking rules issued by the federal government after the home mortgage crash resulted in large financial institutions receiving huge amounts of taxpayer bailout money.

Sec. Redding said dairy has historically been a good investment for lenders. “But last year, they lost three years of equity. We need that bridge to the better year to buy some time while these policy pieces are put together.”

Rep. Glenn Thompson of Pennsylvania followed up on this point, asking Sec. Redding for more specifics, and concluding that, “It sounds to me like we need to allow these lenders to keep that discretion in working with their dairy customers.”

Supply management was discussed only briefly. Frey mentioned the Northeast Dairy Leadership Team’s involvement in evaluating a Dairy Growth Management Initiative, which would use a variety of tools to deal with “marginal” milk production. Cornell and Cal Poly are currently studying this proposal with results expected in May or June.

The members of the House Ag Committee also asked the first panel of witnesses about supply management.

“I’m not a fan of it,” said Professor Dunn. “If it’s successful, it is then capitalized into the worth of the cows and other assets. While it can increase the farmer’s wealth in terms of his assets, it does not mean more income or cash flow for the dairy farm. We can look at the peanut program for more evidence of this.”

Asked what, if anything, surprised him in the testimony presented Tuesday, Chairman Peterson said he had expected to come to Pennsylvania and hear more of a regional focus. He was pleasantly surprised to see how far ahead of the curve the state’s dairy producers are in looking for national solutions.

“This was very positive,” he said. “The time for regional fighting has passed.”

On the price discovery issue, Peterson confirmed that Congress is working with USDA to improve the current price reporting system to be more transparent and user-friendly for dairy farmers. “Mandatory price reporting needs to be reauthorized in September,” said Peterson, who met with USDA AMS last Friday to go over the provisions for dairy reporting in the current Farm Bill, which have not yet been implemented.

“We expect to see a rollout in June or July,” he added. “It’s a big step in getting to the issues that are out there.”

Rep. Boswell agreed that, “Price discovery for agriculture—across the board—is something we have got to have and is very much needed.”

Peterson said he has been studying dairy as long as he has been a member of Congress, and he has seen how the situation is made worse by trade agreements that tie the hands of Congress and prevent them from doing what is best for dairy farmers.

“As regional and complex as the U.S. dairy industry is, I think we can all agree that the safety net for dairy farmers is not working,” he said. “And we need to consider new ideas that could provide better security for our nation’s dairy producers.”

Ranking Member Randy Neugebauer of Texas added that, “The dairy industry has faced an enormous challenge over the last 18 months. It has become clear to me… that existing federal dairy policy does not adequately empower producers to manage the increasing volatility that threatens their survival.”

“We must have a strong and prosperous dairy industry in Pennsylvania,” noted House Ag Committee Vice-Chair Tim Holden, representing the Commonwealth’s 17^th district. “85% of their income is spent in the local communities and each dollar earned is recycled 2.5 times through the local economy. Our dairy industry represents $4.2 billion and 40,000 jobs in Pennsylvania.”

In addition to Chairman Peterson (D-MN) and Vice-Chair Tim Holden (D-PA), other members of Congress who were present from the House Ag Committee were: Livestock, Dairy and Poultry Subcommittee Chairman David Scott (D-GA), Ranking Member Randy Neugebauer (R-TX), Leonard Boswell (D-IA), Kathy Dahlkemper (D-PA), and Glenn Thompson (R-PA).

Testifying on behalf of dairy producers were: Daniel Brandt of Brandt-View Farms, Annville, Pa. and vice-chair of the Dairy Policy Action Coalition (DPAC); Rod Hissong of Mercer-Vu Farms, Mercersburg, Pa. and past president of the Professional Dairy Managers of Pennsylvania (PDMP); Kent Heffner of Jersey Acres Farm, Pine Grove, Pa.; Laura Mosemann of Misty Mountain Dairy, Warfordsburg, Pa., on behalf of National Milk Producers Federation. Testifying from the perspective of dairy processors was Todd Rutter, president of the family-owned Rutter’s Dairy based in York, Pa.

“Dairy farmers have lost confidence in the markets, their price, and their ability to manage,” Sec. Redding testified. “We cannot afford to hit ‘pause’ and wait for the Farm Bill.”

Redding said the first big step toward improving price discovery doesn’t take any additional authority by Congress. “This is one of the most important items we need action for now.”

It comes down to “what triggers the price of milk,” he said. “Right now, it’s the thin trading on the Chicago Mercantile Exchange (CME), but that (market trigger) needs to be more robust.”

In his testimony, Brandt also highlighted price discovery, which DPAC worked on earlier this month in Washington, citing the need to fund section 1510 of the current Farm Bill in the upcoming ag appropriations bill.

“There’s one issue all dairy producers agree on: The need for improved price discovery and market transparency,” he said. “Today’s milk pricing system is a bit like the ‘wizard behind the curtain,’ pulling this lever and that lever to keep the people of ‘Oz’ from seeing what’s really on the other side: What is the true value of our product in the marketplace? And how is the value of so many dairy products passed back through the system to the farm? Dairy farmers are absolutely united on this major point: Pull away the curtain and introduce price discovery that is simple and transparent so we can be fully informed participants in the market for our product.”

The Committee members wondered if additional price reporting would put an undue burden on processors, to which Todd Rutter said: “In Pennsylvania, we already report every conceivable piece of information to the Pa. Milk Marketing Board, so I don’t see where it would affect us.”

Congressman Neugebaur asked Redding what kind of response he is getting from U.S. Ag Secretary Tom Vilsack in their discussions on price discovery. “The conversations have been fruitful and productive,” Redding replied. “I think there’s a full desire to work on this, but they are limited by the cost.”

Redding also said part of the discussion is to look at the different price points that need to be collected. “Right now we know the price of milk, but not the value of that full range of products,” said Redding. “And we wonder to what extent can the Consumer Price Index be applied in an econometric pricing formula? That’s the discussion: What is the ‘bucket’ of indicators?”

Frey and Brandt both noted that daily reporting of sales and inventory is also important to the discussion of transparency.

“Producers can’t make decisions on incomplete data,” said Frey.

“Price discovery should include more products, reported more frequently and without the lag times that are signs of an old system long past due for an update,” said Brandt.

“There is no downside to this,” said Redding. “A crisis has a way of bringing things into focus. We need to talk about every day transparency in different areas of the market. That includes answering the questions about imported products, where are they coming from and what is coming into the marketplace.”

Hissong talked about PDMP’s position paper, which also highlighted the lack of transparency in current pricing formulas that are indirectly based on the CME. “Increasing the accuracy of the price reporting just makes sense,” he said. “We are left to the mercy of a broken system.”

Hissong talked about eliminating the price support program and using those funds to stimulate long-term market development to make products the world wants. For example, “We make salted butter, but the world wants unsalted butter,” he said.

He also noted that producers would benefit from reducing the legal limit on somatic cell count (SCC) to the European Union standards of 400,000. This would improve milk quality and affect the supply of milk available to the market.

Heffner noted that, “I’m a marketer (having a roadside stand and winery in addition to the dairy farm). I hear people complain about milk protein concentrates (MPC) coming into this country, but I think we should produce them here. Let’s get into this market and compete,” he said.

“We don’t have the process in place for that,” added Brandt. “The current system has make allowances and support price purchases. So the processors are okay with those margins, so why take a risk to make something different when they are already making a nice profit?”

In his testimony, Brandt referenced an idea of using funds currently directed to the support program for recourse loans or other incentives for new product development and manufacture.

Mosemann testified about the need for “a combination of solutions” as outlined by National Milk’s preliminary plan, particularly the specifics on income or margin insurance. “My husband and I support the revenue insurance because we see this as the best opportunity for our farm to stay in business and to have the dairy for the next generation,” she said.

Redding also advocated a new outlook on income insurance. “From the Susquehanna Valley of Pennsylvania to the San Joaquin Valley of California, producers need to have some control of their margin.”

He called Dairy LGM (Livestock Gross Margin) insurance a “promising tool,” but not very user-friendly in its current form. “It is not currently subsidized, like crop insurance is, and it needs to be more flexible,” he said. “We have found that successful crop insurance sits on a three-legged stool. First, it has to be a ‘real’ product that is workable and usable. Second, it must be affordable. And third, producers need education on how to use it.”

He said Dairy LGM has “great potential.”

Rep. Neugebaur agreed that risk management options need fine-tuning, but he wondered: “How do we look at policy on this and make sure we’re not part of the problem? How does the government be sure it is not encouraging over production.”

Dunn replied that, “The system we have now is not very supportive or market oriented. Risk management is something that is tied to market prices.”

Redding added that, “Right now, the industry is not sure how to balance all the different signals (including government support purchases). Risk management seems to be an appropriate role for the government versus buying storable products, which stay on inventory.”

He said producers need a way to protect their margin and their decisions. “This is far better than making policy that tries to fit small versus large and east versus west,” said Redding. “Offering a voluntary product for dairy producers to protect their own margin is an alternative to the band-aid approach. It sends a signal that this is where we want you to go to buy your protection versus coming to Congress for appropriations.”

Peterson tended to agree. “You are on the right line,” he said. “Insurance on all commodities is the long term approach. That’s what’s left in terms of the government helping to manage risk in agriculture.”

Unlike other commodities, dairy is “self-sufficient,” said Penn State ag economist Jim Dunn, explaining that the U.S. has 10% of the world’s exports and 10% of the imports. You don’t see that with other commodities where we produce more than we use and we export more than we import.”

He acknowledged that dairy presently has a positive trade balance so far this year, but competes in a world where heavy exporters have advantages. For example, New Zealand and Australia are positioned as the world’s low-cost producers and the European Union, as a heavy exporter, is heavily subsidized.

Dunn also said low milk prices are not, by themselves, the extent of the problem. “Thirteen-dollar milk in 2009 did not do as much for producers as $13 milk in 2006,” he said. “They paid considerably more to feed their cows and to plant and harvest their crops in 2009 compared with other years in which the milk price was low.”

Producer Kent Heffner of Pine Grove, Pa. said his calculations show alfalfa hay, feed concentrate and roasted soybeans rose 20% in 2009, and seed prices increased by 30%, and fertilizers and chemicals cost as much as 125% more than previous years. 

Heffner advocated for a federal order structure, formulas and price classes that compute a milk price reflecting current market conditions and takes into account the regional differences in the cost of producing milk.

“We must develop a price discovery method that utilizes more milk and expands mandatory reporting and auditing of prices and inventories, including penalties for inaccurate reporting,” he said.

Heffner also mentioned implementing higher standards—like in California—for solids-non-fat content of beverage milk. Doing this at a national level would not only increase the quality of milk to consumers, he said, it also would help the situation on the supply side.

Rep. Scott asked whether a single nationwide marketing order would help provide stability in pricing. Dunn, Redding and the dairy producers gave a firm: “No.”

Dunn said that idea is a “thorny issue” and would not really solve any of the current problems. Instead, it would create winners and losers. Moving to one national marketing order would hurt dairy farms in the Southeast and Northeast, where Class I utilization is higher.

“Regional marketing orders are not the source of the problems,” said Dunn. “The problem is farmers can’t turn the milk on and off, and we have a situation where just a small change in supply and demand can send prices all over the place.”

One idea he mentioned was to have the Class I “mover” based on a “moving average” of several months as a way to bring some stability to milk prices.

Rep. Scott asked about whether the federal marketing orders still serve a purpose. Brandt replied that they still benefit some regions, like the Southeast, by helping to keep a local supply of Class I fluid milk, but he added that going to a two class pricing system could minimize the manipulation of those orders, where qualifying loads are classified for the lowest use (Class IV) but end up getting sold to make Class II products, which are higher priced. “That does go on, and a two-class system—fluid and manufacturing—would help minimize the impact of that on the producer’s pay price,” he said.

Peterson said he appreciated how witnesses Tuesday are “very much looking forward.” He had been in Northwestern Pennsylvania the day before with Congresswoman Kathy Dahlkemper. “People are worried about losing their farms,” he said. “But I’m encouraged by the fact that the dairy industry is developing some unanimity.” He encouraged everyone to “keep thinking on this” and to keep the lines of communication open.

According to USDA's Cold Storage report, total cheese inventory topped the one billion pound mark in March, which is the highest since 1984 (the year before the infamous government dairy herd buyout). American style cheddar stocks are up 10% over year ago, the report said. However, the past few months of production reports show that production of this cheese is below year ago while mozzarella and other varieties are cranking the press.

On the retail side, consider this... some dairy sectors increased their sales volumes last year, not the least of which was the shredded and grated cheese products where 6.6% more unit volume was sold in 2009 compared with 2008 according to a report last month in the "Progressive Grocer."

Cheese is a big question mark right now, and with the blend price for farm milk based on class utilization, the movements of this market will have a big effect on the final price received by dairy farmers in May. Thankfully butter prices bolstered the Class I base, which will help. Butter is being exported and demand exceeds supply... we'll see how the utilization plays out.

Cheese is also a big question-mark for retailers. The April CME rollercoaster for cheddar has retailers wondering what to do in terms of in-store promotions. This week, the CME settled fractionally lower with 59 loads of blocks selling and 23 loads of barrels. Block cheddar on the CME today (Apr 23) was $1.3675/lb. For barrels, the price was $1.3475/lb.

Meanwhile, there's yogurt and frozen dairy to think about. According to the Nielson supermarket scanner data reported in Progressive Grocer, yogurt sales on a unit volume basis, rose 3.1% in 2009. Frozen dessert sales were up 8.3%. And, while regular fluid beverage milk sales were flat, flavored milk sales volume was up 8.2%. Read more analysis of food retailing trends at Progressive Grocer.

Check this list for members of the House and Senate Ag Appropriations Subcommittees who represent your state or district, and send them a letter, or make a phone call, or schedule a meeting with one of their staff. Share these summary points with them and provide additional background information with copies of these articles:

DPAC in DC on price discovery

Why electronic reporting is the cornerstone...

GAO cites concern about potential manipulation...

GAO Report Summary

Mis-reported powder leaves lingering questions...

For questions or for more information about congressional support for daily electronic reporting, please call DPAC at 800.422.8335 or email the coalition's correspondence secretary, Sherry Bunting, at agrite@ptd.net

Consequently, the milk futures crashed around midweek, with June 2010 contracts setting new lows at $13.12/cwt. and then recovering a dime or so to $13.35 by Friday after a nickel leap in the CME butter price on Wednesday.

The butter price jumped to $1.56/lb on Wednesday where it remained through the end of the week. This is the highest level since Nov. 2008. Butter production continues to run well below previous year's levels, which has been the case since midway through 2009. USDA Dairy Market News reports churing schedules are currently active and dependent upon cream supplies, which are receiving seasonal demand from ice cream and mix makers. Worldwide, reports indicate less milk is going into butter / powder production and both markets are showing it, although the U.S. price for both butter and powder is well below the world price. U.S. butter exports (mainly to Saudi Arabia) were 36% higher than year ago in the Jan-Feb period. We'll see next Friday which manufacturing class will determine May's Class I "mover."

The CME price level for nonfat dry milk also advanced late in the week to $1.2925/lb. Although this is still well below the world price for powder. According to USDA's biweekly international overview on April 15, the end of the milk production season has quickly deteriorated in New Zealand, and most manufacturers and handlers are very concerned about fulfilling end of season commitments.

Incidentally, the CME cheese price (even at last week's higher level before the plunge this week) is well below the world price (world price is more than $1.75/lb). Go figure...

The U.S. exported 16% more cheese and curd in the Jan-Feb time period compared with a year ago. The exports represented 2.6% of U.S. cheese production. USDA FAS also reported that total cheese imports were down 42% in first quarter 2010 compared with a year ago.

For the first two months of 2010, USDA FAS reports total exports in the dairy and egg category--in dollars--are up $90 million (+34%) and total dairy and egg category imports--in dollars--are down $62 million (-21%).

EPHRATA, Pa.--Bryan Gotham, St. Lawrence County, NY, was elected to the DPAC board at the April 9 meeting by teleconference. Charter board member Sheryl Vanco, Warren County, Pa., resigned her position with DPAC after she received a presidential appointment to the state USDA FSA Advisory Committee. Gotham replaces Vanco on the DPAC board.

Gotham and his brothers and parents, operate a 700-cow dairy near Hermon, NY. He refers to himself as "a former member of the silent majority" -- a name he coined for the bulk of dairy producers in the U.S. who work the fields and take care of the cows and refrain from active participation in the political process... until now. Gotham has spent the past year and a half cultivating relationships with NY lawmakers at the state and federal levels. He has made a few trips to Wash. D.C. to meet with congressional leaders, and last year helped initiate the U.S. Dairy Farmers and Friends network based in the Empire State. He traveled to Lancaster, Pa. last month to attend the DPAC board's meeting and milk pricing workshop, and he has been involved in phone conference meetings of the milk pricing action group.

Meanwhile… USDA Dairy Market News reported on Friday that cumulative 2010 January and February production of cheddar totaled 509.4 million pounds, down 6.2 million pounds (-1.2%) from the same start of 2009. Mozzarella output in the first two months of 2010 totaled 545.7 million pounds, up 30.2 million pounds (5.9%) from last year. Total cheese output for the two months was 1.619 billion pounds, up 25.1 million pounds (1.6%) from a year ago.

The Announced Federal Order Class III milk price also ended lower for Marchh at $12.78—which is $1.50 below February—according to USDA’s price announcement on April 2. The U.S. All-Milk price for March is figured by USDA at $15.10, which is 80 cents below February’s All-Milk price across all Federal Orders.

Butterfat values did increase, however, due to strong butter prices, which have continued to gain in April up to the $1.50 mark last Friday. And nonfat dry milk increased to $1.2650/lb last week.

We're back on the see-saw... The April end-of-month checks may get a boost, and the May milk checks could improve... if the NASS Survey prices for April are able to quickly reflect the recent 11-day rally that added 24 cents per pound to the CME block cheese price. We’ll see how that works out, now that CME 'buyers' are off the market this week. Last week's run-up, after all, was mostly on unfilled bids.

After trending higher last week and topping $1.50/lb, cheese fell back to $1.4975/lb Friday (April 9); barrels were at $1.44/lb Friday. A lone offer on Monday (April 12) dropped the block price back to $1.47/lb and four loads of barrels traded at $1.42/lb.

Easy come, easy go...

According to USDA’s Dairy Market News, cheese production is increasing seasonally, along with seasonal milk production, but buying patterns have been mixed. Some interests are reportedly buying for storage as a hedge against higher prices later, and there was some increase noted in bulk cheese orders, though not enough to push over-time make schedules around the holiday.

Interestingly, the buyers who purchase at "weekly average" prices are showing "slow to fair interest," whereas the buyers who purchase at "monthly average" prices are reportedly showing "solid" buying interest.

The World Agricultural Supply and Demand Estimates released Friday, April 9, have lowered the All Milk price estimate for 2010 to $15.50-$15.95/cwt. They base this on a slower rate of herd reduction and lower U.S. dairy exports on a skim-solids basis. However, the report was compiled before the 20 to 25% increase in world powder prices on Fonterra's April auction and recent import and export data showing that total exports in the dairy and egg category--in dollars--are up $90 million (+34%) and total dairy and egg category imports--in dollars--are down $62 million (-21%).

Since the farm bill may have to be opened in 2011 for budget reconciliations, House Ag Committee chairman Collin Peterson (D-MN) is telling ag groups, especially dairy, to be ready with their recommendations. While Peterson does not prefer moving the 2012 farm bill to 2011, it may happen... so get ready!

For more information about the hearing schedule, visit the House of Representatives' website, where testimony will also be posted after the hearing. Live audio will be available online beginning on the day of the hearing at 9:30 a.m. (EDT).

By Sherry Bunting, Special for Farmshine April 16, 2010 edition

WASHINGTON, D.C.— Whether the dairy industry is talking about risk management, supply management, revenue insurance, pricing formula changes—or any other idea—there is one common denominator: The need for a functioning price discovery system.

Market transparency is the underlying foundation for any path the industry takes, and on Thursday, April 8, the Dairy Policy Action Coalition (DPAC) saw the first bricks laid.

It was a full workday here at the Capitol for four DPAC board members and government relations consultant Dennis Wolff as they worked with congressional ag staffers on report language to fund daily electronic reporting in the House and Senate ag appropriations bill. DPAC also met with USDA to glean support and the price tag.

For a startup cost of $600,000 and another $1 to $2 million per year, daily electronic reporting with quarterly auditing—as authorized in Section 1510 of the Dairy Title in the 2007 Farm Bill—can finally become a reality.

“Nothing else can be fixed without this piece,” said Franklin County, Pa. dairy farmer and DPAC chairman Cliff Hawbaker, who traveled to D.C. with fellow dairy producers and DPAC board members Duane Hertzler, Perry County, Pa.; Alan Kozak, Holmes County, Ohio; and Dan Z. Stoltzfus, Chester County, Pa.

Wolff explained that electronic reporting is a framework for the future as well. “DPAC wants to see this expanded in the next Farm Bill to include more products in the reporting,” he said. “This is something dairy farmers all agree on.”

“We have to reduce the influence of the CME (Chicago Mercantile Exchange) where less than 1% of the product is traded,” added Stoltzfus.

The meeting was a follow-up to Wolff’s previous communications with members of Congress—led by Sen. Arlen Specter (D-PA), who sits on the Senate Ag Appropriations Committee and Rep. Tim Holden (D-PA), vice-chair of the House Ag Committee. They are working with a growing group of members from the House and Senate—including Sen. Bob Casey (D-PA), Sen. Sherrod Brown (D-OH), Rep. Glenn Thompson (R-PA), Rep. Kathy Dahlkemper (D-PA), and Rep. Zack Space (D-OH)—to write language to fund this key to price discovery.

DPAC is already reaching out to producers across the U.S. to broaden the lines of support among members of ag appropriations committees in the House and Senate.

For example, newly elected DPAC board member Bryan Gotham of St. Lawrence County, New York, met with congressional ag staffers for Sen. Kirsten Gillibrand (D-NY) to ask for her support of this effort to fund and implement electronic reporting. And Jack Fritz of Springfield, Tennessee, an adhoc member of the DPAC board, has been spreading the word in the southern states.

This is critical because once the bill gets there, the electronic reporting piece will vie for dollars with a dozen other appropriations. The importance of this piece dwarfs its comparatively modest price tag, and DPAC will remind Congress and USDA that dairy farmers are resolute and united in their determination to see better price discovery of the value of their product in the marketplace.

“DPAC is really moving forward with one voice in the dairy industry, and this is one area of policy that has total agreement among dairy farmers across the country, and throughout the industry,” Wolff told congressional ag staffers. “During a Dairy Forum I was part of in Ohio (on March 31), Jim Tillison from National Milk Producers Federation acknowledged their position in favor of electronic reporting, saying they helped get it into the 2007 Farm Bill. On that panel, we also had Dr. Mark Stephenson from Cornell University, Dr. Cameron Thraen from The Ohio State University, and Bob Vandenheuval from the Milk Producers Council in California. They all agreed that daily electronic reporting needs to happen, regardless of what future changes occur in federal policy.”

DPAC board members, who have spoken individually with area cheese processors, find that they too look forward to daily reporting of actual negotiated trades, versus exclusive reliance on the thinly traded spot surplus market on the Chicago Mercantile Exchange CME.

Still, DPAC learned Thursday that they are the first to actually request appropriations to fund this section of the current Farm Bill.

“This is something our cooperatives should be doing, but they are not,” observed Hertzler in response to an ag staffer’s question. “It’s difficult for us to be here. But we are speaking with one voice for all dairy farmers to tell you that our federal pricing system is not working.”

The DPAC board members explained that when they ask, they are told their various milk cooperatives are in favor of the daily electronic reporting and increased auditing, but they have not taken up the task. So, it’s up to the farmers, through DPAC, to get the keys to this issue and keep the foot on the gas.

Once the electronic reporting language gets to the ag appropriations committees, members will need to know that it is fully supported by USDA. Toward this end, DPAC also met with USDA on Thursday, and the coalition will follow up with U.S. Ag Secretary Tom Vilsack’s Dairy Industry Advisory Committee (DIAC), asking them to help keep this priority in the forefront.

DPAC will attend the second meeting of Sec. Vilsack’s DIAC in June, and is currently preparing letters, so the Committee has a record of this information before their first meeting April 13-15.

Thursday’s meetings concluded at USDA, where Mike Scuse, USDA deputy under secretary for the Farm and Foreign Agricultural Services, brought to the table five officials who work with dairy programs and market reporting from USDA’s Agricultural Marketing Services (AMS): Dana Coale, USDA AMS deputy administrator for dairy programs; Rayne Pegg, administrator for the Agricultural Marketing Service; John Mengel, chief economist for AMS; Milt Madison, ag economist with the USDA FSA; and Mike Lynch, livestock reporting supervisor with Livestock and Grain Market News office.

Coale reported the startup cost for daily electronic reporting would be $600,000, based on what designers of the daily beef report have in place that can be adapted for dairy.

“This would cover the programming and personnel to get the plants online with electronic reporting,” she said, explaining the software enables plants to record and automatically transmit their daily product sales and volumes.

“The data from individual plants is encrypted and totaled with data from other plants before we open it to determine weighted average product prices and sales volumes each day,” explained Lynch. This is currently done in the beef industry to report the wholesale value of each retail cut fabricated from a steer carcass, as well as the value of hides and offal. The same system is used for daily livestock purchases direct by packers on a pricing “grid,” so USDA can report daily market value of cattle and hogs on a live basis.

According to Lynch, daily mandatory electronic reporting in the livestock and meat industry faced a few hurdles in the beginning, but now the industry relies on the daily price lists to know what’s going on in the marketplace and to establish pricing grids for buying the raw commodity (cattle and hogs) from producers.

“Even when funding lapsed temporarily in 2004-05, most plants continued to cooperate because they now use this information,” said Lynch about the mandatory electronic livestock and meat reporting.

The other part of the price tag for daily electronic reporting for dairy is the annual cost of between $1 and $2 million for quarterly auditing (verification) of the data provided by an estimated 100 reporting plants.

“Our only issue with this was financial,” confirmed Rayne Pegg, administrator for USDA AMS. She represented AMS during budget hearings on Capitol Hill in March. “When developing our budget we had a lot of priorities there to consider.”

“While electronic reporting doesn’t necessarily give additional information, you will get the information earlier and it will be more timely,” acknowledged John Mengel, AMS chief economist.

“We expected to get to the meeting and have a lot of convincing to do to get USDA to understand why dairy farmers want this part of the Farm Bill implemented, but they were prepared,” said Hawbaker. “They brought (Mike Lynch) from the Livestock and Grain Market News division to the meeting, and we could see they did their homework on what would be involved to get this going. It was great to see this come together.”

“We had a super day, and I was amazed that the dollar amount to implement daily reporting was not higher,” added Stoltzfus. “Now we have to follow up with USDA and Secretary Vilsack’s Dairy Industry Advisory Committee so that everyone gets encouraged to support this as a high priority.”

“This is the key to our bullet approach,” said Wolff. “Our agenda is narrow, and this change with daily electronic reporting is critical.”

Shultz from Sen. Brown’s office wanted to know DPAC’s position on risk management.

“Farmers need tools to pick and choose, and we’re not against risk management, but dairy farmers do not know how to implement it when we have a price discovery system that is broken,” said Hawbaker. “Daily mandatory reporting is what we have on the table as the first step that is needed. The dissention and questions come up among dairy farmers because there is no foundation right now for a transparent market.”

“There is opportunity for manipulation on the CME spot market,” added Kozak. “We don’t need to prove that it is happening, just that there is the opportunity for it to happen under the present system. As a milk producer, I can pass every test for milk quality with flying colors, but if the inspector sees something in my equipment or process that could potentially cause a problem, I have to fix that. It’s the same thing here with our markets.”

The 2007 GAO report, in fact, outlined the ways in which the thinly traded CME spot cheese market is vulnerable to manipulation. Furthermore, reports from the industry continually surface of how large players with individual agendas can and do move the ‘market’ at the CME quite easily, and it’s all based on bids or offers. That spot market can move on a bid or an offer, not necessarily a completed trade. Then that is all the industry has to look at when buying and selling in the “real world,” so the correlation is 97 to 98%.

“To market our product and use risk management tools… the farmers, processors, even speculators need to know what’s happening in the marketplace,” added Hawbaker. “We can’t fully participate in a market that is not transparent, where a few large players have more information than the rest of us.”

Wolff described the current price reporting system. “Tomorrow (Friday), AMS will release the NASS Survey of product prices from last week, with as much as a 14-day delay,” he told the congressional staffers, reminding them of the mis-reported powder in 2006-07, which cost U.S. dairy farmers at least $50 million.

“There’s no provision to go back and make amends to the dairy farmers for that,” he said. “That’s one of the reasons for the daily reporting and quarterly auditing, to both increase the timeliness and ensure the accuracy of the prices that are reported.”

“As farmers, we are on the receiving end of whatever price discovery system is in place,” said Hawbaker. “And there are a lot of rules and regulations in between that price discovery and the way the federal orders set minimum milk prices. We are focusing first on that price discovery system, to implement that tool we already have sitting there in the current Farm Bill.”

During the meeting with USDA, Hawbaker explained that, “If we farmers don’t have a handle on the price reporting, how do we make those decisions? The dairy producer right now is not given that privilege to know what is going on in that market, daily. All we have to look at is the CME, and I think that’s why we get the divisions among us because we do not have a basis for transparency in the marketplace. There are 57,000 dairy farmers, and I don’t think you’ll find one who is against this.”

Wolff added that in every meeting he has participated in over the past few years, “Price discovery and market transparency float to the top, and that’s why DPAC is here today.” (It was also the top ranked “concern” identified by dairy producers in 23 states who responded to DPAC’s dairy producer survey.)

During the meeting with congressional ag staffers before DPAC’s later meeting with USDA, Adam Tarr from Sen. Specter’s office gave the dairymen an update on the appropriations bill. “A month ago, we talked with the Senate Ag Appropriations Committee to put this on their radar,” he said. “Section 1510 of the current Farm Bill allows for implementation of electronic reporting, subject to funding. This report would provide that funding language and the direction to increase the frequency of reporting and auditing according to the statute.”

Tarr explained that the next step is to put together a letter from the Hill to Secretary Vilsack and the ag appropriations committee with the other members of Congress represented at the table Thursday. “We’ll lay out the case, and it’s a pretty compelling one,” he said. “It’s good to be working with folks that are bringing things to us that can be accomplished.”

DPAC will continue drumming up voices of support from across the country as this begins to move forward in April and May through the appropriations process.

Between the morning meeting with congressional ag staffers and the afternoon meeting with USDA, Wolff and the DPAC board members visited with Dick Newpher, executive vice president of the American Farm Bureau Federation.

Newpher pointed out that AFBF’s 2010 policy handbook includes the following reference to electronic reporting under national dairy policy: (21) “A price discovery method which utilizes more milk and expands mandatory reporting and auditing of prices and inventories, including penalties for inaccurate reporting; and (22) Improving price discovery through mandatory reporting and auditing of prices and inventories.”

“There is not one farmer against this,” said Newpher. “And it falls in line with national AFBF policy.”

However, it was clear from the meeting with AFBF, that when it comes to appropriations, there are always sections of the Farm Bill that are not funded. AFBF paints with a broader brush, deferring to the state Farm Bureaus and commodity organizations to push forward the specific issues that require funding.

AFBF sets policy through its local and state delegation process. But on appropriations, they don’t want to be in a situation where they take a position between commodity groups vying at the table for the dollar decisions.

“These are the issues where it takes someone to be like a bulldog and take hold of it and not let up,” he said. “We (AFBF) can do that with estate taxes, because that affects all farmers, but this issue (funding for electronic reporting) is where state Farm Bureaus and producer groups (like DPAC) go to work with their lawmakers in Congress.”

 “We really have to thank Denny Wolff for what was accomplished here today,” said Hertzler. “He lined up the quality people for a really good day. I was encouraged by how open they were with us. We have to work on broadening the support from other sections of the country so this bill can have an impact on price discovery.”

“On Thursday we learned how important it is to have someone like Denny Wolff working for us,” added Kozak. “We saw that the money we spend to have him working for us is very worthwhile.”

DPAC had its regular board meeting by teleconference the next day (April 9), and Wolff reported he had followed up with Adam Tarr from Sen. Specter’s office. Now that USDA has provided the price tag for daily electronic reporting, Tarr indicated the report language to fund it would be written this week.

“It’s great to have this coming from both the Senate and House sides,” said Wolff. “After the language gets to the committees, then there will be two months of prioritizing. We’ll have to keep up the support, and not let up, all the way through the appropriations process.”

Contact DPAC at 800.422.8335 or www.dpac.net to find out how to help keep the foot on the gas for price discovery.

By Sherry Bunting, Reprinted from April 9, 2010 Farmshine

EPHRATA, Pa.—When you're building a grassroots effort that is action-based with a narrow focus and communicates a clear message about an issue that is important to the livelihood of a broader community, people naturally begin to see where they fit in and how they can help. A grassroots coalition isn't just about the dollars that are donated or how much each person or company gives. Rather, it's the sum-total of support—large and small—that gives strength, momentum, and sustenance.

That's because literally every drop counts—in dollars, in human capital, and in political capital. That's how a grassroots movement develops into a voice that has clout. And that's how it is for the Dairy Policy Action Coalition (DPAC), a grassroots coalition of dairy producers actively participating, with a unified voice, on policies and issues affecting milk pricing.

Mid-April marks the fifth month of operation for DPAC, and in those five months, nearly $50,000 has been received in donations from individual producers and the agribusinesses that serve the dairy farms as well as a few associations that have provided financial support. DPAC has a budget of $10,000 a month, which covers the services and expenses of Dennis Wolff and Versant Strategies as the coalition's government relations consultant (a.k.a. "lobbyist") as well as the services of the journalist they hired (Sherry Bunting) as their correspondence secretary and the cost of frequent conference calls, website, surveys, printing, attorney fees, and other aspects associated with forming a group focused on constant and continuing action in the political realm of dairy policy.

According to Merriam-Webster's dictionary: "grassroots" means "the very foundation or source; the basic level of a community or organization, especially as viewed in relation to higher or more centralized positions of power."

According to Wikipedia, "a grassroots movement is one driven by the politics of a community. This term implies that the creation of the movement, and the group supporting it, are natural and spontaneous, highlighting the differences between this and a movement that is orchestrated by traditional power structures. Grassroots movements are often at the local level, as many volunteers in the community give their time to support it, and this then leads to a national movement."

These definition accurately describe how DPAC was started and how it has progressed. The coalition formed naturally and spontaneously as the outgrowth of dairy farmers coming together in their local communities all across Pennsylvania and Ohio last year. The farmers who organized those meetings sent two or three people to the table at the invitation of Bernie Morrissey last November to put their heads together and see what kind of vehicle they could create to give dairy farmers their own voice in the political process – with the idea of "controlling your own destiny."

The $47,880 received in donations as of April 6, has come from 155 dairy producers in nine states and 37 agribusinesses in four states. True: The lion's share of financial support has come from Pennsylvania and Ohio, which is the "local dairy community" from which this grassroots effort sprouted. But as DPAC is quickly establishing a national presence, and bringing in adhoc members from other states and regions, donations are also coming in from producers and agribusinesses in New York, Maryland, Virginia, West Virginia, Tennessee, Massachusetts, Indiana, even Idaho.

That path is a two-way street as DPAC corresponds with dairy producers in at least 23 states via weekly updates in Farmshine, an E-newsletter, online and printed surveys, and updates at www.dpac.net.

Individual producers have donated from $25 to $1000, with the average around $100. Some are donating roughly $2 per cow, and a few have chosen to do smaller amounts on a monthly basis instead of one lump-sum check. Some have gone to their dairies or co-ops and asked to have a monthly amount sent into DPAC from their milk check.

"I prefer to do it that way because $60 a month comes out to 15 cents a cow or a penny per hundredweight each month," explains Alan Kozak, a dairy farmer milking 400 cows in Holmes County, Ohio and one of DPAC's 20 charter board members. "But each dairyman can do whatever they are comfortable with."

"The point is that if we don't stand up and do this as producers, we can't expect anyone else to do it for us," says Jon Jenkins, a dairy farmer from Bradford County, Pennsylvania and one of DPAC's 20 charter board members. "The agribusinesses who are interested in helping us want to see us funding this effort too. The combined investment makes a strong statement. I tell people to support DPAC at whatever level you can because just as important is your name on the list, so when we go to Washington, you're behind us."

Agribusinesses, too, have stepped up with donations from $100 to $6000. And recently, the Pennsylvania Dairymen's Association also gave its show of support in the form of a $5000 grant.

These donations sustain the work DPAC is doing and send a clear message to policymakers that businesses large and small are indirectly affected by the dairy crisis, even as their customers—the dairy farmers—are directly affected.

This train would not be rolling if not for the commitment of Morrissey Insurance. They put up the $6000 in starter funds back in November, and have provided their office resources, toll-free phone number, and staff assistance free of charge. Bernie Morrissey serves as DPAC's appointed recording treasurer under the oversight of vice-chairs Rob Barley of Star Rock Farms, Conestoga, Pa. and Daniel Brandt of Brandt-View Farms, Annville, Pa.

Sensenig's Feed Mill of New Holland, Pa. and Lancaster Dairy Farm Automation, based in Lititz, Pa. and Hagerstown, Md. were two business that gave substantial donations right away. Sensenig's employs 28 people and Lancaster Dairy 35.

"I tell businesses to please give us the number of people you employ when you send a donation," Jenkins says. "Our legislators need to know how deep this thing goes."

A perfect example of "how deep this thing goes" is the fund drive among 37 employees at Mark Hershey Farms, a feed mill in Lebanon, Pa. Sure, they are pictured in this week's Farmshine, but they are quick to point out they didn't do it for a picture in the paper.

"If we can encourage other businesses to do this exact same thing, that's super. That's what it's all about," says Alan Graves, who purchases ingredients and works with customers at the mill.

"These guys are up against it," he says about the dairy farm families. "The economics of this are so disheartening to us. The way dairy goes is the way we go. I wish legislators could fully comprehend this. They think in numbers of dairy farmers. I don't think they totally grasp that people like me, and other employees at companies like ours, rely on the dairy farmers for our livelihood. This has been so far reaching. I've said it for years: 'Give a dairyman $20 milk, and they don't sit on that. They circulate it back into the local economy and make such a difference to everyone.'"

When Graves read about DPAC in the pages of Farmshine last winter, he immediately recognized DPAC as a group that can get something done. When he saw the invitation for companies to give, he went to the mill manager, Brian Boyd, with his idea.

"I figured it didn't matter what the company decided to give, we employees wanted to do something from our end to support our friends and customers," said Graves, who has worked in customer service at Mark Hershey Farms (MHF) for more than 10 years.

Graves and Boyd posted a sign at the time clock, and within one week, they had collected personal checks totaling $510, which they mailed to DPAC in a large envelope on February 17. The company's owner, Darryl Alger, doubled what his employees gave, sending $1000 on the same day. And on March 12, the company's controller, David Bates, contacted DPAC with the news that MHF would "keep giving $1000 a month as long as it's needed."

"This is everything to myself and the employees here," says Boyd. "Dairy is a large percentage of our business, and a lot of us are connected to dairy farms through our families. Some of us raise calves on our own. We're not only very connected to dairy, we realize this is our life and livelihood at stake also."

At MHF, the Farmshine can always be found in the lunchroom, and Graves prints off the DPAC minutes and updates from the website (www.dpac.net) to pass around.

"We were thinking of asking someone from DPAC to come out and update us on what's going on," said Graves. "But it's all in print, so we have all been reading about it on our own time. People go to the lunchroom looking for it. We can see what a difference we can make and that DPAC can make. This isn't something where you give your money and never hear about it again. The minutes and updates are really good and very informative. We like that DPAC has three or four things, and they are hammering those thoughts and sending one message."

DPAC's charter board is organized by action groups, and they are bringing in producers from other regions of the country to form a second tier of adhoc members. While DPAC hears regional concerns with milk pricing, the main groundswell of support is for market transparency and price discovery as the key components of national dairy policy.

"I was at REB Consulting's annual banquet for their customers in March, and one of the speakers was Bernie Morrissey," said Bates from MHF. "He talked about what DPAC is doing, and what they are all about. It touched me personally. So the next morning I went to my boss, Darryl Alger, and said: 'Hey. This is the real deal. We should think about giving monthly.' Darryl agreed, and so we went with $1000 a month. We're right in it with our customers because 85% of our business is dairy feed. We appreciate all that DPAC is doing to get the farmer a fair price for his milk. It's very obvious someone else is out there stuffing their pockets."

For Mike Sensenig at Sensenig's Feed Mill, the decision to give $5000 to support DPAC was prompt. Within the first two weeks of reading about the formation of DPAC in November, Mike contacted two board members Jake Esh, Gordonville, and Dan Stoltzfus, Honey Brook, and invited them to breakfast to talk about the coalition.

"Karl, Scott and I talked it over and we felt we owed it to our customers to support DPAC in their efforts," Sensenig relates. "We have 28 employees here, and we serve a lot of dairy farms. Without the dairy farmers, we wouldn't have many employees. We're in this for the long haul. Our feeling is that DPAC's action for the future is something we wanted to do all we can to help it get going. We were ecstatic to see a group like this that will follow through and keep things going, even when the price of milk goes up."

For Dennis Milhoan, president of Lancaster Dairy Farm Automation, the decision to give $5000 in the form of monthly installments over five months was also made promptly within six weeks of DPAC's formation.

"This is an organization completely directed by dairymen, and we could see that the direction they are going is to focus on the transparency of the milk pricing," said Milhoan. "I didn't see any other organization concentrating in that direction."

Milhoan decided to donate to DPAC because "Dairymen need an organization run by dairymen with no outside influence. They need to have their own voice," he explained. "I also like the fact that they are taking this effort beyond the borders of Pennsylvania because dairy policy is so much at the national level. From what I see, they have a thoughtful board of dairymen that are educating themselves and listening to the ideas of other sectors, but the bottom line is they make their own decisions as a board of dairymen. That's what is needed in this situation today."

For DPAC charter board member Doug Martin, a dairy farmer in Franklin County, Pa., it comes down to dairymen, themselves, stepping up to the plate with their support. "If we don't contribute and control our own destiny someone else is going to," he says. "We have an opportunity here in DPAC. I think we want to be in this ball game, and we as farmers need to step up to the plate and support this thing or someone else is going to make decisions, and we might not like what they decide."

"We're not asking people to hook up a manure tanker and drive to D.C. or to take their time away from their farms," adds Ohio dairyman Alan Kozak, stressing that the steady flow of donations needs to continue. "I tell my friends back home that this board is made up of good dairymen who are working hard, spending their own time, energy and their own money supporting a positive agenda for dairy farmers and doing the things that the average dairy farmer doesn't have time to do so we can push this agenda forward. I ask them to look at who we are and what we're doing and then decide for yourself whether to give your support and add your name to the steadily growing list."

The Dairy Policy Action Coalition is focused on market transparency and price discovery. Past and future updates in Farmshine describe the ongoing work of this coalition and its goals. This week, in fact, four board members—Duane Hertzler, Perry County, Pa.; Dan Stoltzfus, Chester County, Pa.; Alan Kozak, Holmes County, Ohio; and Cliff Hawbaker, Franklin County, Pa.—will accompany government relations consultant Dennis Wolff to Washington D.C. for meetings with Congress and USDA on legislation to fund and implement electronic reporting as authorized in the current Farm Bill. This is the cornerstone for improving dairy market transparency.

For more information about DPAC and how to help, visit www.dpac.net or call 800-422-8335 and ask for Bernie. While DPAC has received emails and letters from more than 500 dairy producers and has a correspondence list of nearly 1000, DPAC thanks the 155 individual dairy producers who have stepped forward with their financial support so far.

The coalition also gives special thanks to the agribusinesses and associations for their donations as "friends of DPAC" from November 19, 2009 through April 6, 2010.

As a dairy producer, agribusiness, or association, click here to find out how you can help, or call 800.422.8335 and ask for Bernie.

In it’s April 1 report of international dairy markets, USDA confirmed Oceania milk production is winding down the season at lower rates, and milk producers and handlers are not anticipating recovery.

They site lack of autumn moisture as the major factor contributing to the production decline, where output has dropped so quickly that farmers are reportedly reducing their milkings to once per day or resorting to earlier dry-offs.

With these recent trends, milk production estimates for the year in New Zealand are again being adjusted to be more equal to last season’s production to as much as 1% higher, despite previous forecasts of greater increases in production, according to USDA. This reportedly has New Zealand milk handlers and manufacturers very concerned about end of season commitments.

Prices on Fonterra’s world auction this week were up 22 to 25% over the March auction, with powder prices showing significant strength in the bidding.

On April 1, three DPAC board members and their correspondence secretary and recording treasurer met in Harrisburg with Chief Deputy Attorney General Jim Donahue and other members of the State Attorney General's staff for an information gathering meeting at their request.

Meanwhile, block cheddar bids on the CME did a turnaround last Friday into the first two days of this week, but there have been no sellers. On Tuesday, March 30, blocks closed at $1.3525/lb and barrels $1.34/lb. Milk futures have gained with September and October future prices trading above $15 Tuesday.

Butter prices are still just under $1.50/lb at $1.49/lb. Tuesday, March 30 and powder has gained ground, with spot cash bids at $1.18 this week.

Some say the latter half of the year could be short on milk if forced liquidation ensues as is rumored in the West. This is causing some analysts to be bullish on late 2010 milk prices. Then again, heifer numbers are up and slaughter numbers are average.

The February milk production report showed a gain of 0.1% as cow numbers grew 3,000 head. Combined with January's extra cows, that's a combined 6,000 more cows over the past 60 days after numbers were cut by over 250,000 last year. USDA's milk production report released Thursday (Mar. 18) showed Arizona and Washington each added 3,000 cows last month. However, where Washington's production is up nearly 7% over year ago, Arizona's February production was nearly 7% below year ago.

Idaho's production was up 3.7%, Wisconsin up 5.7%, Minnesota up 1.4%, Pennsylvania's production was essentially flat compared with year ago and New York lost 0.7% of its production compared with Feb. 2009. California's production is 1.6% below February a year ago. 

Read more

Information is power, and if there was one overarching message from last Thursday’s meeting of the Dairy Policy Action Coalition (DPAC), it was to press on from all angles with a primary focus on defining the markets and improving the transparency of them. This was a common thread in DPAC’s dairy producer survey results, as well as the comments and insights offered by a panel of market experts during the coalition’s milk pricing workshop.

By Sherry Bunting, Farmshine, March 19, 2010

LANCASTER, Pa.—Two panels, eight speakers, 20 dairy producers—hailing from Pennsylvania, Ohio, New York, Kentucky, and Tennessee—along with a handful more on conference call from the East, Midwest and West… DPAC spent five hours distilling a wide range of facts, analysis, ideas and proposals into four achievable goals, while continuing their quest for information on other possible action items during the board meeting and milk pricing workshop at the Farm and Home Center in Lancaster, Pa. on Thursday, March 11.

After the fast-paced daylong workshop and board business meeting, a thoughtful outline of forward action emerged. Much ground was covered and much was learned, and at the end of the day, the dairy farmer board members of DPAC elected to put their primary focus on “achievable goals” and to develop a timetable and game-plan to influence not only congressional leaders and decision makers, but also to influence other influencers.

While the coalition’s focus Thursday was on developing a unified voice for long term pricing reform, supply management proposals were also presented and discussed.

But as vice-chair Rob Barley said at the outset: “Our focus today is on milk pricing. Supply management is part of that, and we have a panel addressing it here today, but we want this meeting to kickoff the work of our supply management action group as they sift through it.”

The milk pricing workshop was organized by DPAC’s milk pricing action group chaired by Barley, who served as the workshop moderator. “Our goal today is finding out what we have total agreement on,” said Barley. “We want to identify the things we can begin to have Denny Wolff contact the right people to get happening. We also want to identify the things we have consensus on and the things we need more information about.”

The DPAC board did conclude the day asking themselves two questions: “Do we believe the pricing system must be addressed before or along with our consideration of some form of growth management?” And, “Do we want to work on ‘fixing’ the current system or to visualize a brand new system?”

After discussion, they agreed unanimously to move forward aggressively on four key components of milk pricing, while they keep working on supply management in committee.

Read full story

Draft Policy Points

Minutes

Workshop Notes

If you’re sick, yogurt makes you feel good. It’s something you can eat on an upset stomach. If you’re lactose intolerant, you can eat it without fear (and without a lactaid pill). If you’re trying to lose weight, it’s a major source of more protein and less carbs. If you’re lifting to build muscle mass, it’s a staple. It’s considered one of “five foods that fight fatigue” according to MSN Health and Fitness. Picky children even like it.

The rage 20 years ago was the dessert concept of frozen yogurt as an alternative to ice cream. The rage today seems to be variations on yogurt as a healthy-eating concept. One trend is toward adding probiotics for health. Another is the smoothie drink products that combine fruit and yogurt. And the latest talk centers on the up-and-coming ‘Greek’ yogurt (trust me, there’s a difference) we see showing up in the dairy case now.

It’s no wonder that U.S. yogurt production has enjoyed a dozen years of consecutive growth as production more than doubled from 1.84 billion pounds in 2000 to 3.85 billion pounds in 2009.

The CEO of Dannon Inc., Gustavo Valle, told attendees of the Reuters Food and Agriculture Summit this week that U.S. yogurt consumption can double again in the next four years as the market is still “underdeveloped” compared with yogurt consumption in Western Europe. Valle reported Dannon’s sales were up 15% in the second half of 2009 and again in the first quarter of 2010.

Yogurt production in the U.S. increased 7.2% last year compared with 2008. Production for January 2010 was up 10% compared with January 2009.

With yogurt being such a strong performer as a solid growth market—coupled with the fact that it is a fresh market that replaces some of the lost per-capita consumption of fluid milk—many experts involved in milk marketing point to this market as the new frontier. Future milk pricing policy must begin to define these important markets and return more of this value to dairy farmers.

Together, yogurt, and fresh Italian cheeses (like mozzarella), are a big part of dairy’s big picture. They are made for the market, not for the Merc (CME).

Dairy products (butter, cheese, powder, proteins) are New Zealand’s number one export, and their nation’s economy is heavily reliant on dairy. Press reports interviewing Fonterra’s leaders make clear the U.S. is already New Zealand’s top customer. They see the U.S. as an ever-fertile market for the tilling.

Currently, there are tariff-rate quotas on butter, cheese, powder, and other “traditional” dairy products, but not on milk protein concentrate (MPC) or casein. If the TPP goes forward to expand trade between the U.S. and New Zealand—without an exception for dairy—we’re likely to see an end to, or significant reduction in, the tariff rates and quotas on those traditional dairy products at a time when U.S. dairy farmers want to see tariff rate quotas added for unregulated imports like MPC and casein.

The TPP trade talks seek to establish a “free trade region” in the East Pacific and the Obama administration wants the U.S. to be part of that. In a nutshell, the TPP does for the East Pacific region what NAFTA did for the North and South American continents.

News reports indicate that President Barack Obama aims to double U.S. exports in five years. His administration views one strategy is to strengthen the U.S. position in Asia by joining this TPP. Australia, Peru and Vietnam also seek to join the TPP, which currently includes Chile, Singapore, New Zealand and Brunei.

Therein lies the problem for dairy producers. The TPP might offer dubious export opportunities to some sectors of the U.S. economy (i.e. service industries, ‘clean’ energy technologies, and a few un-named manufacturing sectors), but to a larger degree, it poses the threat of an open-door policy to dairy imports from New Zealand and Australia, not to mention Chile (where New Zealand’s Fonterra is busy setting up shop).

It is questionable whether the TPP offers a positive tradeoff for the U.S., even in general. On the one hand, the Peterson Institute for International Economics in Washington D.C., for example, is quoted as saying that if the TPP goes forward to establish an East Asia Free Trade Area, and if the U.S. is excluded from this TPP, it could cost U.S. companies “at least $25 billion in annual exports, or about 200,000 high-paying jobs.”

On the other hand, Senator Al Franken's office (D-Minn) estimates that if dairy is included in expanded trade with New Zealand, the potential cost to the dairy industry would be $20 billion.

Is that a tradeoff this nation can really afford? What about the dairy farmers here who are losing their shirts, not to mention their farms? Isn’t it high time that we protect our food production, just a little, please?

The U.S. already has free trade agreements with four of the seven countries that are either in the TPP or trying to get into the TPP. They are Australia, Chile, Singapore and Peru. What do the other three (New Zealand, Brunei, and Vietnam) offer the U.S. in terms of export markets? Okay, we can sell clean energy technology to countries like Vietnam that need to clean up their air.

But for agriculture, particularly dairy and beef, the ship would sail one-way in the other direction: From New Zealand to the U.S.

Read how the New Zealand press sees it.

HARRISBURG, Pa.—U.S. Representative Kathy Dahlkemper (D-Pa.) was in Harrisburg talking dairy policy with Dennis Wolff and the Dairy Policy Action Coalition (DPAC) at the offices of Versant Strategies here Monday, March 15.

Dahlkemper represents Pennsylvania’s third district, which stretches from just east of Butler up into Erie and Warren counties. She is the first in 32 years to represent her district on the U.S. House Agriculture Committee, and she is one of three in Pennsylvania’s congressional delegation who currently serves on that committee. The other two are Rep. Glenn Thompson and Rep. Tim Holden (vice-chair).

Having a background as a dietician and exposure to agriculture throughout her district, Dahlkemper has made farming one of her primary focuses because of its importance to the local economies within her district. Last October, she hosted a Butler County dairy solutions forum, which was one of seven separately organized grassroots dairy producer meetings throughout Pennsylvania and eastern Ohio from which dairy farmers came together to eventually form DPAC last November.

Cliff Hawbaker, dairy producer and chairman of DPAC, had the opportunity to sit down with Wolff and Dahlkemper Monday to talk about dairy policy ahead of the upcoming Farm Bill hearings, the first of which is slated for April 20 in Harrisburg.

Willard Lemaster, director of the Pa. Center for Beef Excellence also had the opportunity to discuss with Rep. Dahlkemper the issues that face beef producers—as well as dairy and livestock producers—such as animal rights and export trade.

Pennsylvania is home to 1.6 million total cattle (dairy and beef animals). The state has just under 8,000 dairy farms averaging 65 adult milk cows, and as many calves, per farm and 28,000 beef producers averaging 20 mama cows or 50 feedlot steers per farm.

Rep. Dahlkemper was quite aware of the reach the dairy and beef sectors have into local economies in terms of allied small businesses, revenue, and jobs. She, in fact, also sits on the U.S. House Small Business Committee.

Hawbaker and Wolff talked with her about DPAC’s very specific push for implementation of electronic reporting as already authorized in section 1510 of the 2007 Farm Bill’s dairy title.

“This is important because the USDA NASS report is now on a weekly basis, and by the time it comes out this Friday, it will be based on prices collected Wednesday for transactions that occurred last week,” Wolff said, adding that corn and soybean growers and even other livestock sectors of agriculture can look daily—even hourly—at what their market is doing. Furthermore, the NASS Product Price Survey is then plugged into the USDA milk pricing formulas to set minimum prices for the four classes of milk. Dairy producers are forced to deal with lag times and a thinly traded cheese market on the Chicago Mercantile Exchange (CME), which, in effect, sets their milk price, even the base price on fluid Class I.

“Pennsylvania was instrumental in getting this electronic reporting language put into the 2007 Farm Bill. It basically authorizes electronic reporting of  negotiated trades, to report transactions more frequently and subject to quarterly audits,” Wolff explained to the congresswoman, who was keen to help. “DPAC is pushing to get this implemented, and we are working with anyone in Washington who will listen. Senator Arlen Specter’s office and Rep. Tim Holden’s office are taking the lead, but the first thing they need is to get a price tag from USDA on what it will cost to implement.”

DPAC is now working with the congressional delegation to put pressure on USDA “just to open the door. We don’t know if this will cost $2 million or $20 million,” said Wolff. “We are grateful for what Congress did in terms of the $350 million in emergency aid late last year, but that was just a small amount to most dairy producers, when we could spend a fraction of that to deal with these long term market issues.”

Hawbaker also stressed the point that electronic reporting—which could be expanded in the next Farm Bill to include more dairy products—is one key area of 100% agreement among all dairy farmers. “We’re united on this. The CME (as a market indicator based on spot block cheddar prices) is broken. There’s really no disagreement on that point.”

He also shared results of DPAC’s dairy producer survey, which garnered responses from dairymen in 23 states. “Eliminating, or at least diluting, the influence of the CME on our milk price is one key thing we have a lot of agreement on, whether you’re a dairy farmer from Pennsylvania, or from Vermont, or the Southeast or even the West and Midwest. Electronic reporting would begin to dilute the influence of that broken system.”

It would give traders in the milk futures and all sectors of the cash market another place to look for information on what is really happening on a daily basis in dairy product transactions, Wolff explained.

“The dairy industry really needs this,” he said.

“It’s the cornerstone of fixing the problems with the system,” added Hawbaker.

Another area of widespread agreement among dairy producers is to eliminate the dairy product price supports that result in government purchases of powder and butter.

“It’s the combination of this sort of ‘guaranteed buyer’ along with the ‘make allowances’ that are embedded in the milk pricing formulas that keep the industry from being innovative and producing products the market wants,” said Wolff.

“We don’t get the right signals. Expansion in the manufacturing sector is based on what can be sold to the government, and when the price falls and the government support price is triggered, they just move that inventory out of their warehouse into the government’s warehouse, but it still hangs over us as inventory,” Hawbaker added.

Wolff and Hawbaker shared with Rep. Dahlkemper the draft summary of DPAC’s March 11 milk pricing workshop and board meeting.

“One of the things that has been frustrating to us in Congress is that the dairy industry has not come together with one voice,” Dahlkemper related. “It looks like this is beginning to happen.”

Dahlkemper expressed her concern about preserving the consumers’ ability to buy local. “We have to be concerned about strong agriculture here, as well as food imports, food safety and nutrition,” she said. “What we do in agriculture policy affects our food supply going forward.”

With nutrition programs like the School Lunch Program and Women, Infants and Children (WIC) being the largest part of USDA’s budget, Rep. Dahlkemper’s background as a dietician and her interest in agriculture are important as she travels through her district hearing the issues, like dairy policy. She has also been involved in health and wellness issues.

She even helped get milk into the Longworth Cafeteria in Washington. “They had a cafeteria special for a sandwich, side and soda,” said Dahlkemper. “I emailed them and asked them why milk isn’t on that special as a beverage choice… now it is.”

Based upon what he is hearing in terms of efforts to reduce federal expenditures, Chairman Peterson plans to hold Farm Bill hearings this spring and summer and start to write the next Farm Bill early in 2011. 

At a DPAC meeting for farmers in Lebanon, PA on Feb. 18, House Ag Committee vice-chair Tim Holden (D-PA) said the first national Farm Bill hearing will be at the Farm Show Complex in Harrisburg sometime in April. DPAC is preparing testimony.

Even though USDA did not report MPC production throughout 2009, the department pegs last year’s total domestic production of MPC at 92.9 million pounds.

MPC imports for 2009 ended the year down 13% on the HTS 0404 category. Combined with casein and other dairy proteins, the totals were at five year lows in 2009. Some contributing factors include: U.S. production of MPC, strength of New Zealand currency relative to the U.S., a lower U.S. powder price compared with the world price, consumers trading down from expensive sports drinks, and New Zealand’s milk production being less than anticipated with reports of periodic idling of casein production last year.

According to USDA’s January dairy products report released Tuesday, March 2, cheese output remained heavy in the first month of the new year, but this was prompted by strong demand for mozzarella and a very large increase in production of fresh cream cheese. While the burst in production of these fresh cheeses---up 6.4% for mozzarella and up 25.6% for cream/neufchatel---has pushed total cheese production higher, the flip side is that other cheese production was down 2%, including cheddar cheese production down 2.7% from January a year ago.

USDA Dairy Market News reports that cheese plants in the East and Midwest are still easing back on production according to the current demand, but, according to the Milk Producers Council (California) Friday Market Update... "Plants in the West continue to keep producing, to maintain 'efficiencies.' It’s beginning to look like the answer to how low cheese prices will go may come from the company that has been selling most of the cheese on the CME."

The Milk Producers Council market update for March 5 also reports that, "In the past several weeks about 90% of all CME-traded cheese was sold by a single plant. The plant is large and efficient, is located in an unregulated area, and is part of a national firm that has two other plants located in federal order areas."

Butter is now selling a full 14 cents per pound above block cheddar on the CME ($1.44/lb) with production reportedly down 7.2% below year ago.

The U.S. milk powder market continues to move opposite to international pricing trends. According to USDA Dairy Market News, international milk powder prices are reported higher for the first time since late November, with Oceania skim milk powder (SMP) selling between $1.13 and $1.44. U.S. prices, on the other hand, continue to fall despite the fact that U.S. powder production and inventories are shrinking. January milk powder production in the U.S. was 13.9% below year ago and inventories were reported by USDA at levels that are one-third lower than a year ago.

According to USDA Dairy Market News, western nonfat dry milk is selling mostly at $1 to $1.07/lb. This is the lowest since last October when the temporary higher price support expired. USDA also reported this week that 23 million pounds of old powder were sold from CCC stockpiles at a price of 75 cents per pound for animal use.  

The board and its action groups have also been working on other long term policy positions. The milk pricing action group has planned a workshop for the DPAC board next week in conjunction with the board's regular business meeting. There will be two panel discussions and input from dairymen representing other regions of the country (Northeast, Southeast, Midwest and West).

Responses from the DPAC dairy producer survey will also be reported at the board meeting. (Deadline for taking the survey available here at the website is extended to March 8 for inclusion in this report to the DPAC board).

The purpose of the board's workshop on milk pricing is to come out of the meeting with items that have total agreement, items that have consensus but not total agreement, and areas of policy the board is unsure of and/or wants more information about.

The workshop portion of the DPAC board meeting next week will also serve to launch the coalition's supply management action group named last month.

If you haven't already taken the DPAC dairy producer survey, please do before you leave our website today!

To type in your responses to the survey online, click here

Or you can Download a printable PDF of this survey and mail it in.

By SHERRY BUNTING - Farmshine Feb. 26, 2010

LEBANON, Pa.—Even as key aspects of the 2007 Farm Bill have not yet been implemented, U.S. House Agriculture Committee members took talk of future dairy policy outside the beltway over break. Last Thursday (Feb. 18), vice-chair Tim Holden was no exception. He met with 40 dairy farmers from multiple counties in his home district at the Midway Church of the Brethren near here.

“For the long run, Congress seeks a national milk policy agenda, with no more regional warfare,” said the 18-year veteran member of the House Ag Committee.

The good news? Congress is listening and looking for things they can do under the present authority of the 2007 Farm Bill.

The bad news? There will be no significant change to federal dairy policy until the 2012 Farm Bill.

As far away as 2012 may sound, the official start of farm bill discussions—from a policy development standpoint—is already underway. Holden said national hearings across the country will kick off this spring, with the first on an undisclosed date in April at the Pennsylvania Farm Show complex, Harrisburg.

Before the current congressional break, House ag leadership met and “instructed members to get out and talk to their dairy people to find out what they think needs to be part of the solution,” said Holden. “The door is wide open. We want your input.”

Thursday’s meeting here was a sequel to a September 2009 meeting at Holden’s Lebanon office, where about a dozen dairy producers brought the congressman a “short list” of short term and long term recommendations they had put together with 60 of their peers a day earlier.

Zach Meck, Womelsdorf; Nelson Troutman, Richland; and Daniel Brandt, Annville—who are part of the 20-member charter board for the nationally-focused Dairy Policy Action Coalition (DPAC) formed last November—were instrumental in initiating those September meetings, and they organized last week’s meeting with Rep. Holden as well. Bernie Morrissey of Morrissey Insurance provided lunch and moderated the event.

Before lunch, the farmers heard about DPAC’s purpose and progress from members of the coalition board. They also heard from Dennis Wolff, former state secretary of agriculture who is now a government relations consultant with DPAC as one of his clients.

After lunch, Rep. Holden joined the discussion, along with his senior legislative assistant Jake Kuhns. “We have some ideas Jake will run by you, so we can take your suggestions back to Washington with us,” said the congressman.

In the short term, Holden confirmed that he is committed to seeing implementation of electronic price reporting, which was authorized by Congress in the dairy title of the 2007 Farm Bill, but has not yet been implemented by USDA.

“This was never funded, and it’s something we can do—now—without any additional authority,” said Holden, explaining how Congress works by authorizing committees and appropriating committees. Electronic reporting has already been authorized, but the funds have not yet been appropriated.

Wolff noted that Sen. Arlen Specter’s office is working with USDA to “get their arms around what it would cost to implement electronic price reporting.” Sen. Specter is a member of the Senate Committee on Appropriations.

Implementation of electronic reporting is an immediate action priority of DPAC because it would help to improve dairy price discovery and moderate the volatile and at times irrational influence of the thinly traded spot market for cheese, butter and powder on the Chicago Mercantile Exchange (CME). The electronic reporting provision of the 2007 Farm Bill also lays the groundwork for more frequent reporting as well as future inclusion of more dairy products in the prices that are reported.

During Thursday’s discussion, it was mentioned that when USDA was recently asked to provide a budget cost to implement electronic reporting, the request was met with a surprisingly ho-hum response. A department economist suggested electronic reporting is unnecessary because the CME is doing the job just fine.

“I can find 7600 dairymen in Pennsylvania, alone, who will disagree with that,” said Wolff. “One thing dairy producers (and others in the industry) agree on is the price discovery system is broken. Electronic reporting is a key first step to improving it.”

Market transparency was definitely top-of-mind for dairy farmers at the meeting Thursday. “Anything you can do to bring price discovery to light will help take the ‘shell game’ out of the equation,” Troutman said.

Several other dairy farmers voiced similar concerns, citing the ever-widening spread—over the past ten years of industry consolidation—between what consumers pay and what farmers receive.

As one dairyman put it: “Consumers are paying enough for our product, but it’s not getting back to us."

With that, Rep. Holden had his legislative assistant Jake Kuhns run ideas past the attending dairy farmers for their feedback: 1) Reduce the number of milk classes to two—manufacturing and fluid; 2) Increase price stability by moving away from the influence of the CME as the driver; 3) Provide ‘margin insurance’ similar to LGM Dairy or something similar to a crop insurance model.

Holden also wanted the farmers’ thoughts on supply management. According to Kuhns, the CWT (Cooperatives Working Together) program and the Holstein USA Dairy Price Stabilization Program (DPSP) are “two plans we are looking at. What do you think?” he asked the farmers.

“Supply management will not work if it is not tied to imports and exports,” said a Berks County dairyman.

“To have a supply management program, we would have to figure out a way to account for the imports,” Rep. Holden acknowledged. “But the ag committee has no jurisdiction on trade.”

DPAC chairman Cliff Hawbaker, a Franklin County dairy producer, noted that the coalition's supply management action group is beginning to “look at all the supply management plans out there to see what farmers can agree on in that area.”

But, stressed Hawbaker: “Price transparency is the first step we are focused on. We need to get to the way milk is priced throughout the system. We see milk pricing as something that should be simple enough that I can explain it to you as a congressman, and you can explain it to me as a farmer.”

Rep. Holden agreed: “The system has to be simplified, but it has to be done within the big picture of the farm bill. There are other commodity groups that are also in trouble, even if dairy is in the worst shape.”

“The dairy industry—as we have known it—will not survive to 2012,” Hawbaker added.

“This gets us back to the electronic reporting and why it is so important,” Wolff stated. “It’s all about knowing supply and demand. Corn and soybean producers know their market. They can go to the computer and see what their price is doing over a three-hour period. For dairy, the NASS weekly product price survey tomorrow (Friday) is actually information they received yesterday (Wednesday) for the previous week’s sales. That information is two weeks old (or older) on the day it is released. It doesn’t ‘read’ the market. Implementing the electronic reporting we have in the 2007 Farm Bill is the first step.”

A farm consultant attending the meeting brought up the idea of pricing milk based on retail trends with each sector receiving a percentage of the retail price. “I talk to a lot of dairy farmers, and most of them tell me they hate the idea of taking MILC (Milk Income Loss Contract) payments, and they don’t like the federal dairy support program. They don’t like getting their income from the government,” he said.

Several dairy farmers said that while they appreciated the emergency payments Congress authorized in October and paid in December, the funds were a proverbial drop in the bucket, maybe enough to pay one bill.

“Government payments are not a solution, especially when the consumer is already paying enough in the store for our product,” one farmer explained.

Better price discovery, two classes of milk instead of four, and a consensus that dairy product price supports do more harm than good, were three key aspects of long term policy that had wide appeal among the dairy farmers and a good reception from Congressman Holden. But everyone agreed, true reform means digging deeper.

“We also need to push on with the immediate needs, the things in the 2007 Farm Bill that are good things we can do right now," Wolff added. "These are specific issues to improve the complex price discovery system."

“I like what I heard today and what DPAC is doing,” said a Lebanon area dairy farmer as the meeting drew to a close. “We have to address the corruption, and then let the free enterprise system work.”

The Class I base price has declined for two consecutive months. The March Class I base price is calculated on the following NASS Survey product price averages for the first two weeks of February: Cheese $1.51/lb; Butter $1.37/lb; Nonfat dry milk $1.14/lb; Dry Whey $0.39/lb 

CME spot trades last week saw cheese prices fall to $1.41/lb on blocks and $1.37/lb on barrels. Butter lost 2 cents, falling to $1.36/lb, and nonfat dry milk was unchanged at $1.12. With the NASS Survey lag time, these prices will hit future Federal Order announcements. On Friday's close, Class III milk futures traded at $13.37 for March, $13.04 for April and $13.17 for May. Far away contracts for Jan. 2011 have been closing daily on either side of the $15 mark.

But... here's the kicker. 2009 total production was 0.3% below 2008. Ohio State University dairy economist Cameron Thraen notes that the last time the annualized U.S. milk output grew this slowly was the first quarter of 2004. Remember what happened then? The Class III price soared to $20.58.

Of course, he also notes that continued strong culling to get the national herd below 9 million cows is needed to get prices back to profitable levels.

Compared with January 2009: Milk production during January 2010 in California and southwestern states fell 2.4 to 10.4%. In northwestern states production was 1.1 to 5.0% higher. In the midwestern states, production also increased, with Wisconsin leading the way having 5,000 more cows, more output per cow, and total production up 4.7%. (Minnesota gained 2,000 cows and 3.6% production; Michigan lost 1,000 cows but gained in output per cow to net a 2.4% production increase over year ago). In the northeast and mideast -- Pennsylvania's January 2010 production fell 1.7% from year ago based on 9,000 fewer cows and output per cow being equal to a year ago. New York's production was 1.3% below year earlier with 14,000 fewer cows making more milk per cow. Vermont's production was down 1.4%. The green mountain state lost 3,000 cows, but gained in milk output per cow. Ohio lost 5,000 cows, but increased production per cow to net total production up 1.2% over a year ago. 

The annual milk production summary shows the average number of milk cows on farms in 2009 was 9.2 million head, which is 1.2% below the average number for 2008. However, milk production for the year was only 0.3% below 2008. The USDA milk production summary also revealed that milk output per cow has increased 13% during the decade from 2000 to 2009.

The proposed formula change, if approved, would simply require those plants to pay the full over order premium (collected from consumers) either on the pounds of milk purchased from in-state farms or the pounds of milk sold to in-state retailers -- whichever quantity is smaller.

This formula change was proposed by the PMMB staff and is supported by the PA Dept. of Agriculture and the Governor's office. It is aimed at closing the current loophole whereby in-state bottlers can use out-of-state milk to dilute their over order premium obligation to their in-state shippers and thereby pocket the difference.

The PMMB staff testified that this change would recover an estimated $392,000 per month (nearly $5 million per year) in over order premiums for Pennsylvania dairy farms. This is a fraction of the 'stranded' premiums that are paid by consumers at a current rate of 25 cents per gallon, and are intended specifically for farmers, but are disappearing in the system.

The Pennsylvania 'for-farmers' over order premium is in addition to the processor costs and 3.4% margin and it is in addition to the retailer costs and 2.5% margin, which are separately built into the minimum consumer price buildup for milk sold at retail in the state. And yet, the PA milk dealers who testified Tuesday contend that the formula change would take "money out of their pockets" and make them less competitive.

Representatives for York, PA-based Rutters Farm Stores and Dean Food Co.-Sharpsville, PA both testified they would source more out of state milk if the formula change is approved. Rutters also testified they would look into the viability of an out-of-state milk distribution center to divert PA milk before resale. "This could possibly negate my entire PA over order premium completely,' Todd Rutter testified. He added that the state should look at other ways to “figure out how to get more money to Pennsylvania’s farmers.” He suggested having the state make payments directly to farmers or to “create some special tax plan for them.”

The dealers also tried to show they are currently overpaying premiums to PA producers, but their figures were based on all dealers -- not just the dealers that would be affected by the formula change. Their numbers also included all classes of premiums, not just the premiums pertaining to Class I fluid milk.

PMMB chief enforcement officer David DeSantis used audited figures in his testimony and he used only the figures for dealers who would be affected by the proposed change. “It’s not proper to look at gross overpayment and say it is related to the payment of the over order Class I premium in Pennsylvania,” said DeSantis as he was cross-examined by the attorney for the dealers during surrebuttal testimony.

Furthermore, DeSantis confirmed that quality premiums “are absolutely included on Class I (in the over price premium). We want (the dealers) to buy quality milk and we want to reimburse them for that in the wholesale price.”

Last on the witness list, the milk cooperatives tried to testify to the need for a separate hearing to consider this formula change along with "partial pooling" of the state's over order premium. PMMB Chair Richard Kriebel said this hearing would not entertain any idea for pooling and he said the co-ops were trying to bring it in the back door. In effect, the chairman shut down any line of questioning that did not directly relate to the specific formula proposal at hand.

The PMMB will accept post-hearing briefs and replies through the month of March with a decision expected in April.

The Farm Service Agency (FSA) is urging all dairy farmers to make sure they have signed and mailed their information consent forms (CCC-927’s and CCC-928’s) to the Internal Revenue Service (IRS). These forms give the IRS permission to let FSA know if a farm's income exceeds the limit prescribed by the 2008 Farm Bill for all FSA payments, including MILC and last December's DELAP payments. 

The limits set in the 2008 Farm Bill are $500,000 nonfarm average Adjusted Gross Income (AGI) for commodity and disaster programs; $750,000 farm average AGI for direct payments (like MILC and DELAP); and $1 million nonfarm average AGI for conservation programs.

The information between IRS and FSA would be exchanged electronically and would simply verify a farm's compliance with the AGI provisions. Producers who signed a CCC-926 certifying AGI compliance will need to now complete CCC-927 and/or CCC-928 and submit it to the IRS by June 15, 2010.  

Participants who choose not to submit a completed CCC-927, or CCC-928, as applicable, will be determined noncompliant with AGI limitations for 2009 and 2010 and will have to refund all 2009 payments, including MILC and DELAP. Copies of the CCC-927, CCC-928 forms are available at local FSA offices.

"Our dairy farmers are already suffering from unregulated imported milk protein concentrates (MPCs) entering our country," the letter states. "We are concerned about reopening negotiations with Australia, Chile, Peru and Singapore, where tariffs and tariff rate quotas are already in place. We are especially concerned about a free trade agreement that would expand U.S. dairy trade with New Zealand..."

Read letter

Read the testimony.