Newsletter highlights: Sept. 21, 2012
Federal orders session termed successful
The informational meeting on federal milk marketing orders hosted by Western United Dairymen turned out to be very informational and well attended. Approximately 200 attendees gathered Sept. 20 in Tulare to hear from Bill Wise, Market Administrator of the Arizona and Pacific Northwest orders. In his presentation, Wise highlighted the major components of Federal Orders. He outlined what orders can and can’t do, the hearing process, the rules of pooling and de-pooling.
He specified that Federal Orders are focused on serving the Class I markets – not on pooling all the milk. This is an important difference with the California system. As it turns out, the California system and Federal Orders are quite different; the differences don’t stop at the value of whey in cheese.
With all the intricacies of Federal Orders, the result of the meeting was close to a technical information overload. “But the details presented were very important,” said Tom Barcellos, WUD’s President. “Our objective was to present the information in a factual and neutral manner so dairymen can have facts on what Federal Orders are. While many would have liked more precise answers from Wise on what a Federal Order would exactly mean in California, the fact that some questions cannot be answered at this point is a very important fact to consider in itself. For example, while it may be possible to go to the Congress to allow quota to remain in place, current language does not permit quota in Federal Orders. Wise also refrained from speculating on how many cheese plants would choose to de-pool if California were to vote in a Federal Order.
The meeting and following questions were filmed and will be made available on WUD’s website around Wednesday next week. After digesting all the information, those who have follow-up questions can email Annie at email@example.com. Answers will also be posted to our website.
Feinstein, Boxer back framework for margin insurance program
California Senators Dianne Feinstein and Barbara Boxer have strongly endorsed CDFA Secretary Karen Ross’ call for inclusion of a margin insurance program in either the Farm Bill or any disaster aid measures. In a letter to Sen. Debbie Stabenow (D-Mich.), chair of the Senate Ag Committee and Sen. Pat Roberts (R-Kan.), ranking member of the Senate Ag Committee, the two Senators asked for quick action on a full five-year Farm Bill.
Acknowledging the political roadblocks the Farm Bill faces in the House, the Senators backed two options offered by Secretary Ross last week: One is a program that appropriates 30% of annual custom receipts at the USDA Secretary’s discretion to assist farmers. In the past these funds have been used to pay for ag disaster relief.
The other avenue would be passage of a modified version of the Retroactive Margin Insurance program in the Federal Agriculture Reform and Risk Management Act (FARRM). Ross said the program should be adjusted by “adding a provision giving dairy producers the option of calculating average feed costs based on prices in the top ten milk producing states rather than on a national average. This modification is necessary to address the effects that this could have on the supply of milk. The loss of significant production capacity would have a devastating effect throughout the U.S.” Ross also recommended that the proposal be backdated to the expiration of the Milk Income Loss Program to prevent any gap in assistance.
What’s up and what’s not — your weekly market update
By Annie AcMoody, MS, Director of Economic Analysis
There sure were fireworks this week as block cheese seemed to be reaching for the sky. The price went up every day until it reached the long-awaited price threshold of $2/lb. on Thursday. That pleasant level had not been reached since November 2011. Global prices remain below the U.S. price as the latest globalDairyTrade (gDT) auction resulted in an average cheddar price of $1.63/lb, unchanged from the previous auction.
The California Department of Food and Agriculture released their latest cost of production data. The data is representative of the second quarter time period and therefore does not include the skyrocketing feed prices experienced this summer. Still, at $10.91/cwt,, feed costs were up 10 cents from the previous quarter and up $1.20/cwt. from the same period last year.
USDA released its monthly Milk Production report this week. Numbers out of California were striking: August milk production was down 5.8% from last year. Warmer weather and feed adjustments were a big culprit behind the decrease as it slashed milk production per cow compared to last year by 125 pounds. The state’s herd also lost 2,000 happy cows. Nationally, milk production was also down compared to last August (-0.3%) – the first year-over-year decline since January 2010. The U.S milk herd contracted for the fourth straight month as 6,000 heads exited the dairy business in August compared to July.
Dairy leaders have front row seat as Farm Bill process unravels
Members of the California Dairy Leaders Class XI had a front row seat this week as the process to approve a new Farm Bill unraveled in Washington, D.C. The Dairy Leaders were in DC for their regularly scheduled legislative training session and they saw up close and personal the reality of the Congressional gridlock which has stymied approval of a new Farm Bill.
“It was a real eye opener for our dairy leaders,” commented CEO Michael Marsh. “We had a lot of good visits with Congressional offices and our dairy leaders had the opportunity to present them with solid information on many of our key issues. Obviously, the farm bill was a major topic and it was pretty evident from what we heard that no one expected any action on the bill before it expires September 30.”
Dairy Leaders discussed other key legislative topics such as immigration reform, tax reform, trade and waiver of the ethanol blending mandate. Additionally, the class met with officials from the USDA and had a legislative briefing session with the National Milk Producers Federation and met with the U.S. Dairy Export Council.
California Dairy Leaders Class XI members are: Ellen Durrer, Durrer Dairy, L.P., Modesto; Lauren Reid, Fred Rau Dairy, Inc., Fresno; Jared Mello, Wagner Dairy L.P., Escalon; Trevor Nutcher, Hidden Valley Dairy, Modesto; Robby Thommen, Thommen Dairy, Los Banos; David Dewit, Dewit Dairy, Acampo; Jennifer Beretta, Beretta Dairy, Santa Rosa; Rebecca Spaletta, Spaletta Dairy, Point Reyes; Jenny Mesenhimer, WUES Environmental Technician, Modesto.
California Dairy Update Seminar October 4 in Lodi
The California Chapter of the American Society of Farm Managers and Rural Appraisers (ASFMRA) will present a California Dairy Update Seminar on Thursday, Oct. 4 at Wine & Roses in Lodi. The interactive seminar will include a site tour of Van Exel Dairy in the morning, followed by lunch and presentations by industry experts during the afternoon. The seminar is designed to provide attendees with a comprehensive update on California’s dairy industry.
Topics range from Regulations and Environmental Issues Facing California Dairies to the Impact of the Drought on the Dairy Industry. Forecasted trends, current lending challenges and appraisal issues for this specialized market will all be addressed during the afternoon session. Industry speakers include: Randy Edwards, ARA, President/CEO of Edwards, Lien & Toso, Inc.; Bridget Whitney, TSP, CCA, Principal with The Source Group; Joel Karlin, Commodity Manager/Marketing Analyst with Western Milling; and Tyler Rath, Assistant Vice President/Relationship Manager with Rabobank.
The seminar, which will run from 7:30 a.m. to 4 p.m., is open to the public with pre-registration required. For more information or to register for the October classes, visit www.calasfmra.com or call (209) 368-3672.
An open letter to the dairy economists at CDFA
By Geoffrey Vanden Heuvel, Vice-Chairman, Milk Producers Council
The following open letter was sent to CDFA’s dairy economists on Sept. 21, 2012:
Dear Candace, Hyrum and Amber,
Secretary Karen Ross has indicated in recent communications to the California dairy industry that department economists (I presume that would be you) are monitoring the conditions in the marketplace, apparently with the implication that if you see something that requires a course correction you will point that out to her. Since she is relying on you for this information I would like to share a few observations with you.
First I wonder from what point you are doing the monitoring. Some distance upstream from the Niagara Falls there is a sign on the river bank that marks the “point of no return.” What this sign indicates is that if someone falls into the river past this point, there is no way to rescue them because the current in the river is too strong.
Once you pass that point you are going over the Falls. I wonder if you are not monitoring the current dairy crisis from below the falls. Looking up at producers breaking over the falls, thinking that when enough of them go broke then you can change course and address the problem. But if that is your vantage point, everyone that has passed the point of no return is going over also.
California dairy producer bankruptcies are occurring every week, but let me assure you that those producers that file for bankruptcy are a small percentage of the producers that are in dire financial straits. And when producers cannot pay their bills and essentially go broke, who gets hurt? Not just the dairyman and his family but also the feed suppliers, the hoof trimmers, the veterinarians, the breeders, the soap suppliers and hundreds of other people in the allied industries. In essence the entire infrastructure of the California dairy industry begins to crumble right along with the bankrupt dairymen. This is why we have a regulated industry to begin with, to prevent this type of damage from occurring.
So the department, at your direction, has been maintaining a policy of looking at the milk supply and plant capacity and deciding, in essence, that the California dairy farmers economic well-being is not as important as protecting a handful of relatively small cheese plants processing a relatively small volume of California’s milk who don’t do much with their whey stream. The fact that everywhere else in the country similarly situated cheese plants do pay the higher regulated federal price seems to be ignored by you. You also ignore the fact that these small cheese plants are not making commodity cheeses. In the process, large cheese plants in California with operations in other parts of the country where they all pay federal order class III prices plus premiums, are allowed to buy milk in California at steeply discounted prices. How do you expect California dairy farmers to compete with dairy farmers in the rest of the country when our prices are so severely discounted?
Secretary Ross has now sent copies of the 2007 Mc Kinsey report to all of California’s dairy families. This report goes into some detail (see page 21-22 of part 2) in observing that discounting California’s cheese milk to obtain market share is not a strategy that will work in the future. This was written in 2007 and yet you continue to pursue this cheap milk policy despite having the full discretion and I would say responsibility to change course.
There is nothing fundamentally wrong with the California system. What is wrong is the way the California system is being administered. Secretary Ross has the tools she needs to bring California’s regulated price into a reasonable relationship with the milk prices received by dairy farmers everywhere else in this country. She simply refuses to do it, apparently because you as her economists don’t recommend it. The tragedy is that the California producer sector and with it the allied industries are being permanently damaged, not by market forces, (if we were paid a comparable price with what producers are paid in the rest of the country and still were failing that would be different), but by your policies. I beg you to find the courage to change course.
Geoffrey Vanden Heuvel has been a dairy farmer in Chino, California since 1979. He currently serves as Vice-Chairman of Milk Producers Council
August milk production drops below year earlier
by J. Kaczor
Based on this week’s NASS report on August milk production it appears that most of the heavy increase in dairy cow culls from April through August this year were replaced. From April 28 through Sept. 1, more than 1,007,000 dairy cows were sent to slaughter but the number of milk cows over that period fell only by 51,000. Based on anecdotal reports a sizable percentage of the culls may have been related to producers who made significant cutbacks or who terminated production. If that is so, it means other producers either maintained or increased the size of their herds, despite what appeared to be a looming “nobody wins” financial outlook for U.S. dairy producers for the rest of the year.
Newsletter highlights: Dairylea Cooperative
Farm Bill stalled
No action was taken on the Farm Bill this week, which means it will sit until after the elections when Congress returns on Nov. 13. Therefore, the 2008 Farm Bill will expire on Sept. 30. At this point, is unclear whether legislators will take up some sort of extension of the old bill or work towards a new Farm Bill. Many of the farm programs in the 2008 Farm Bill have authorization through the end of the year. However, The Milk Income Loss Contract (MILC) program does not and will expire Sept. 30. As part of the 2008 Farm Bill, the MILC program payment level was lowered as of Sept. 1, and payments were not projected to be made through the end of the year. However, we still encourage farmers to sign-up for the MILC program, through their local FSA office, by Sept. 30, as we are uncertain what will happen to the program going forward. Additionally, farms should call Dairylea and DFA at 1-888-589-6455 and speak to Mona Burns at ext. 5685 or Melissa Huntley at ext. 5663 to ensure their September milk production records will be sent to the proper FSA office by Nov. 1, or if they are new to the program.
China’s slowing economic growth may lead to less U.S. dairy exports
China has typically seen an 8% to 10% economic growth rate and been a major importer of agricultural commodities, such as dairy. However, the 2012 China gross domestic product (GDP) has been forecasted at 7.5% and the 2013 GDP growth forecast has been decreased from 8.4% to 7.6%. Due to recent scandals in the country, Chinese consumers trust foreign dairy products more than domestic, which has resulted in a 14% increase in Chinese skim and whole milk powder imports in 2012. Despite this and the fact that dairy products are the most purchased food import in China, the slowing economic growth may force many middle class consumers to revert to lower-cost diets with less milk and meat. This may lead to a decline in U.S. dairy exports going to China in the future.