DairyBusiness Update for Jan. 2, 2013
The December 2012 California Class 4a milk prices is $17.47/cwt., down 80¢ from November 2012, but 88¢ more than December 2011. It brings the 2012 average 4a price to $15.63/cwt., $3.19 less than 2011.
The December 2012 California Class 4b price is $16.30/cwt., down $2.18 from November, but $1.16 more than December 2011. The 2012 average 4b price is $15.54/cwt., down 83¢ from 2011.
Federal order December Class II, III & IV prices are announced Jan. 3.
With the one-year extension of the Farm Bill, the Milk Income Loss Contract (MILC) program was resurrected from a three-month hiatus. But, as of Jan. 2, while resumption of MILC is assured, several questions remain regarding its implementation and administration.
A last-minute amendment by Sen. Pat Leahy (D-Vt.) reportedly extended the MILC program at pre-September 2012 level – 45% of the difference between the federal order Class I base price trigger for Boston, Mass. ($16.94/cwt.) and the actual Class I price, with adjustments made based on national average feed costs. Leahy’s amendment keeps the feed cost adjuster at the lower $7.35/cwt. level; and annual payments are capped at 2.985 million lbs. of milk production, as they were pre-September 2012.
Based on this formula, UW-Madison’s Brian Gould forecasts a small retroactive payment (see below) for October 2012, with higher payments starting in February 2013. With the potential for a small retroactive payment for last October (the first month of fiscal year 2013), it's unclear how the MILC payment “start month” for some larger producers, subject to the milk production cap, will be affected.
In the past, a producer’s previous "start month” was on file with FSA, and remained the same in the subsequent year, unless the producer did the proper paperwork to change months. There were no MILC payments made in October 2011, so it's likely few if any larger producers had October as a ”start month.” Presumably, those producers would have selected start months of July, August or June 2012, when payments were the highest.
However, once a payment to an individual producer had been initiated, “start months” could not be changed. If an October 2012 retroactive payment is made, would that impact the “start month” for some producers? Or, would those larger producers be eligible to declare a February 2013 MILC start month by Jan. 14, 2013?
DairyBusiness left messages with several state FSA offices and others regarding this question. Several said they were contacting national officials to get information and guidance. Check back at this website later for updates. Also, contact your local USDA/Farm Service Agency office for further information.
University of Wisconsin-Madison dairy economist Brian Gould generated MILC payment forecasts program payments for the current fiscal year, based on milk and feed futures prices at the end of December, under the assumption that the extension will be made retroactive to Oct. 1, 2012. Those estimates calculate a small retroactive payment (2.37¢/cwt.) for October 2012, with payments resuming in February 2013 at about 39.5¢/cwt. Based on current conditions, March-July payments would range between 14¢ and 3¢. A spreadsheet showing Gould’s estimated values, with regular updates, can also be found on the UW Understanding Dairy Markets website: http://future.aae.wisc.edu/collection/software/current_MILC_est.xls
Now that the House of Representatives has passed the Senate’s fiscal cliff package extending existing farm programs into 2013, the National Milk Producers Federation (NMPF) said it will continue its push in the 113th Congress for a five-year farm bill that includes the Dairy Security Act.
NMPF said that “we need to spend the coming months figuring out how to move farm policy forward. The status quo is not an acceptable outcome, either for farmers or taxpayers. The renewal of current programs doesn’t offer dairy farmers a meaningful safety net,” said Jerry Kozak, President and CEO of NMPF. The fiscal cliff package, among other things, extended the MILC program through Sept. 30, 2013, and the price support program through Dec. 31 of this year.
As the Senate and House Agriculture committees begin work next month on a full, five-year farm bill, Kozak said dairy farmers would reiterate the value of the Dairy Security Act, which eliminates the Dairy Product Price Support and Milk Income Loss Contract payment programs, and establishes a margin insurance program along with supply management provisions.
Kozak did express satisfaction that the overall fiscal cliff deal addressed estate tax levels in 2013. The package includes a 40% rate on estates valued at more than $5 million, up from the previous 35% rate, but far less than the 55% top rate on $1 million estates that could have become permanent absent the new package.
Connie Tipton, president and CEO of the International Dairy Foods Association, issued the following statement on the farm bill extension and fiscal cliff agreement.
"The International Dairy Foods Association congratulates Congress and President Obama for reaching an agreement on how to address the important ‘fiscal cliff’ legislation. We appreciate that the bill includes provisions that will avoid the resurrection of dairy policies from more than 50 years ago. This agreement allows Congress time to fully and openly consider future reforms to our nation's dairy policies.
"Dairy manufacturers are an important segment of our nation's economy, and we are committed to working with Congress this year as formulation of the 2013 Farm Bill begins. The interdependence of this industry from farmer to consumer is critical, and our nation's dairy policies deserve to be updated and supported. We commend the bipartisan effort of Representatives Bob Goodlatte (R-VA) and David Scott (D-GA) in proposing a margin insurance program – a safety net – for dairy farmers that does not impose new government rules and conditions on milk production. This approach has broad support from consumer and taxpayer groups, from farm organizations and from across the food manufacturing and retail industry."
MARKETS: Barrels up 2¢; Class III futures mixed
Today's market closing prices:
Butter: down 0.25¢, to $1.4950/lb.
Cheddar blocks: unchanged, at $1.76/lb.
Cheddar barrels: up 2.0¢, to $1.73/lb.
Grade A nonfat dry milk: unchanged, at $1.5575/lb.
Extra Grade nonfat dry milk: unchanged, at $1.56/lb.
Class III milk: -8¢ to +13¢ through December 2013. Based on current CME closing prices, the 2012 average is $17.44/cwt.; the 2013 average is $18.35/cwt.; and the 2014 average is $16.32/cwt.
Corn, soybean & meal futures lower
Corn: -6¢ to -7¢ through September 2014. The 2013 average is $6.56/bu.
Soybeans: -6¢ to -17¢ through September 2014. The 2013 average is $13.63/bu.
Soybean meal: -$7.10 to -$13.70/ton through September 2014. The 2013 average is $386.36/ton.