Dairy newsletter highlights: Sept. 14, 2012

Newsletter highlights: Milk Producers Council

Market comment

In its discussion of milk supply this week, Dairy Market News, while generally commenting on difficulties faced by milk producers, apparently is not finding the U.S. milk supply to be falling, or at least not falling as fast as some stories suggest, or in all areas, or on average. Perhaps enough producers who are major net buyers of feed took positions on crop prices last spring to afford to pay current prices with their milk checks. They would be in the large producer category and their steady or higher milk production could offset the continuing very heavy dairy cow cull rate that began in May and which is continuing through the latest week reported, ending Aug. 25.

Moving from the east to the west, the situation for current milk supplies appears to change from very tight to almost normal for this time of year. That is, according to Dairy Market News this week. 

If DMN’s observation of what perhaps could reflect an unexpected early resurgence of U.S. milk production is correct, watch for futures prices to weaken and physical prices to fall, speculators to schedule lavish vacations, and market participants to be scratching their heads. On the other hand, if the change in number of milk cows in next week’s report on August milk production is large enough to convince doubters that a true correction is occurring the relatively weak price forecast in this week’s WASDE report can rightly be filed and forgotten.


California dairy farmers rally

(Sept. 13), a group of 300-400 individuals from dairy farms throughout California gathered in Sacramento to rally in support of a fair milk price. The rally was the result of a grassroots effort launched by a few individual dairymen in the Central Valley. 

The speakers at the rally urged the Secretary of the California Department of Food and Agriculture, Karen Ross, to use her authority to establish a fair price for milk sold by California dairy families. As the speakers pointed out, Secretary Ross has a legal responsibility to establish minimum prices for milk produced and sold in California that are in a “reasonable and sound economic relationship” with what comparable milk is being sold for around the United States. It’s no secret to the readers of this newsletter how our California prices compare to prices being paid for milk around the country. Our California Class 4b price – which applies to milk sold to California’s cheese manufacturers, or about 40% of our milk production – has been significantly below the benchmark price for milk sold to cheese manufacturers around the country – the Federal Order Class III price. That gap has resulted in our cheese manufacturers getting a regulated, State-sponsored discount compared to their out-of-state colleagues to the tune of $590 million on the milk they’ve bought since January 2010. That’s a “reasonable and sound economic relationship?”

California’s dairy farmers owe a debt of gratitude to the dairy families who came out to Sacramento to stand up for your rights and for your industry. As one of the signs at the rally stated, “Don’t let our patience be confused with ignorance.” The current situation has gone on too long, and it’s time for the folks at CDFA to do their job, as the law requires! The law demands that our milk receive a price that is in a reasonable and sound economic relationship with what our out-of-state colleagues are getting paid for their milk, and we cannot give up on our efforts until that is accomplished.


Newsletter highlights: Western United Dairymen

Can California dairy producers use an extra buck? 

CDFA Secretary Karen Ross this week wrote to members of the California Congressional delegation urging they take action to ensure that “appropriate disaster assistance is available for our farmers” in light of the record breaking drought that is impacting Midwest corn and grain producers and leading to increased feed costs for California farmers. 

Ross said the USDA’s designation of nearly two-thirds of the U.S. as drought disaster counties as well as the disaster aid bill passed by the House do not address the “disastrous impacts the drought is having upon California farmers.” She urged passage of the Farm Bill but she acknowledged the political roadblocks it faces in the House and suggested two options: 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, said Ross. 

The other avenue, said Ross, 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. 


Feed cost amendment

Over the last three years, Western United Dairymen has been working hard to analyze national dairy policy and advocate for programs that would be of meaningful assistance to California dairy families. “Our focus is to protect California’s interests, not the Midwest’s”, said CEO Michael Marsh. Time and time again, WUD has reiterated the importance of getting the policy right by including feed costs that are relevant to dairymen. And at no other time than now, where feed prices have skyrocketed beyond expectations, is the importance of the feed cost so apparent. For the margin insurance to be effective, it has to pay out when dairymen need it. And with feed prices being the culprit behind today’s difficult financial situation, you need that reality reflected in margin insurance payments. 

If feed prices in the formula reflect the cheaper feed costs in the Corn Belt, that’s great for a Wisconsin producer, but not if you are in California. We need a program that is fair to California dairymen; one that speaks closer to their reality. 

WUD’s analysis of the “Top ten dairy state feed cost calculation amendment” (feed cost amendment) shows that it would be the best option for California dairy families. Looking at projected margins from September 2012 to February 2013, the feed cost amendment could generate $76,826 for a 1,000 cow dairy while the current language in the House of Representatives’ Farm Bill (FARRM) could generate $682. The higher forecasted payments in the feed cost amendment stem from the different data used to calculate the feed costs. Using the feed cost amendment generates a feed cost that is on aver-age about $1 per hundredweight higher, which triggers payments sooner, when dairymen need it. If MILC was to be reauthorized with last year’s parameters, it could generate $21,387 for the same dairy. Using the feed cost amendment would clearly be a benefit to California dairy families and that is why Western United Dairymen, California Dairies, Inc. and Secretary Ross support the concept actively.

The cost to participate in the margin insurance outlined in the feed cost amendment is slightly higher (dairymen would have to pay a premium to participate in the basic margin insurance while under FARRM it is free), but the benefits are clearly superior. The tables below outline the differences between the three programs for a period of six months. The calculations were made assuming a 1,000 cow dairy produced the same milk per cow as the corresponding months the previous year. Supplemental insurance was purchased to cover 90% of the milk, which is the maximum allowed under both margin insurance programs. For MILC, no payments were made after October because the maximum pounds al-lowed (2.985 million pounds) would cover September and part of October’s volume only in this example. 


Federal Order educational meeting set for Sept. 20 

Educating dairy producers about federal orders and the differences with the California system is the focus of a September 20 meeting sponsored by Western United Dairymen. The WUD board of directors voted at their July 20 meeting to sponsor an indus-try meeting with a Federal Milk Marketing Administrator to educate producers on federal orders. The 10 a.m. meeting at the Tulare Ag Center will feature Bill Wise, Market Administrator of the Arizona and Pacific Northwest orders, who will provide an overview of federal orders and highlight the differences with the California system. A significant portion of the meeting will be allocated for questions. The decision to set such a meeting stems from the producer community’s discontent with CDFA’s latest minimal changes to the pricing formulas. “After the last hearing decision, a lot of producers have shown interest in learning more about federal orders and we wanted to give them an opportunity to gain knowledge about its potential impact on California while looking at the pros and cons”, said WUD’s President Tom Barcellos. 


Off-road Mobile Ag Equipment Regulation Workshop 

The California Air Resources Board (ARB) is holding its first public workshop to discuss the development of the In-Use Self-Propelled Off-road Mobile Agricultural Equipment Regulation (mobile ag regulation). The workshop will be held in Sacramento on Tuesday, Sept. 18, from 3-5 p.m. at the California Air Resources Board, Sierra Hearing Room, 1001 I Street. More information is available from Lynsay Carmichael by e-mail lcarmich@arb.ca.gov or phone at (916) 322-0407.