Tuesday, June 30, 2009

Markets or Marketing?

In the midst of record low milk price in real dollar terms, there is a nearly daily reminder of how much U.S. dairy exports have fallen. The pundits, to a person, all point to the world financial crisis, saying the markets have dried up.

The U.S. exports in the 12 months ending in April 2009 were actually off 15 per cent in dollar terms.

Meanwhile, New Zealand in the same time period (YTD April 2009) increased their exports of milk powder, butter and cheese 4.8 per cent. The dollar value of casein and caseinate exports increased 15.6 per cent from NZ.

While NZ dairy farmers are in something of a bind right now, it is nothing like the situation the U.S. dairy farmer is in.

Monday, June 29, 2009


(click on graph to enlarge)

Today USDA released their Agricultural Prices report. The “all milk” price for June 2009 is $11.40 per hundredweight, down $7.90 from June 2008.

To put that is perspective; the “all milk” price was 25% of parity. Parity, of course, is the great boogie man from the 1980s. Parity, as everyone has been told over and over, ad nauseam, brought about a huge surplus of milk. And of course, the government had to buy the entire surplus and it was just bad beyond belief.

One problem with the conventional thinking on parity is when parity ended milk production continued to rise. Oddly, government purchases pretty much ended when parity ended. Dairy farmers simply received less for their milk.

Now, we are told, people stopped consuming dairy products and there we have the explanation for low prices. Somehow, other foods continue to be consumed. The average per cent of parity for all the commodities USDA lists is 40.63%. Potatoes are 50% of parity. Soybeans are 56% and grapefruit is 59%.

There is a problem with this picture.

Sunday, June 28, 2009

Humor and Not So Funny

Mark Twain said something about humor was the only thing going for mankind. Here is something along that vein:



For those who prefer the serious:


“A commodity index, like an index for the stock market, such as the Dow Jones
Industrial Average or the S&P 500, is calculated according to the prices of selected
commodity futures contracts which make up the index. Commodity index traders sell
financial instruments whose values rise and fall in tune with the value of the commodity
index upon which they are based. Index traders sell these index instruments to hedge
funds, pension funds, other large institutions, and wealthy individuals who want to invest or speculate in the commodity market without actually buying any commodities. To
offset their financial exposure to changes in commodity prices that make up the index and the value of the index-related instruments they sell, index traders typically buy the futures contracts on which the index-related instruments are based. It is through the purchase of these futures contracts that commodity index traders directly affect the futures markets.”

Subcommittee Chair Carl Levins said” that excessive speculation in commodity indexes has created great losers.”

Dairy farmers tend to be buyers of grain. No one can say if dairy farmers have benefited from grain subsidies by way of lower price dairy ration or have lost by way of former Senator Phil Gramm and the Commodities Futures Modernization Act of 2000 which allowed the speculators in the exchanges to run rampant.

Phil Gramm serves as Vice Chairman and a member of UBS Investment Bank of UBS AG, a European bank which has received a bundle of U.S. bailout money. Gramm’s wife, Wendy Lee Gramm served on the board of Enron and until recently, on the Board of the Chicago Mercantile Exchange.

Saturday, June 27, 2009

Contradictions Abound

At the end of May 2009 butter stocks were down 7% when compared with the same time in 2008. Butter stocks in May 2008 were down slightly from May 2007.

So, that the U.S. would be subsidizing butter exports might seem surprising:


WASHINGTON, June 8, 2009 – The U.S. Department of Agriculture today announced Commodity Credit Corporation (CCC) bonuses per metric ton on eligible sales of butterfat under the Dairy Export Incentive Program (DEIP) Invitation GSM-511A-59, issued May 22, 2009.

The announced bonuses are as follows:

Butter $450.00 per metric ton

Anhydrous Milkfat, Butteroil, Ghee $650.00 per metric ton

Then the ante is raised:


WASHINGTON, June 22, 2009 – The U.S. Department of Agriculture today announced Commodity Credit Corporation (CCC) bonuses per metric ton on eligible sales of butterfat under the Dairy Export Incentive Program (DEIP) Invitation GSM-511A-59, issued May 22, 2009. This announcement supersedes Press Release number PR 0083-09, issued June 8, 2009.

The announced bonuses are as follows:
Butter $850.00 per metric ton
Anhydrous Milkfat, Butteroil, Ghee $1050.00 per metric ton

Then consider the following graph:

(click on graph to enlarge)

Everywhere there is money to made in dairy except where the milk is produced.

Friday, June 26, 2009

Uncharted Waters

(click on graph to enlarge)

If you look at the above graph, which covers more than five years, one obvious conclusion which can be reached by urban based policy makers, California dairy producers are willing to produce more milk with a complete disregard for profit.

Therefore, it should be small wonder that state and federal governments are perfectly willing to do nothing while lending a sympathetic ear.

This is not a market based system. The driver of production has been external capital provided by the real estate bubble. California production is now falling.

Policy makers need to understand the age of predictability is over. Dairy policy can no longer be based on unfounded assumptions.

Thursday, June 25, 2009

Market Smoke

Click on graph to enlarge

At: http://www.bloomberg.com/apps/news?pid=20601087&sid=a9WBQ0UBiWCY

Bloomberg’s article on milk price is loaded with conventional economic myths. The article states:

“Farmers plan to shift the pain to consumers. The National Milk Producers Federation in Arlington, Virginia, will pay dairies to slaughter 103,000 U.S. cows in coming months. Milk futures prices will double next year to a record $23 per 100 pounds (43.5 kilograms) as the herd shrinks by 171,000 head, the most since 1989, said Michael Swanson, a senior economist at Wells Fargo & Co., the largest lender to U.S. farmers.”

Another interesting, albeit confusing, quote from the article:

“Retail butter prices may rise above the record of $3.937 a pound and cheddar cheese may top $5.097 a pound, according to Jerry Dryer, 65, the editor of the industry newsletter Dairy & Food Market Analyst in Delray Beach, Florida.”

The truth is, milk production is fairly predictable. Consumption is also quite predictable. Under those two givens, how can it be that farm milk price has very little to do with how much milk is produced.

Milk price, in essence, is the result of the internal needs of the powerful buyers of dairy farm milk. The myths are just smoke screens.

Wednesday, June 24, 2009

Where's the Money

Recently, I posted information on May 2009 milk production data. A friend, Kurt Williams, wondered about FMMO production for May. I suggest looking at May 2008 as well. You would never guess this out in a 1,000 years. In the FMMOs there was 16% more milk in May 2009 than in May 2008. What that means is that in May 2008, when prices at the CME were high, milk was depooled.

Depooling milk means farmers did not get the full value for the actual usage. There are many ways to extract money from dairy farmers. Usually, dairy farmers are not even aware it is happening.

When federal order reform of 2000 took effect, the numbers on the milk check seems like a foreign language.

Tuesday, June 23, 2009

The Real Problem

The numbers vary but, the story is the same – there is a surplus of milk in the U.S. and until supply and demand are balanced, farm milk prices will remain low. This is not quite an honest statement of the problem.

Everyone has heard the proposed solutions. Kill a bunch of cows to save the dairy industry has reached an almost religious fervor. The other solution, which has a bit less support, is supply management – some kind of quota.

People consume dairy products mostly, and very little raw milk. So, we hear people are not consuming as much as they did and this has created a backlog of dairy products.

Most farm milk is made into cheese. Farm milk is priced, with a near perfect correlation with block Cheddar traded on the Chicago Mercantile Exchange.

If you take average milk to make Cheddar you will get a yield of 9.6 pounds per hundredweight of milk. This is based on the Van Slyke formula. Perhaps, you will get 9.95 pounds but not much more. If you are a large corporation and are making Cheddar, you will “fortify” the cheese system – no big plant uses cheese vats anymore – with additional protein to bump up the yield.

As mentioned in an earlier post, additional fat is needed when the cheese milk is fortified. The relative levels of butter in storage compared with cheese in storage confirm fortification.

In the early days of fortification domestic NFDM (powdered milk) was used. Then along came imported milk protein concentrate (MPC) and ultrafiltration. Either system provides a slightly inferior product. So, what has been the result?

California keeps track of dairy product manufacturing costs. The most recent data:

“For 40-lb. blocks: the weighted average yield was 13.72 lbs. of cheese per hundredweight of milk. The weighted average moisture was 38.31%”

A yield of 13.72 pounds of Cheddar is an increase of 43% in the yield. That means you can make the same amount of Cheddar using 30% less milk.

The problem is not too much milk. The problem is the artificial gimmicks used by manufacturers to boost yields. Without the garbage in, garbage out, maximizing the bottom line at any cost, there would presently be a shortage of dairy products with current farm milk production.

When you know the stories of what dairy farm families are suffering through – this is a crime.

Monday, June 22, 2009

Jacking Cheese Yields



you will find Al Levitt’s CME Daily Dairy Report, which states:

“Total cheese stocks reached their highest level since August 1985, according to USDA’s “Cold Storage” report released this afternoon. On May 31, total cheese inventories were 957.0 million lbs., up 9% from a year ago. Commercial American cheese stocks were 608.3 million lbs., up 7% from the same date a year ago, and the most in nearly five years.

Commercial butter inventories increased just 11.0 million lbs. in May, to 251.1 million lbs. This is the smallest May increase since 1999, and leaves stocks
7% below year-earlier levels, USDA says.”

Fair enough and 100% accurate as reported.

Obviously, a manufacturer of cheese wants to make as much cheese as possible while the farm milk price is low. Butter manufacturers can also build inventories by freezing butter.

However, there is something telling in the above information. Cheese requires a rather tight fat to protein ratio. Quality cheese can and is made from whole milk. If the milk is fortified with MPCs additional fat is requires to make the fat to protein ratio.

Hence the above numbers suggest a lot of cream is going into the cheese vat because the yield has been jacked up artificially with MPCs.

In spite of what NMPF is saying about imports of MPCs, the evidence suggests they and their member co-ops are misleading both the public and dairy farmers.

Sunday, June 21, 2009


Dairy futures are traded on the Chicago Mercantile Exchange (CME). Trading began in 1998, if I remember correctly. You might or might not, be surprised to learn volatility increased dramatically at the same time on the cash spot dairy trading on the CME. Futures are a “risk management” and without risk there is no need to participate.

With most commodity markets the futures price drives the cash price. Kellogg, for instance knows how much corn it will need, say in October, and buy futures positions based on their needs. As the time approaches Kellogg’s and many other best guesses eventually become the cash market price.

Only two commodities have a thin, few players, cash market determining futures prices – dairy and natural gas. Why does Enron come to mind?

So, in looking at the futures prices you need to understand, in the truest sense, there is no market.

Here’s a link to the GAO report on the CME cheese trading:


This is really a follow-up on a major study 1996 by University of Wisconsin. U of W had subpoena power and state funding to look at cheese trading on the “National Cheese Exchange” (NCE), which was really a room in Richard Gould’s law office in Green Bay, Wisconsin.

After the paper came out there were two Working Papers:



As a result of the 1996 study, cheese trading fled to the CME where there was even less transparency. USDA has given cover to this sham by claiming to obtain prices from the NASS survey. GAO called that a redundancy.

The Commodities Futures Trading Commission (CFTC) investigated to some extent and settled with Dairy Farmers of America (DFA) for manipulating on one occasion. That is not to say there were plenty more, that was just the result of the settlement.

There are now five legal cases against DFA which have recently been consolidated into one case.

Saturday, June 20, 2009


“The environmental impact of recombinant bovine somatotropin (rbST) use in dairy production”, a paper promoting the use of rbST can be found at:


The conclusion is a forgone conclusion, “Meeting future U.S. milk requirements from cows supplemented with rbST conferred the lowest AP, EP, and GWP, with intermediate values for conventional management and the highest environmental impact resulting from organic production. Overall, rbST appears to represent a valuable management tool for use in dairy production to improve productive efficiency and to have less negative effects on the environment than conventional dairying.”

I would question the impact of rbST. Monsanto has claimed some fairly high numbers of cows supplemented with rbST.

Is there any indication in the milk per cow over a large number of years of any rbST bump? Or is there a fall off as more milk buyers are requiring milk from cows not treated with rbST?

Friday, June 19, 2009


A spokesperson for an organization which claims to be, “the principal voice on national issues for dairy cooperatives and their dairy farmer members.” (you know the group) on a national dairy radio program today, June 19, 2009 tried to marginalize the impact of MPCs negatively affecting farm milk price.

“Some blame dairy imports, particularly milk protein concentrate (MPC) for the low dairy prices.” said the spokesperson “representing” dairy farmer interest. Oh no, “The real issue is exports,” he said, exports have dried up and as everyone knows the economy just isn’t that good. So I guess farmers should appreciate the low prices as some kind of divine command.

The U.S Bureau of Labor Statistics (BLS) publishes price data which is indexed. In the case of dairy, the index uses 1982 – 84 as the base period and calls that 100. Each month is compared with the base period. For example a number of 200 would mean prices had doubled. Under 100 would mean a price, which really can be seen as a percentage of the base, of less than the base period.

Retail dairy prices are tracked through the Consumer Price Index (CPI). Processors and dairy farmers are tracked through the Producer Price Index (PPI).

Take a look at the following graph:

(click to enlarge)

Obviously, the past 18 months have been an occasion to plunder the dairy farmer. Therefore, those who claim to represent dairy farmers have a lot of explaining to do.

In January 2008 the spread between farm milk price and processor was 25. In May 2009 it was 61.2 - more than double.

In January 2008 the spread between dairy farm price and retail was 46. In May 2009 the spread more than doubled to 104.16.

Price transmission has been nonexistent. Dairy farmers have provided the bailout, at least in part, for those between them and the public.

My point about MPCs has been fairly simple. If there is a surplus of milk there is no need to import MPCs. The MPCs are simply a clue indicating market failure. Who can justify market failure?

If dairy farmers had real leaders the picture and the above graph would be different.

Thursday, June 18, 2009

May Milk Production

(Click to enlarge)

Milk Production numbers came out today. According to USDA there was a 0.1% increase in milk production for the whole country.

There are some troubling aspects to the numbers. In the first place, as can be seen from the above graph, there is no connection, none, between price and production.

More troubling is that USDA indicates milk production per cow in the 23 lead dairy states was up 9 pounds for the month. This is with producers not able to pay grain bills. If you look at the numbers for the entire country, which includes states with no reputation for pushing cows, milk production per cow was up 11 pounds per cow. Hard to believe. Remember too, there are fewer producers using rbST this May than last.

There are 31,446,925.9936 seconds in a year and there is a net increase of one person every 11 seconds. Each person consumes about 600 pounds of milk per year.

If anyone went to all the trouble to do the math, the answer would still be debatable. And that is because there is a margin of error in all the numbers. What is not debatable is that May 2008 all milk price was $18.30 per hundredweight compared with $11.70 per hundredweight May 2009.

Wednesday, June 17, 2009

Definition Needed

On June 4, 2009 USDA Commodity Credit corporation (CCC) sold just over 1 million pounds of NFDM to Prestige Proteins, 5300 W Atlantic Ave, Delray Beach, Florida for $0.47 per pound – just about half the current world price. The CCC had paid $0.80 per pound plus storage costs of about a quarter cent per pound a month.

This will be converted to casein by Prestige Proteins. Prestige Proteins advertises itself as “Your one stop global source for caseins and caseinates.” Their website says, “We produce Polish skimmed milk powder in ADMI extra and standard grades. Our plant in the United States produces Sodium Caseinate, Calcium Caseinate, and other Caseinates with the functionality that you require. Each product and blend is created to suit your particular needs.

And, if you want to, United States Patent 3911143 covers a process to convert whey and casein to create a substitute for NFDM.

At $0.47 a pound from the CCC there is a lot of room to play around – creativity is encouraged. Keep in mind though, in September 2008, before CDI began selling NFDM to the government, the price was $1.2379 per pound.

You couldn’t really call this capitalism, and you couldn’t call it socialism. A new definition is needed which explains what’s going on.

Tuesday, June 16, 2009


The government agency which largely oversees the banking industry, the Federal Deposit Insurance Corporation (FDIC) has just announced maximum bailout amounts for the banking industry. The headline reads “Government Support for Financial Assets and Liabilities Announced in 2008 and Soon Thereafter ($ in billions).” And the total is $13.7 trillion dollars.

If you go to: http://www2.fdic.gov/SDI/main4.asp You will learn something about the health of the banking industry, many months after the financial crisis began.

By far the largest amount is for “derivatives.” Derivatives are nothing more than a side bet but, a bet nevertheless.

Ordinary people will suffer nosebleeds at the altitude of these numbers. However, what will be clear to most anyone is the continuing lack of oversight.

Farm milk price suffers from the same problem and at the same time the best government can do for dairy is MILC.

Monday, June 15, 2009


The store brand butter in my local supermarket travels, if it travels directly, 2,860 miles from the Tulare, California Land O Lakes plant. Each stick of butter contains plant information. The butter used to come from Wisconsin but LOL shut that plant down.

One might think, sending butter the extra distance would be a costs for LOL. Not to worry. California assesses their dairy farmers a couple cents a pound for every pound of butter produced in the state. This money is then used to send butter out of state – a subsidy on the backs of dairy farmers.

California dairy farmers also import from out of state, I believe, 75% of the forages their cows eat. And they import virtually all the grain.

The point I am trying to make is a lot of fossil fuel, now over $70 a barrel, went into getting a pound of butter from California to New York State.

Another point is the plain and simple fact, the East is deficit on milk or the butter could be made here.

If a sane person, most any sane person would do, were to sit down to come up with dairy policy, that policy would not like a thing like our present policy.

Sunday, June 14, 2009

As the world Turns

Probably everyone is feeling better already:

WASHINGTON, June 12, 2009 -- The U.S. Department of Agriculture's Commodity Credit Corporation today accepted two bids from an exporter under the Dairy Export Incentive Program for mozzarella cheese to Africa and Middle East.
The award totaled 19 metric tons of mozzarella cheese.
Delivery period: June - July 2009
Bonus: $100.00 per metric ton
Remaining global DEIP balance: 3,011 metric tons
CCC's bonus was awarded to Hoogwegt U.S., Inc..

For further information, call (202) 720-3224.

Usually, the wholesale price runs between the CME block and barrel price. That would result in about $.67/pound. Compare that with the U.S. supermarket price of between $4 and $5 per pound.

Additionally, Hoogwegt U.S., Inc is a European company. Kind of like U.S. bailout money going in the from door of AIG and out the back door to European banks.

The really impressive part though, is the quantity – 19 metric tons. The milk to produce that much mozzarella would be about 5.5 truck loads. Unless, of course, the yield was jacked up with imported dairy proteins and that is most likely.

So, really, the final question is what are we DEIPing?

Saturday, June 13, 2009


(click to enlarge)

One argument for farm milk price not keeping up with inflation has been the increase in milk per cow. Obviously, the beneficiary has not been the dairy farm. The graph above show just three years in the period 1990 – 2008, when dairy farms saw positive returns if all factors are considered.

Friday, June 12, 2009

Obscuring the facts

Chart by Dairy Market News
(click to enlarge)

How many traders does it take to make a market? If the average dairy farmer knew how many entities are buying and selling cheese on the Chicago Mercantile Exchange they might not revolt, no time for that, but, they would be more angry, if that could be possible.

The whole charade is reinforced by the so-called National Agricultural Statistics Service (NASS) survey. USDA will tell anyone who complains about the CME, farm milk is not priced from the CME, farm milk is priced from many plants surveyed by NASS.

Here's how it works. The CME sets the price for block Cheddar on any given day. A plant which takes an order that day quotes the CME plus a formula. When the order is completed, NASS surveys the order as it goes out the door.

So, NASS is really CME plus a time delay. As the GAO said in their 2007 report on the CME, the NASS survey is a redundancy. Honestly, it is part of the con-game.

Thursday, June 11, 2009

Bad Policy

Map by Central Milk Market Order

Let's say that you believe in the dairy market system. And let's say for the sake of argument the supply and demand is in complete balance based on price. Then, let's say the price is dropped. Farmers will then have to produce more milk to keep their heads above water. Experts will then say the the market is again in balance based on the price system.

If dairy farmers receive every year, in terms of real dollars, less money for their milk, eventually, milk production will start to fall. Capitalism requires a profit which generates capital to survive.

However, if there is some form of capital generated from an external source, the experts will then claim efficiencies for the additional production.

Real estate, from suburban Los Angeles, and IRS tax code 1031 has generated the bulk of annual U.S. milk production increase. Less but, significant increases came from European farmers, particularly Dutch, selling cows, quota and land, then coming to America with pockets full of cash.

If, indeed, milk price determined production, all states would rise and fall together. The above map shows the impact of external capital inputs.

Los Angeles real estate as a kind of ATM for dairy capital has dried up. It would be fair to say that the national dairy policy has boiled down to putting most eggs in one basket. That basket, ever escalating real estate, is now a basket case.

So, what if more milk is needed in the future? What will drive milk production. Certainly not basement milk prices.

Wednesday, June 10, 2009

More Plunder

Trade data came out today, June 10, 2009. The loss of dairy exports from the U.S. is interesting. The dollar difference between January – April of 2009 compared with the same period in 2008 was a total of $ 638,185,000 less.

Take the average all milk price for the period January – April 2008 compared with the same four months of 2009, then multiply that difference by the amount of milk produced in 2009, you will find only a bit over a dollar a hundredweight from farm milk checks would have taken care of the loss of exports. An additional, totally unjustified, $3,645,770,000 extra was taken from American dairy farmers in the name of the market system.

Furthermore, the export data for March 2009 show a drop of 32.6% in the volume exported. However, and this is important, USDA shows an increase in “Commercial Disappearances” for March of 2009, the latest available month, of just over one percent. Domestic consumption is not faltering.

Tuesday, June 9, 2009

Restaurant Sales

At: http://www.restaurant.org/pdfs/research/index/200904.pdf

is the monthly Restaurant Performance Index published by the National Restaurant Association. The above link is for April sales and was released in the end of May 2009.

According to the report headline, “Restaurant Industry Outlook Continues to Improve as the Restaurant Performance Index Rose to its Highest Level in 11 Months”

The entire report is just three pages and a quick read. Of great interest is the last page which breaks down some of the data.

What can be fairly said here is the report bodes well for dairy consumption. What is of great concern is the fact that the CME price for block Cheddar averaged $1.2045 per pound in April. Then in May, when restaurant sales clearly picked up the average block Cheddar price on the CME fell to $1.1394 per pound.

There was a philosopher in ancient Greece, Diogenes who went round in the daytime with a lamp. When asked why, Diogenes replied, he was looking for an honest man. Think of the trouble the poor guy would have at the CME.

Monday, June 8, 2009

MPC Imports

(Click on the above chart to enlarge. MT means "metric ton which equals 2204.6 pound.)

Quite consistently, both dairy farmers and the public are told there is a surplus of milk. There is, however, a fly in the ointment of the argument – imports, particularly of milk protein concentrate (MPC).

At this point the government is continuing to buy and store nonfat dry milk (NFDM). MPCs, are in most cases interchangeable with NFDM.

MPCs, as they are now used, are technically an illegal ingredient, since MPCs has no GRAS (generally recognized as safe) status. FDA, continues to ignore their own regulations in this regard. After all, there is money being made on the product.

A quick search of U.S. Patent and Trade Office reveals 171 patent applications when the two terms , “milk protein concentrate and cheese” are entered.

Throw some MPCs and anhydrous milk fat into the caldron, heat, stir and with very little difficulty a product is obtained which the public will buy thinking they have purchased cheese.

Essentially, MPCs are a means to fool some of the people all the time.

If MPCs and caseins were not imported into this country, the government would not have one pound of NFDM in storage. Without NFDM in government hands, the convenient argument of surplus milk could not be made to appear plausible. Additionally, farm milk prices would have to be higher.

Sunday, June 7, 2009


At: http://www.washingtonpost.com/wp-dyn/content/article/2009/06/05/AR2009060502053.html?wprss=rss_print/outlook

The Washington Post has an interesting book review “The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street”

The reviewer, Roger Lowenstein, states:

"The power of the doctrine was its grand design: the comforting notion that the financial universe adhered to absolute laws. But that was also its flaw. Prices couldn't be wrong; if they were, someone would seek to profit from the error and correct it. The illustrative joke was of two economists who spot a $10 bill on the ground. One stoops to pick it up, whereupon the other interjects, "Don't. If it were really $10, it wouldn't be there anymore."

Theorists such as Eugene Fama decreed that if prices are unforeseeable, then the future direction of the market is random. And if the market is truly random, prices should follow what mathematicians call a bell-curve distribution. In nature, this works. We don't know whether your neighbor will be tall or short, but we can predict, with pretty close approximation, how many very tall people will live in your town. In nature, extreme results such as a village of seven-footers will never occur."

Yale professor Robert Shiller that the efficient markets theory “represents one of the most remarkable errors in the history of economic thought.”

While Wall Street may be now questioned, farm milk price, originating at the CME, is still promoted as correct and near divine in its pronouncements.

Saturday, June 6, 2009


On May 13, 2009 a group of Congressional Representatives from the Northeast headed by Michael A. Arcuri of New York wrote to Agricultural Secretary Vilsack regarding the devastatingly farm milk price. The letter was signed by a number of representatives, including Vermont’s lone congressional representative, Peter Welch.

On June 5, 2009 Senator Sherrod Brown of Ohio, wrote to Secretary Vilsack requesting field hearings in Ohio on low farm milk price. Senator Brown wrote, “If nothing is done to address the profitability of our nation’s dairy farms, I am concerned that a staggering number of them will be forced to shut down.”

There is one member of congress who has more clout on dairy than any other – Senator Patrick Leahy of Vermont. Senator Leahy has mostly taken credit for the MILC program. Senator Leahy would do well to read Gospel of Luke, chapter 10, verses 25-37. This is the Parable of the Good Samaritan. The question of the lawyer is “And who is my neighbor?”

The dairy farmers of Vermont and the entire country have fallen among thieves and been left half dead.

Aside from any spiritual lesson the parable is about neighbors and neighborliness.

Friday, June 5, 2009


Canola is used in many dairy rations. At the moment the FDA is not allowing canola from Canada into the Northeast. FDA claims contamination with salmonella. Others claim a feud of sorts with Cargill and the FDA. Although, some Bunge shipments from Canada have been stopped as well.

What ever the cause, the price of protein going into dairy rations is rising as feed dealers rush to get truckloads instead of carloads.

Meanwhile, feed dealers in Vermont are telling farmers to feed less grain and work to get top quality forages. It goes without saying feed dealers would rather get paid for less grain than go begging for money owed.

Thursday, June 4, 2009

The mess we are in

Dairy farmers are now suffering from the worst farm milk price ever in real dollar terms. If the excuses are to be believed, the cause is the world financial crisis which is still being blamed on the poor people buying more house than they could afford.

In fact, the financial crisis would be one tenth as bad as it is except for derivatives. The Senate Ag committee had a hearing today on derivatives. See: http://agriculture.senate.gov/ click hearings. Some of the testimony is on line.

Lynn Stout, a law professor at University of California, testified, “it is essential to recognize that derivative bets are also ideally suited for pure speculation.”

Michael Masters' testimony is not available at the Ag committee site said, “So U.S. economic output was dropping during the first six months of 2008. During that time, the worldwide supply of oil was increasing and the worldwide demand for oil was decreasing. With the world's largest oil consumer in an economic recession and with supply rising and demand falling, the price of oil should have been falling. Instead, oil defied the economic recession and defied the laws of supply and demand and rose an astronomical $50 per barrel from the mid-$90s to a peak of $147 per barrel in just six months.”

If you take the time to read the testimonies, you will find big business supports a continued ride on the gravy train. You will also learn how the government failed.

Wednesday, June 3, 2009


On June 2, 2009 Fonterra held their twelfth internet auction of whole milk powder. Wouldn’t you know the price plummeted 12%. Actually, the 12% drop was the average. The nearby August deliveries fell only 7.7%, whereas the December 2009 deliveries fell 14.2%.

Kelvin Wickham, Managing Director of Fonterra GlobalTrade in a press release said, “We need a sustained pick-up in customer and consumer demand to see any meaningful recovery in prices and that is not occurring as fast as we would like. And there’s increased uncertainty in the market because of the recent announcement of US subsidies and talk of European retaliation.” He is talking about the recently announced Dairy Export Incentive Program (DEIP) subsidy.

Actually, Fonterra exported quite a bit whole milk powder to the U.S. in the first quarter of the year at the reduced tariff rate. Fonterra increased their imports of low tariff whole milk powder by 94% over the first three months of 2008. The price, according to USITC data base was higher than the world price listed by Dairy Market News, a publication of USDA’s Agricultural Marketing Service

Tuesday, June 2, 2009

Definitely Maybe

There probably never was a time when large dairy farms have been under such intense pressure. Usually, small farms exit which eventually pave the way for remaining farms to expand.

Banks have usually looked favorably upon expansion since most banks have consolidated and there are few small town banks left with a farm loan officer.

These times have inspired the idea of a large farm milk dump for two days, May 31st and June 1, 2009. However, a meeting in California replaced the thought of a milk strike with the idea of dairy co-ops working on a supply reduction program.

California Dairies Inc (CDI) sent a letter to members on May 26, 2009 supporting the concept which would cut current production bases by approximately 5%.

CDI to “participate in industry discussions” and included a provision stating these discussions “must include, at a minimum CDI, DFA, LOL and Security Milk Producers.”

Not to add to the mood of gloom, but, do not starting counting chickens.

Monday, June 1, 2009

Greenhouse Gases


Last Friday, May 29,2009 Fonterra’s news release stated, “Fonterra says Carbon Footprint study important step in driving further efficiencies and cuts to greenhouse gases.”

“Key findings of the research are:

  • The carbon footprint was 940g of CO2 equivalent per litre of liquid milk
  • Around 85% of the greenhouse gases are emitted on the farm (59% of these are methane, 17% are carbon dioxide, and 24% are nitrous oxide)
  • Processing/manufacturing accounts for 10% of total emissions
  • Distribution accounts for 5% of total emissions
  • Products requiring larger quantities of milk have a larger carbon footprint.

Mr Harris said completion of the study is also an important step towards getting carbon footprint measuring methodology agreed with key international dairy organisations and producers so that the dairy sector globally can contribute to reducing climate change.”

If available, I have not been able to find the actual study. It seems to me that a grazing situation would offer some reduction in greenhouse gases.