Extraction?

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Today, August 31, 2009 USDA’s Agricultural Price report was released. You may not be surprised to know that August 2009 farm milk price was 25% of parity.

There have been meetings and hearings and publications of all sorts on the current farm milk price situation.

Little has been said about the growing spread between farmers and consumers. This is not just about milk as the above graph shows.

Now, since there does not seem a large sum of cash under the retailer’s mattresses, a question, perhaps the question, which needs to be asked, is just how efficient is the food marketing system? Is Wal-Mart serving a useful purpose or just an extractor of cash from the efforts of others?

The Trend

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There is a growing opinion that farm milk prices will rise this fall. There will be a growing body of experts who will comment on the inevitable volatility of farm milk price. Those same experts will praise the “smart” ones who use the “tools” – contract some milk.

However, a look at the larger picture will reveal that those “tools” are pretty much meaningless in the face of the trend since 1980.

Certainly, part of the blame can and should be placed on those who exploit dairy farmers. But, this con game could not have transpired if dairy farmers had educated themselves of the workings of the system.

Central and East NFDM

I hate to keep beating the same drum but, here is more from Dairy Market News:

MADISON, WI. August 27, 2009 (REPORT 34)

NONFAT DRY MILK - CENTRAL AND EAST

CENTRAL: Prices for Central nonfat dry milk are mostly higher and the market
tone is firmer. Intakes at several Central locations are lower this week as
farm milk production tapers off seasonally. Interest in condensed skim is
steady, but availability is constrained due to increasing bottled milk demand
for refilling the school pipeline. Those issues are curtailing production of
nonfat dry milk at most Central balancing plant locations. Current production
of low/medium heat NDM at plants that are drying is often earmarked for helping
rebuild inventories. Nonfat dry milk inventories are mostly sufficient to meet
near term customer needs so plants are focusing on powder needs for the balance
of the year. Manufacturer offers to the spot market are uneven and often priced
to favor inventory enhancement.
EAST: Eastern nonfat dry milk production has slowed due to decreased milk
supplies caused by declines in milk production and increased Class I demand.
Some plants have shuttered their dryers to assist with fluid demand, allowing
them to perform extended maintenance. Drying activity is focused on filling
current contract obligations and managing weekend deliveries. Spot market
activity remains light with closely held inventories awaiting further market
developments.

F.O.B. CENTRAL/EAST: Includes EXTRA GRADE and GRADE A
LOW/MEDIUM HEAT: .9500 - 1.0725 MOSTLY: .9500 - .9900
HIGH HEAT: .9600 - 1.1725

Here is the nagging question: If NFDM is selling in parts of the country for as much as $.99/ pound, and it is a cheap product to truck, why sell the stuff to the government?

Why?

Big questions remain.

As mentioned in the last post milk is drying up in the West. Milk is also drying up in the East. Nevertheless, NFDM was sold to the CCC not once but, twice this week.
Who sold the powder? According to the USDA,California Dairies, Inc., a co-op sold the most, a total of 1,287,879 pounds early in the week.

Then LOL, a co-op, sold 704,962 pounds later in the week.

How many reasons can there be for selling NFDM –now- to the CCC? I can only think of two. One is they are desperate for cash, in which case there is cause for worry. The second reason is the two co-ops want to drive down the price of farm milk – in which case there is cause to worry.

More Confusion

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Once again on August 26, 2009, powder, NFDM, from the West has been sold to the CCC for $.92 per pound. This is after selling over a million pounds earlier in the week. Notice the DairyAmerica price for last week shown above.

Now, if this is not enough, here is what Dairy Market News has to say about the Western milk supply:

Madison, WI August 27, 2009
For the week of August 24-28, 2009 (REPORT 34)
WEST FLUID MILK
CALIFORNIA milk production remains well below year ago levels and is below processor needs. As fluid milk accounts take more milk to fill school needs, the effect is further tightening the milk supplies available to make other products. Milk is being moved around and imported from nearby states to fill needs. ARIZONA milk output is steady to lower when compared to recent weeks. Temperatures are expected to reach 115 degrees this week and any humidity will only worsen conditions for the milking herds, making heat abatement measures mainly futile. Milk is being shipped out to fill needs. With steady to higher bottled milk need, processing plants are being run on reduced schedules. Drying activity has basically ceased. NEW MEXICO milk production is declining. Milk is being shipped to other areas to meet increased fluid milk needs. Processing plants are running on reduced schedules with limited intakes. CREAM supplies are tightening in the region, yet are available. Cream volumes are increasing from bottlers skimming milk, yet declining because of reduced farm level milk supplies. Butter churning is declining in some areas. On Wednesday, August 26, the CME Group butter price closed at $1.1675, down 0.5 cents from a week ago. Cream multiples moved higher, trading in the range of 117-127 FOB and vary depending on class usage and basing points. In the PACIFIC NORTHWEST, temperatures have moderated and cow comfort levels are better. The heat of previous weeks still has some lingering effects on production levels. Combined with seasonal production bottoms, this has many processors looking for additional milk supplies. Supplies of spot milk are very tight with processors adjusting schedules to available supplies. Hay production in the northwest has been good and supplies of fourth crop hay will help to keep producer feed costs in check compared to last year. UTAH AND IDAHO saw some cooler days with some rain over the last week. Milk production levels are below needs for some plants. The tough economics of dairying for the last year have caused producers to alter rations and this has cut production in some instances. Third crop hay and small grain harvest continue and producers are hoping to see feed costs reduced for the coming season to increase profitability. Dairy heifer sales in Utah saw higher prices with prices topping $1400.00 and average prices higher than in recent months.

Since farm milk is priced from the NASS survey of NFDM, it would seem someone is trying to drive down prices.

Signals

The signals are certainly crossed. Friday Hilmar Cheese indicates they do not have enough milk. Monday, over a million pounds on NFDM were sold to the CCC from “Western” sources.
Today, I heard the prices of dairy cattle are rising. The signals will need to be clearer.

Dairy Advisory Committee

AGRICULTURE SECRETARY VILSACK ESTABLISHES DAIRY ADVISORY COMMITTEE AND REQUESTS NOMINATIONS

Advisory Committee Will Review Key Issues Impacting Dairy Industry and Generate Additional Ideas About How USDA Can Help Struggling Producers

WASHINGTON, August 25, 2009 - Agriculture Secretary Tom Vilsack today announced that as part of USDA's continuing efforts to listen to and respond to the needs of producers in the dairy industry he is moving forward on establishing the Dairy Industry Advisory Committee and is requesting nominations.

"The Obama Administration is committed to working with all sectors of the dairy industry to develop changes to the dairy pricing system to avoid the boom and bust cycle behind the crisis facing many dairy farmers this year," said Vilsack. "The input provided by the members of this committee will play an important role in building a more stable market for dairy producers for years to come."

Earlier this month, Secretary Vilsack promised to move forward with establishment of a charter creating the committee for two years. Once appointed, the committee will review the issues of farm milk price volatility, and dairy farmer profitability. The committee will also offer suggestions and ideas on how USDA can best address these issues to meet the dairy industry's needs. USDA is establishing the committee under the authority of the Federal Advisory Committee Act of 1972.

The Secretary of Agriculture will appoint up to 15 representatives of the dairy industry to serve in an advisory capacity on the Committee. Representatives will include: producers and producer organizations, processors and processor organizations, handlers, consumers, academia, retailers, and state agencies involved in organic and non-organic dairy at the local, regional, national and international levels.

Written nominations must be received on or before September 28, and should be sent to Judith Lindsay, secretary to Brandon Willis, Deputy Administrator, Farm Service Agency, Farm Programs, USDA Room 3612-S, Stop 0501, Washington, D.C. 20250-0501; faxed to (202) 720-4726; or e-mailed to: judith.lindsay@wdc.usda.gov.

Advisory committee members will elect the chairperson and vice-chairperson who will each serve a two-year term. As Deputy Administrator of the FSA Farm Programs, Willis will serve as the committee's executive secretary.

Details will be published in the August 28 Federal Register. More information on the committee is available at www.ams.usda.gov/AMSv1.0/DairyAdvisoryCommittee .

Additional steps that USDA has taken in recent months to support the dairy industry includes:


*Earlier this month, Secretary Vilsack announced that USDA is undertaking an unprecedented effort to use the department's administrative flexibility to provide relief to individuals and businesses in struggling agriculture industries. Vilsack has ordered USDA Rural Development and the Farm Service Agency to use all available means to help producers, processors and other small businesses who have been hit by worsening economic conditions.



*Late last month, Secretary Vilsack announced that USDA was taking immediate action to support struggling dairy farmers by increasing the amount paid for dairy products through the Dairy Product Price Support Program (DPPSP). USDA estimates show that these increases, which will be in place from August 2009 through October 2009, will increase dairy farmers' revenue by $243 million.



*In March, USDA transferred approximately 200 million pounds of nonfat dry milk to USDA's Food and Nutrition Service, which will not only remove inventory from the market, but also support low-income families struggling to put nutritious food on their tables.



*USDA expects to spend more than $1 billion in fiscal year 2009 on purchases of dairy products (Dairy Product Price Support Program) and payments to producers (Milk Income Loss Contract (MILC).



*On March 22, 2009, USDA reactivated USDA's Dairy Export Incentive Program (DEIP), to help U.S. dairy exporters meet prevailing world prices in addition to encouraging the development of international export markets in areas where U.S. dairy products are not competitive due to subsidized dairy products from other countries.



*Since March 22, USDA has encouraged the export of 20,000 tons of nonfat dry milk.



*From July 2008 through June 30, 2009, DEIP has announced allocations of 68,201 metric tons of nonfat dry milk; 21,097 metric tons of butterfat; 3,030 metric tons of various cheeses and 34 metric tons of other dairy products.



*USDA is working with the Department of State to identify foreign assistance programs such as U.S. Agency for International Development (USAID) and McGovern-Dole International Food for Education and Child Nutrition Program to make additional dairy products available internationally to reduce domestic supply.


#

USDA is an equal opportunity provider, employer and lender. To file a complaint of discrimination, write: USDA, Director, Office of Civil Rights, 1400 Independence Avenue, SW, Washington, DC 20250-9410 or call (800) 795-3272(voice), or (202) 720-6382 (TDD).

Projections

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Last week the Food and Agricultural Policy Research Institute (FAPRI) released updated projections.

I continue to be amazed by projections – most are usually wrong but, sometimes a guess is all anyone can find.

Taking the FAPRI numbers for milk, corn and soy, I pasted them to a spreadsheet. Over the time period, through 2014, the average deviation in price for milk is 8.3 times the amount the amount for corn. Why the volatility for milk? FAPRI offers no explanations.

Then when the numbers are sorted, the years come out identical for corn and milk – pretty close for soy.

Naturally, I had to take a look at USDA’s projection released last February. USDA, at that time, projected all milk price of $15.47 per hundredweight. The difference is $6,184,750,000 and that is real money, but, it is not their money.

Bull

http://www.cdc.gov/mmwr/preview/mmwrhtml/mm5829a2.htm

“During 2003--2007, deaths occurring in the production of crops and animals in the United States totaled 2,334; of these, 108 (5%) involved cattle as either the primary or secondary cause (1). During the same period, Iowa, Kansas, Missouri, and Nebraska accounted for 16% of the nation's approximately 985,000 cattle operations and 21% of the nation's cattle and calf herd (2). To better characterize cattle-caused deaths in these four states, investigators reviewed all such deaths occurring during the period 2003--2008 that were detected by two surveillance programs, the Iowa Fatality Assessment and Control Evaluation (IA FACE) and the Great Plains Center for Agricultural Health (GPCAH). This report summarizes that investigation, which identified 21 cattle-related deaths. These deaths occurred throughout the year, and decedents tended to be older (aged ≥60 years) (67%) and male (95%). Except in one case, the cause of death was blunt force trauma to the head or chest. Circumstances associated with these deaths included working with cattle in enclosed areas (33%), moving or herding cattle (24%), loading (14%), and feeding (14%). One third of the deaths were caused by animals that had previously exhibited aggressive behavior. To reduce the risk for death from cattle-caused injuries, farmers and ranchers should be aware of and follow recommended practices for safe livestock-handling facilities and proper precautions for working with cattle, especially cattle that have exhibited aggressiveness.”

I like bulls and maybe that colors my opinion. To put the number of 2,334 deaths from farming in perspective consider that in the same 2003 – 07 period 212,623 were killed in car accidents.

You will notice, the Center for Disease Control (CDC) has no comment on the age of those dispatched by cattle. Also, note the majority of deaths did not occur from bulls.

The dairy studs (AI) are all in financial trouble, and it is likely that more bulls will be used on dairy farms.

Use of bulls will never cause the financial harm to farmers that the studs have with sexed semen.

Ohio Meeting

Meeting on Dairy Crisis

Speakers:
John Bunting, New York Dairy Farmer
Kurt Williams, General Manager, Lanco-Pennland
Patty Lovera, Food and Water Watch

Thursday, August 27, 2009
10:00 am – 3:30 pm

Fisher Auditorium
1680 Madison Ave., Wooster, OH, 44691

Questions:
Bryan Wolfe: 440-563-5473
Ben Hauck: 330-345-8808
Ohio Farmers Union: 888-610-4400

Milk and ice cream provided- please bring your own lunch

Times are changing

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What next?

http://www.ers.usda.gov/AmberWaves/September07/Features/DairyFarms.htm

During the 1970s, a different type of dairy farm began appearing in Western States such as California. These operations were much larger, often with herds of 1,000-2,000 milk cows. Whereas the smaller dairy farms tended to graze their cows on pasture, the new larger ones often housed their cows in large barns or drylot feedyards. While still family owned and operated, the large farms relied extensively on hired labor and on feed purchased off the farm. As the larger dairy farms prospered, milk production began to shift to Western States and smaller dairies started to go out of business.

If processors think they can get more milk for nothing, they may be in for a big surprise. The real estate ATM is gone from California. Bankers have become shy.

Looking Up?

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There is less talk about consumers cutting back on dairy purchases and with good reason.

Information Resources, Inc, which tracks consumer sales through scanner data, indicate the volume of cheese sales in the March – May 2009 period increased an amazing 7.1%. Fluid sales are also up.

Soy beverages are down.

So far so good. Now the remaining factor is to see reality show up in farm milk prices.

Confusion

The last post seemed to make perfect sense to me, at the time, but in hindsight, my apologies for the confusion.

Let me break it down into pieces. First, DFA’s symbol, Uncle Sam (cow or bull?) – maybe Sam could be female but not Uncle and female. Yet DFA uses the term “she.” Moreover, the patriotism embedded in the symbol seemed ironic since DFA holds so many licenses to import dairy products.

DFA has told some people they don’t use the licenses. Well the official policy is, use it or lose it.

Then in a couple publications, there is mention of butter stocks increasing with no mention of imports. Imported butter is counted as domestic stocks once it has been here more than 30 days. There appears to be a desperate need to import butter by virtue of the increase in “high tier” butter imports.

And finally, milk production is not down all that much, according to the USDA NASS report. Exports are still way off and that is the claimed reason for low farm milk price and government purchase of NFDM. Nevertheless, the government bought no NFDM this week.

The official claims are confusing enough; I did not mean to add to the confusion.

Buttered Slope

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From the CME Dairy Report:

• Commercial butter stocks increased slightly in July as well, expanding by 1.1 million lbs. to 264.0 million lbs., USDA says. This is the first time since 2004 that butter inventories have increased in July.

From Dairy Market News:

• BUTTER HIGHLIGHTS: The CME cash butter price trended lower
for much of the week, but gained 2 cents on Friday to close the week at
$1.1700. The current cash price is the lowest since early March and compares
to $1.6000 last year at this time and $1.3800 in 2007. The CME cash price
has not been this low, at this time of year, since 2003.


• CCC PRICE SUPPORT PURCHASES (FSA): During the week of
August 17 – 21, CCC net purchases totaled 0 pounds of nonfortified NDM
under the dairy price support program. Cumulative NDM purchases since
October 1, 2008 total 277,236,421 pounds.

Butter imports have remained steady this year. See the information from USDA above on “high-tier” imports.

There is also a group of dairy products which come into the U.S. at low tariff rates. A license is needed and DFA holds 12:

• Butter
• Dried Skim Milk
• Other Cheese NSPF (2)
• Blue mold cheese
• American (3)
• Edam & Gouda
• Italian type (2)
• Other cheese-lowfat

Eating Oil

The current report from the Florida federal order is available at: http://www.fmmatlanta.com/pdfstorage/curbulletinfl.pdf

On page four you will find:

“Receipts of producer milk during July 2009 totaled 231.4 million pounds, 13.0 million pounds less than was pooled in July of last year. Florida producers supplied 164.0 million pounds of milk in June 2009 or 74.07% of the total producer milk pooled in Florida. In June 2008, Florida producers supplied 65.77% of producer milk pooled on the Florida market.”

What that means is that almost 35% of the milk pooled in Florida came from outside the order.

On page 6, you will find that the “touch base” days for July 2009 is just ten days. In other words the milk pooled on the Florida order only has to come to Florida 10 days to have all the July milk pooled on the order.

In any event, more than 93 million pounds of milk was pooled on Florida from outside Florida. Some came, no doubt, from Southern Georgia –order 7- where some other games are played.

In 2008, for example, there were 18 farms from Indiana pooled on the Atlanta order. There were 105 farms from Kansas pooled on FMMO7. From Texas there were 227 farms pooled on order 7. The list goes on.

Then, according to Dairy Market News, more than 28 million pounds of milk was shipped North from Florida in July 2009.

This is all gaming the system for someone’s financial benefit. When the milk finally gets to the consumer, you might as well say the consumer is eating oil.

NPR

Two dairy stories by John Burnett will air tomorrow (8/20/09) on National Public Radio. The first is a piece about the continuing concentration of agri-business that will air on Morning Edition.

In the afternoon, there will be a special 12-minute report on the rural dairy crisis on All Things Considered.

If you miss the story, after it’s aired you can go to www.npr.org, type “dairy burnett” into the search window, and the story should pop up. Additionally, there is a webpage at npr.org to accompany the report by John Burnett

More on Milk Production

I have had a number of conversations about the USDA “Milk Production” report:

http://usda.mannlib.cornell.edu/usda/current/MilkProd/MilkProd-08-18-2009.pdf


Two people called from California thinking the number shown for California was high.

Actually, there are three states in which USDA calculates the milk per cow has risen by an average of just about three pounds per cow, Florida, Virginia and Wisconsin.

My thought is that the entire dairy farm community in those three states did not get together and agree to increase milk per cow by a set amount. The numbers are averages.

Let’s say, hypothetically, that half of the farms stayed the same and half increased production. Those who increased would have had to raise production for July 2009 by six pounds per cow. Six pounds a cow and Posilac® is basically a thing of the past?

One thing for certain, the players at the CME did not believe the numbers. The CME went up today on cheese. Blocks are now $1.40/lb but, butter lost 2.75 cents.

When all is said and done, the record will show that milk is not going into NFDM in any quantity this week. Most of the powder plants are butter/powder plants. So, where is the butter coming from?

Milk Production

USDA’s July’s “Milk Production” is out:

http://usda.mannlib.cornell.edu/usda/current/MilkProd/MilkProd-08-18-2009.pdf

Production is up 0.1% over July 2008. That number was accomplished with 1.4% fewer cows. Farmers who cannot pay their grain bills are dumping more grain in front of the cows. Pardon my cynicism.

I looked at the first six months of 2007, 2008 and 2009 for three states in the Northeast. New York was up 0.3% in the first six months of 2009, according to NASS, but jumped in the revised data for June of 09 by 3%. New York is also up by 2.6% in July 09 versus July 08.

Pennsylvania is up 0.4% in July 2009 versus July 2008. Vermont is down 4.5%. did “they” the all troublesome “they” move New York? I think not. New York is still between Pennsylvania and Vermont. The data should be similar.

Except for major variations in weather, if the experts are correct, all states should respond similarly to variations in milk price. California, Arizona and New Mexico are all down significantly and New York is UP?

So, the question is how is the data collected? What is the basis for revisions?

Opening Day at the County Fair

Today was opening day of the county fair. Too hot and the crowd was much smaller. There are few people left who remember when cattle were driven down the road to the fair.

The fair has changed too in other ways because, the biggest draw at the fair is the demolition derby. The National Anthem is played while the engines of the first heat are rumbling. Except for the fact there were no lions and no way to verify the number of actual Christians, the crowd brought to mind the Roman circus – that is some kind of blood sport.

But, the tone of the people surrounding the dairy cattle was subdued. No yelling and screaming. Most of the farmers in this county have small farms. This time, while bad, maybe possibly can be survived, maybe.

The suppliers were different. This time is different and the big question, for the first time, is how many will survive.

Of course, the large stud services and many other suppliers, which are now panicked, have never seen it necessary to understand anything about milk pricing. Con games – all con games – operate with a cover of ignorance.

Health Care

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Probably health care costs are one of the largest factors affecting rural areas in general and dairy farming in particular.

A neighbor, in her mid-60s has the complete bill for her own birth – $15. At that time, rural America was served by local doctors who made house calls.

Now probably the largest, well maybe second largest, single reason for off-farm employment is access to health insurance. Ironically, on farm fatalities have risen because of one person, all too often, on the farm alone.

On a per capita basis, we have the most expensive health care in the world. Statistically, we do not have the best.

If we try to explain health care costs from a capitalistic perspective, costs plus profit equals selling price, we fail. Health care costs cannot be explained from a supply/demand basis. Years ago one economic think tank tried to explain health care costs as a free will offering – right.

The Bureau of Economic Analysis (BEA) tracks many things including health care costs. The graph I have constructed shows no hiccup from the global economic crisis.

Perhaps, if the government helped the health industry the way the government has helped the dairy farmer, health care would be virtually free.

Vilsack Meeting

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There will be a meeting in Modesto with Secretary of Agriculture Vilsack on August 26, 2009.

There Are Good Co-ops

Lanco Annual Meeting

There are some dairy cooperatives which seem to really be working for the benefit of their members. Lanco-Pennland Quality Milk Producers, commonly known as simply Lanco is just such a co-op.

Although Lanco is headquartered in Hagerstown Maryland, many of the members are concentrated in Lancaster County, Pennsylvania. As might be expected, the vast majority of members are Amish or Mennonite.

Lanco member’s commitment to quality is evidenced by the fact that the average somatic cell count for the previous year was 279,000.

On July 28, 2009 Lanco’s annual meeting presented members with details provided by a few cooperatives. Every penny of expenses was detailed and listed for members to see.

Lanco has returned or reserved 91% of all milk revenue to its members. Lanco has $2 million in equity. In the previous year the cooperative has subsidized trucking by $1.8 million.

These are tough times and in the upcoming months Lanco will send out checks to members to help make it through these times at a rate of four cents per hundredweight.

Lanco was started in 1998 with 30 members. Today there are over 700 members. Approximately 70% of the members are plain people, Amish and Mennonite. Therefore, most of the farms are smaller than average creating something of a logistical disadvantage with Lanco’s competitors.

Additionally, Lanco is shutout of many plants because of full supply agreements with DFA/DMS, their trucks must drive past plants to find a home for member’s milk. Therefore, it is a tribute to both management and members that Lanco has grown steadily.

At the annual meeting, the members attending seem to appreciate the amount of data presented by Lanco CEO Kurt Williams. Kurt went through a detailed explanation of the co-ops finances.

Next, Kurt and I gave a joint power point presentation on some of the factors affecting current farm milk price. The audience remained attentive throughout the entire meeting.

Dairy farmers need more cooperatives such as Lanco.

Cooperatives

1980 was a benchmark year for dairy farmers. Most dairy farmers probably voted thinking government was the problem. Dairy farm prices have plummeted since that time. Perhaps government really is the problem now, not because of what government does but, because of what the government doesn’t do – protect dairy farmers from bullies.

In 1980 dairy co-ops handled 77% of the nation’s milk. In 2007 dairy co-ops handled 84.4%. Not only that the number of co-ops have fallen dramatically. We now are in the era of the bully co-op that cannot or will not deliver a decent milk price to farmers.

Number of co-ops 1980 vs 2007 %
Bulk raw milk 38.6%
Butter 12.8%
Nonfat dry milk 29.2%
Natural cheese2 19.7%
Cottage cheese 14.3%
Packaged fluid milk products 21.7%
Ice cream 15.8%

There are some good co-ops. There are some co-ops with transparency, but, the mega co-ops are as opaque as a block wall.

Most people think the Capper Volstead Act is the over-arching law governing co-ops. In fact the bulk of cooperative law is state law.

We should have, on a state by state basis, laws, sunshine laws which make larger corporation transparent, apply to larger cooperatives.

Predictions

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As someone once said predictions are dangerous, especially about the future. With prices rising on the CME – blocks are $1.35, and NFDM hit a dollar yesterday – the question which pops into everyone’s mind is where is this all leading?

One Cornell study says, “Although somewhat erratic, the cycles in milk price appears to have an underlying order.” Well, maybe but I don’t see it.

Plato said justice is the will of those in power. I would add prices on the CME are similarly the will of those in power. That of course, should change. Imbalances of power are eventually unstable.

CWT No Winners

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From my perspective there is no good news in the CWT press release today. The release states:

CWT officials released more detailed information today about the size and scope of the selfhelp program’s second–largest herd retirement. 73 percent of the farms selected are located east of the Mississippi River, while 70 percent of the 87,000 cows to be retired come from the Western and Southwest regions of the U.S. 72 percent of the milk removed will come from those two regions [see chart on p. 2].

“The increase in the percentage of farms selected east of the Mississippi in this herd retirement compared to the one just completed is an indication that the financial distress farmers are feeling is not unique to one or two regions of the country, but being felt nationwide,” said Jim Tillison, Chief Operating Officer of CWT.

The population of the country is East of the Mississippi. There is no extra milk East of the Mississippi, if indeed there is extra milk anywhere. So, the amount of fossil fuel required to bring milk to America’s tables just increased.

There is another significant point. Taking out those herds means the milk supply system just became less resilient. The smaller farms are where a young person starting out might get a start.

Talk about financial stress. CWT is in court because the liens immediately attached to one CWT payment, in California, from last fall are greater than the CWT payment. The grain lien alone is greater than the CWT payment.

Dean Foods

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Here is the information from Dean Foods second quarter SEC filing. It would appear that Dean Foods income for the first half of this year is 176% of the first six months of last.

Pretty dramatic.

IDFA is Worried

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International Dairy Foods Association (IDFA) is very worried. Keep in mind the spread between processors and dairy farms have doubled since January 2008.

So, in a letter to Herb Kohl they state:

August 7, 2009

The Honorable Herb Kohl
U.S. Senate
Washington, DC 20510

Dear Senator Kohl,

Earlier this week, the Senate voted to add $350 million to the overall funding for the Farm Service Agency as included in the 2010 Agriculture Appropriations bill. Although the amendment was silent as to how the funds are to be used, its sponsor, Senator Sanders, explained that the funds are intended to enable the United States Department of Agriculture (USDA) to increase price support levels for purchases of dairy products beyond the increased levels announced by Secretary Vilsack on August 1st.

IDFA represents our nation's milk, cheese and ice cream companies. We recognize that many of our nation's roughly 60,000 dairy farmers are facing very difficult financial circumstances. We appreciate that Congress has already responded by providing significant financial support for dairy farmers. Direct payments this calendar year under the Milk Income Loss Contract (MILC) program are expected to exceed $1 billion and have not significantly distorted dairy markets.

Check out the profits for the first half of 2009 for Dean Foods and Kraft - both IDFA members.

Hope Maybe

Today, August 10, 2009 Grade A NFDM price rose on the CME to $.99 a pound. Of course, no loads were traded. No loads of NFDM, for all practical purposes, are ever traded on the CME.

Nevertheless, as with the case of cheese, the NASS survey will eventually track after the CME.

NFDM is a residual product. As of the end of last week NFDM was still going to the CCC – albeit in much reduced amounts.

Cheese is up to $1.31/ pounds for 40 pound blocks.

Schools in the Southeast are back in session, and will soon be all over the country.

The talk is, milk supplies are already getting tight in many parts of the country.

The recent Fonterra internet auction of whole milk powder jumping 25% has driven the Kiwi, the NZ dollar up against the U.S. dollar. Therefore, unless something changes, imports will be more costly.

Predicting is a dangerous business but, it does seem that may, just maybe, dairy prices have hit the bottom and are going to climb.

Funny Numbers

What seems to work for this blog is keeping everything short and simple. Unfortunately, everything about dairy calculations seems to be designed to be unduly complex to aid creating an environment of confusion.

Pooling and depooling were brought about by the federal order reform of 2000 under the banner of efficient movement of milk. Depooling occurs because Class I prices are calculated for the current month. Class III prices lag a month so, when there is a rapid run up of cheese price on the CME, effectively Class III would actually be higher than Class I. So, Class III milk is, on paper, held back from the pool volume although the milk actually went into the vat – a scam.

Another scam is distant pooling. A small percentage of milk from the southwest is pooled on the Southeast to gain a higher price for Southwest producers shipping to the big new cheese plants – effectively a subsidy for those new plants.

What is needed, rather than a long explanation of just exactly how dairy farmers are short changed, is a new pricing system which truly is in the public’s interest, with oversight which assures the cards are not stacked against dairy farmers.

However, look back at yesterday’s post and note how there would have been less milk in federal order one for the first six months of this year compared with 2008. According to NASS, New York produced 9 million pounds more in the first six months of 2009 compared with the same period of 2008. There is something funny with the numbers.

Gaming the System

There is an interesting tidbit on page 3 in the latest FMMO 1 “Market Administrators Bulletin”: http://www.fmmone.com/Northeast_Order/MA_Bulletin/bull0906.pdf

“During May and June of 2008, a total of about 300 million pounds were depooled. If this milk had been on the Order, the year-to-year change from 2008 for the first 6 months of 2009 period would have been a decline of 2.9 percent. Most of the effect of this milk would have occurred in Class III negating the increase seen this year.”

Many, maybe most dairy farmers and certainly, politicians, do not understand the concept of pooling and/or depooling. That is a shame.

The real simple answer is that last year, when the CME generated what should have been a high class III price, the farmers never saw the money.

Good News?

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Good news! Cheese and NFDM prices are rising.

There are at least two important questions. One, will prices reach the necessary level? And, two, will the price level be sustained for a long enough period to convince bankers they can once again loan money to dairy farmers?

Well, maybe there are more. Will dairy farm expenses rise at the same rate, canceling out the increased farm milk check (see graphs)?

The batteries are shot on all crystal balls.

Concentration

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In 2007 only 2,418 dairy operation supplied more than 50% of the nation's milk. Needless to say, this is what the "experts" have seen as some kind of inevitable Darwinian economic evolution.

As we move through the worst of dairy pricing, we shall see if this has been prudent policy. For the first time in history, by all appearances, the large farms are the ones in the most trouble.

Sanders, Feigold and Schumer to DOJ

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Dear Assistant Attorney General Varney:

We appreciate that, after years of inaction, the Antitrust Division is taking a focused and aggressive approach to competition and antitrust issues under your leadership. We are writing to share our concern regarding consolidation and anticompetitive practices in the dairy industry and to ask for your continued focus in this area.

As you know, the price that farmers receive for their milk has bottomed out over the last year, plummeting from $19.301cwt to $11.30/cwt, a drop of 41%. As a result of these plunging prices, family dairy farms across the country have gone out of business or will soon be shutting down. This is a disaster not only for the thousands of rural communities that rely on the dairy industry for support but also for the many consumers who want fresh and locally produced food.

Kraft

Kraft’s quarterly report:

http://phx.corporate-ir.net/phoenix.zhtml?c=129070&p=irol-newsArticle&ID=1316651

Organic net revenues declined 8.7 percent driven primarily by an 8.0 percentage point reduction from pricing in response to significantly lower dairy costs. Solid volume growth in Kraft Singles processed slices, Velveeta processed cheese and Philadelphia cream cheese was largely offset by declines in other cheese categories. The Easter shift favorably impacted growth by approximately two percentage points.

To put this in perspective farm milk price dropped 37.5%

Fonterra's Internet Auction

Fonterra's latest auction, in which whole milk powder is sold, increased 25.8% (weighted average) over the auction held in July.

Once Again Bernie

This bill is an amendment to the ag appropriations bill. With 60 votes there is a good possibility this will come to life.


http://sanders.senate.gov/newsroom/news/?id=A8567C42-8810-4E1D-A752-5776662BC0AC

Senate Approves Help for Dairy Farmers

August 4, 2009

WASHINGTON, August 4 – The Senate today voted 60 to 37 for an amendment by Sen. Bernie Sanders (I-Vt.) to provide an extra $350 million for milk price supports to increase government purchases of surplus dairy products.

Reducing supply will result in higher prices for dairy farmers desperate for help as they cope with the lowest prices in nearly four decades. The extra $350 million would provide farmers on average an estimated $1.50 extra per hundredweight, the industry's standard unit of measurement.

“Family-based dairy agriculture is on the verge of collapse,” Sanders told colleagues in a Senate floor speech. “This is not a regional issue. This is a national issue. From the east coast to the west coast, what we are seeing is prices plummeting below the cost of production.

“If Congress does not act, all over America rural communities are going to be suffering economically. People are going to be losing their jobs, and the American people increasingly will not be able to obtain fresh, locally produced food.”

The increase in the Farm Service Agency budget to more than $1.6 billion would allow the U.S. Department of Agriculture to raise the support price for nonfat dry milk from $.92 per pound to $.97 per pound. The floor for cheddar blocks would go from $1.31 to $1.40, and the price for cheddar barrels would increase from $1.28 to $1.37.

The price farmers receive for their milk has bottomed out over the last year, plummeting 41 percent to $11.30 per hundredweight. It costs farmers about $18 per hundredweight to produce milk.

As prices plunged, family dairy farms around the country have gone out of business. “This is a disaster for the farmers, for the thousands of rural communities, and for millions of consumers who want fresh, locally-produced food,” Sanders said.

Sanders’ amendment to the agriculture appropriations legislation was supported by the National Farmers Union, Vermont Agriculture Secretary Roger Allbee, and state agriculture commissioners or secretaries in 10 other northeastern states.

Dimes

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There are people who will argue with a passion about the merits of the Cooperatives Working Together (CWT) program.

There is, however, one item which cannot be argued and that is the financial statement at the CWT site: http://www.cwt.coop/pdf/Financial_Report_2009.pdf

You will notice that CWT requires $3 million a year to administer. But there is also the interest payments of $4,900,000.

Together that represents all of the dimes collected on 79,000,000 hundredweight of milk. All of those dimes are the same as pouring money down a hole.

Market?

On Friday, July 31, 2009 the Agricultural Prices report was released. According to the report, the parity price for July 2009 was $41.70. The “all milk” price was $11.30.
The average price “F.O.B.” was $10.70.

Commonly, F.O.B. means “free on board” and there never has been a situation when that was truer.

Farm milk index was 87, meaning it was 87% of the 1982-84 base period. June’s consumer price index for dairy products was 194.197 or nearly double the base 1982 – 84.

To date no one has used the term bi-polar market, however, this seems to be the case in dairy pricing. The question is, where can a couch large enough be found and who is going to dig up poor old Dr Freud to deal with the situation?

This week Dean Foods will have a second quarter report. My guess is it will be tempered by some clever book work.

Bernie Again

On July 20, 2009 Senator Bernie Sanders wrote to Greg Engles CEO of Dean Foods, inviting Engles to come to Vermont to explain to Vermont farmers why they going broke while Dean Foods has raked in record profits.

Greg Engles responded to Bernie claiming the Federal government determined the price of farm milk. Engles said, “As you know, dairy processors do not set the price of milk paid to dairy farmers.”

Bernie responded:

“The truth is that the USDA docs not "primarily" set the price for milk and other dairy products. What it does, through the Federal Milk Marketing Orders, is to set the minimum price that dairy farmers can receive, not the maximum. In fact, the price that dairy farmers in Vermont are receiving today is being significantly determined by Dean Foods and other processors. This is especially true when Dean Foods controls some 70 percent of the fluid milk market in New England. To argue that the USDA sets milk prices for farmers would be analogous to arguing that because the federal government establishes a minimum wage for workers, the Department of Labor determines all wages in America. That is obviously not the case.”