Legal Plunder

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It is impossible to introduce into society a greater change and a greater evil than this: the conversion of the law into an instrument of plunder.

Frederic Bastiat

The expression "All roads lead to Rome",comes down to the fact the elite of Rome plundered the rural areas and the roads conveyed wealth from the countryside to Rome.

In June, 2010 New York dairy farmers were paid a total of $177,505,300. According to USDA "Costs and Returns" the total costs were $261,960,900. There will be those who argue the "costs" numbers are not accurate because milk can be made cheaper - think slavery.

All of the arguments for the elimination of parity were bogus. Yes, the government bought a lot of product, but there was no "need test" at all. As noted in an earlier blog, elimination of parity actually increased milk production, while the profit from milk production went to "Rome."

There was absolutely no public benefit from elimination of parity. The Consumer Price Index (CPI) for dairy went right along with the CPI for all items - a .99 correlation.

Rural NY looks like a war zone. NY has been the third largest dairy state. Dairy is the most important economic factor in rural NY. The plundering of dairy farmers has left the rural areas decapitalized - to wit, plundered.

The same can be said of other states, I have just taken NY as an example.

Dairy Promotion

http://www.ams.usda.gov/AMSv1.0/FindaReporttoCongress

At the link listed above, you will find:

The enabling legislation of both the producer and processor dairy promotion programs (7 U.S.C. 4501 and 7 U.S.C. 6401) requires the U.S. Department of Agriculture (USDA) to submit an annual report to the House Committee on Agriculture and the Senate Committee on Agriculture, Nutrition, and Forestry by July 1. The producer and processor programs are conducted under the Dairy Promotion and Research Order (Dairy Order) (7 CFR § 1150) and the Fluid Milk Promotion Order (Fluid Milk Order) (7 CFR § 1160), respectively.

The report which should have been on July 1, 2010 available is for 2009. Instead, if you click on the latest listed report "2009" you actually will get the report for - you may have guessed it - 2008.

Most of the report relates to economic models. The assumptions, and they can only be assumptions because there is no experimental control, cause the conclusions.

Nothing New

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Ecclesiastes 1:9 (King James Version)

The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun.


If you look in the bottom left corner of the above letter you will see it was written in 1938.

In my county, in 1938 you could buy an acre of farmland for eight hundredweight of milk - not so bad.

The cause of the letter is nothing new. Imbalance of power and failure of leadership bring on hurt.

Of course, solutions are the product of imagination. We need to imagine a better world and move, even if slowly, in that direction.

Lanco Annual Meeting

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Today I drove back from Lancaster, Pennsylvania. I was in new Holland yesterday for the annual meeting of Lanco-Pennland cooperative, usually known simply as Lanco.

Lanco is just over ten years old and has grown amazingly in an area where Dairy Marketing Service (DMS), a subset of DFA, has a great deal of power. The growth could not have occurred without delivering more than the competition.

A significant number of members are Amish, which means most farms are under 50 cows. Some might see that as a logistical nightmare but, Lanco continues to operate in a manner which returns value to their members.

The level of engagement of the board and the transparency of management is refreshing to say the least.

For the past year the cooperative's member milk has averaged 268,000 somatic cell count - that is real quality. The milk quality certainly helps sales and returns premiums to members.

Lanco's annual meeting was held at Yoder's, in New Holland, Pennsylvania. Members came in cars, vans, buses and buggies. With an estimated 500 attending, the room was packed to capacity.

Same Old Stuff

Today, July 27, 2010, the appearance of actual trading on the CME is misleading. Same buyer and seller for all the cheese.

Butter was a similar story. Except that, the seller appeared to be Daisy Brands. Here is a link to Daisy Brands product list: http://www.daisybrand.com/products/index.aspx

As anyone can plainly see, Daisy Brands would have to go out and buy butter to sell on the CME. This is not a rare event.

Obviously, Daisy Brands has an interest in the price of cream at the farm, and guess what, that is what brings Daisy Brands to the CME.

CME Volume

http://cmegroup.mediaroom.com/index.php?s=43&item=3041

CME Group Volume Averaged 12.2 Million Contracts per Day in June 2010, Up 8 Percent, and 13.5 Million Contracts Per Day in Second Quarter, Up 31 Percent
- Double digit monthly year-over-year growth in equities, foreign exchange, energy and metals
- Second highest quarterly average daily volume ever
- Record quarterly FX average daily volume of 1.0 million contracts, up 82 percent
- Record quarterly energy average daily volume of 1.8 million contracts, up 29 percent
- Record quarter for WTI and refined products, up 52 and 36 percent, respectively

More at link.

No mention of dairy trading. It is too little to take note.

Probably the big players would like it if no one paid attention to the CME

Its Been Hot

http://discover.itsc.uah.edu/amsutemps/execute.csh?amsutemps+001

Seems like not too long ago tomatoes were an iffy plant in this county. This year it has been hot - too hot.

The above link is an interesting interactive site. Enjoy

Important Question

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There is no doubt dairy farmers need better milk prices. If you get the government out, contrary to some opinion, and this includes the federal orders, the door is open for vertical integration as in chicken and pork.

A government role is necessary to limit the power of bullies. In order for the government to be involved there needs to be a clear and compelling public interest.

Dairy farmers are not the only ones hurting and the hurt started from the same attitude as we have in dairy pricing. See: http://www.economicsecurityindex.org/?p=home

The site is interactive and the graph shown above will change.

So, the question is both simple and broad - what is the public's interest in a healthy dairy system? Only if that question is answered very carefully, will we have a chance in Washington, DC.

Funny Stuff

The Livestock Dairy and Poultry Outlook report just came out. It is available at: http://www.ers.usda.gov/Publications/LDP/2010/07Jul/LDPM193.pdf

On page 20: "The current situation has Class IV prices above Class III prices, a reflection of the tightness in fat availability. Lower fat tests have boosted butter prices and may have helped firm up cheese prices as well. This situation should correct itself early in 2011."

I'm not sure of that. The protein test in the federal orders have been off as well - by a full point.

According to NASS milk production in the first six months of 2009 was 96262
million pounds and in 2010 Jan -June it was 97,076 million pounds - not a full point increase.

Total cheese production was up 1.9%. If you're following this, there is something very wrong with the picture. Last year they were putting considerable magic dust in the cheese vat. Cheese production - everything being equal , which it never is - should have been flat without even more "magic" in the cheese vat.

Supply Tightens

June milk production Numbers have not been out a week and there are abundant signs of short milk supplies. Dairy Market News overview states:

FLUID MILK: Weather conditions are having bigger impacts
on the milk flow across the United States as the summer season
progressed. Production declines are noted across many regions as
well as drops in milk components. Hot, humid conditions in the
Northeast and Middle Atlantic regions are causing significant
production declines and causing milk plants to run on reduced
schedules. Milk production in the Southeast has moderated and
being attributed to increases in heifers in the region offsetting
seasonal declines. Upper Midwest milk output is dropping with
weather conditions the main reason. There is good demand for
surplus milk and offerings are demanding premiums of up to $3
above class usage, unusual at a time when discounts are normally
needed to move milk. Production of milk is trending lower in
California, Arizona, and New Mexico. Declines in the fat and
protein levels of incoming milk are commonly noted. Conditions
are making heat abatement measures necessary, but less effective
as humidity levels increase. Milk supplies in the Northwest,
Idaho, and Utah are seasonally steady and plants are able to
handle the current flow. Bottled milk demand is trending along
summertime patterns. There are areas where retail features are
moving more milk along with some strategies of offering
reduced/skimmed milk pricing to allow bottlers to capture more
cream. Cream markets remain tight and characterized by good
demand and higher multiples.

Those multiples are based on current CME butter price. DMN states multiples as high as 170, which means 170% of the CME butter price per pound of actual fat.

Politics Today

Well, it is big news, the Shirley Sherrod/USDA/Vilsack/Tea Party/ Obama/Fox News.

Here's a link to Vilsack's press meeting: mms://ocbmtcwmp.usda.gov/content/secy/secy072110c.wmv

Key in this whole story is the concept of substantiate - neither side did - it was all about politics.

But, substantiate is closely rooted with substantial. Abraham Lincoln referred to the USDA as "the people's office." I cannot say any ag secretary, from either party, has done much to uphold Lincoln's vision.

Except for the pleasure it would bring to some, I think Vilsack should go. I worry, however, about who might replace him. If people are going to allow their buttons to be pushed what do we all deserve?

Madison Hearing Transcript

http://www.justice.gov/atr/public/workshops/ag2010/wisconsin-agworkshop-transcript.pdf

Out of curiosity, I went to the Bob Cropp testimony which was all about defending big co-ops. Dr.Cropp begins his defense on page 191. He compares the size of co-ops with big retailers.

Then he talks about the over-order premium negotiated by co-ops on page 194, which he says averaged $2.45. I don't think that is right. See: http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELPRDC5081678

Here in the Northeast, with high class I use the premium is $1.50. In Wisconsin, with little class I use the premium is $3.52. Where the big co-ops have power there is a small premium. Where there is competition, the premium grows.

One More Goes Down

No one should take comfort in another's misfortune but,things are going very bad.

IN RE VEBLEN WEST DAIRY LLP

In re: VEBLEN WEST DAIRY LLP, Tax ID/EIN 26-2017857, Chapter 11, Debtor.

Bankr. No. 10-10071.

United States Bankruptcy Court, D. South Dakota.

July 16, 2010.

CHARLES L. NAIL, Jr., Bankruptcy Judge

The matter before the Court is AgStar Financial Services, PCA and AgStar Financial Services, FLCA's Motion for Appointment of a Trustee. This is a core proceeding under 28 U.S.C. § 157(b)(2). This decision and accompanying order shall constitute the Court's findings and conclusions under Fed.Rs.Bankr.P. 7052 and 9014(c). As set forth below, the motion will be granted.
I.

Veblen West Dairy LLP ("Debtor") is one of several interrelated dairy operations in South Dakota and its neighboring states. Debtor is primarily a milking facility, with nearly 4,000 cows in production. Debtor's most significant ties to and direct connections with the various interrelated entities were with Veblen East Dairy Limited Partnership ("Veblen East") and Prairie Ridge Management Company, LLC ("Prairie Ridge"). Veblen East purchased dry cows from Debtor and the related milking facilities, supplied freshened cows to the same facilities, and operated a calving, special needs, and hospital facility. Under the direction of Richard Millner ("Millner"), Prairie Ridge managed Debtor, Veblen East, the other milking facilities, and certain related calf- and heifer-raising facilities. Several of the entities were financed by AgStar Financial Services, PCA and AgStar Financial Services, FLCA ("AgStar").

More here:

http://www.leagle.com/unsecure/page.htm?shortname=inbco20100716492

Good News - Maybe

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The Commodity Futures Trading Commission (CFTC) regularly publishes its "Commitment of Traders" (COT) report.

Above shows the most recent data for Class III milk futures. Notice the headings. Non - commercial means, for the most part, speculators. Now notice the "shorts" are running away. This likely means prices are going to improve.

Next, notice the total number of traders. No sane person would call this a real market. However, most of the experts are recommending "risk management" which means beware once again of a thin, thin market.

May Exports of Milk Powders

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The U.S. International Trade Commission (USITC) updated its trade database this week to include figures from May 2010.

Looking at the data is interesting because, everyone was told milk prices crashed because the export market for dairy dried up. Of particular concern was the crash of the milk powder market - nonfat dry milk (NFDM) and skim milk powder (SMP).

Total exports of dairy products are very high this year. The May 2010 dairy powder exports are 87% of May 2008. But, the "all milk" price is just 82% of May 2008.

The financial world is still very shaky. Credit is still a worry. So, my guess those with the power to put a little aside for a rainy day, are doing just that. Supply and demand alone, leave quite a few questions unanswered.

Dairy Market Failure

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This week the Bureau of Labor Statistics (BLS) released the Producer Price Index (PPI) and the Consumer Price Index (CPI) through June of this year.

The PPI shows farm milk and processor data. The CPI is the index of retail (consumer)prices.

An index takes a base period, in this case 1982 and compares each following period with the base. So the base is expressed as 100 or you could say 100%.

Naturally, there are glitches in any particular time period - exports for example. I took the average for June, of each segment to eliminate that problem.

The market system is supposed to be based upon costs plus profit equals selling price. This systemic failure is not a failure of information. There is a lot of information out there. The real problem is a failure to recognize the importance of power, or lack thereof.

Market Ideology

This is not directly related to dairy but, the gist is the same.

http://www.project-syndicate.org/commentary/turner1/English

"Adair Turner is Chairman of the United Kingdom's Financial Services Authority and a member of the House of Lords."

LONDON – John Maynard Keynes famously wrote that “the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than commonly understood. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.”

But I suspect that a greater danger lies elsewhere, with the practical men and women employed in the policymaking functions of central banks, regulatory agencies, governments, and financial institutions’ risk-management departments tending to gravitate to simplified versions of the dominant beliefs of economists who are, in fact, very much alive.

Indeed, at least in the arena of financial economics, a vulgar version of equilibrium theory rose to dominance in the years before the financial crisis, portraying market completion as the cure to all problems, and mathematical sophistication decoupled from philosophical understanding as the key to effective risk management. Institutions such as the International Monetary Fund, in its Global Financial Stability Reviews (GFSR), set out a confident story of a self-equilibrating system.

Thus, only 18 months before the crisis erupted, the April 2006 GFSR approvingly recorded “a growing recognition that the dispersion of credit risks to a broader and more diverse group of investors… has helped make the banking and wider financial system more resilient. The improved resilience may be seen in fewer bank failures and more consistent credit provision.” Market completion, in other words, was the key to a safer system.

So risk managers in banks applied the techniques of probability analysis to “value at risk” calculations, without asking whether samples of recent events really carried strong inferences for the probable distribution of future events. And at regulatory agencies like Britain’s Financial Services Authority (which I lead), the belief that financial innovation and increased market liquidity were valuable because they complete markets and improve price discovery was not just accepted; it was part of the institutional DNA.

This belief system did not, of course, exclude the possibility of market intervention. But it did determine assumptions about the appropriate nature and limits of intervention.

For example, regulation to protect retail customers could, sometimes, be appropriate: requirements for information disclosure could help overcome asymmetries of information between businesses and consumers. Similarly, regulation and enforcement to prevent market abuse was justifiable, because rational agents can also be greedy, corrupt, or even criminal. And regulation to increase market transparency was not only acceptable, but a central tenet of the doctrine, since transparency, like financial innovation, was believed to complete markets and help generate increased liquidity and price discovery.

But the belief system of regulators and policymakers in the most financially advanced centers tended to exclude the possibility that rational profit-seeking by professional market participants might generate rent-seeking behavior and financial instability rather than social benefit – even though several economists had clearly shown why that could happen.

Policymakers’ conventional wisdom reflected, therefore, a belief that only interventions aimed at identifying and correcting the very specific imperfections blocking attainment of the nirvana of market equilibrium were legitimate. Transparency was essential in order to reduce information costs, but it was beyond the ideology to recognize that information imperfections might be so deep as to be unfixable, and that some forms of trading activity, however transparent, might be socially useless.

Indeed, the Columbia University economist Jagdish Bhagwati, in a famous essay in Foreign Affairs entitled “Capital Myth,” talked of a “Wall Street/Treasury” complex that fused interests and ideologies. Bhagwati argued that this fusion played a role in turning liberalization of short-term capital flows into an article of faith, despite sound theoretical reasons for caution and slim empirical evidence of benefits. And, in the wider triumph of the precepts of financial deregulation and market completion, both interests and ideology have clearly played a role.

Pure interests – expressed through lobbying power – were undoubtedly important to several key deregulation measures in the US, whose political system and campaign-finance rules are peculiarly conducive to the power of specific lobbies.

Interests and ideology often interact in ways so subtle that is difficult to disentangle them, the influence of interests being achieved through an unconsciously accepted ideology. The financial sector dominates non-academic employment of professional economists. Because they are only human, they will tend implicitly to support – or at least not aggressively challenge – the conventional wisdom that serves the industry’s interests, however rigorously independent they are in their judgments concerning specific issues.

Market efficiency and market completion theories can help reassure major financial institutions’ top executives that they must in some subtle way be doing God’s work, even when it looks at first sight as if some of their trading is simply speculation. Regulators need to hire industry experts to regulate effectively; but industry experts are almost bound to share the industry’s implicit assumptions. Understanding these social and cultural processes could itself be an important focus of new research.

But we should not underplay the importance of ideology. Sophisticated human institutions – such as those that form the policymaking and regulatory system – are impossible to manage without a set of ideas that are sufficiently complex and internally consistent to be intellectually credible, but simple enough to provide a workable basis for day-to-day decision-making.

Such guiding philosophies are most compelling when they provide clear answers. And a philosophy that asserts that financial innovation, market completion, and increased market liquidity are always and axiomatically beneficial provides a clear basis for regulatory decentralization.

Here, I suspect, is where the greatest challenge for the future lies. For, while the simplified pre-crisis conventional wisdom appeared to provide a complete set of answers resting on a unified intellectual system and methodology, really good economic thinking must provide multiple partial insights, based on varied analytical approaches. Let us hope that practical men and women will learn that lesson.

Block Cheese Price

Probably most people have noticed the price of block Cheddar is rising at the Chicago Mercantile Exchange on bids. Jerome Cheese, which makes cheese,seems to have disappeared.

So, now we seem to have a situation where another manufacturer of cheese, Mullins, appears to be bidding for cheese.

My guess is that if there are two theories about what this all means, they are probably both wrong.

The average world price for Cheddar is still at $1.79 per pound. one thing about world prices is the value of the dollar compared to other currencies. since, the U. S. dollar is falling world prices will probably stay high. But, who knows?

Play 60

http://dairyline.com/wpbackend/?p=2276

Note the promotion of skim:

July 12th, 2010


Dairy farmers, through the National Dairy Council (NDC), have provided child nutrition, research, education, and communications to schools for over 95 years and the newest program is called “Fuel Up to Play 60.” NDC Executive Vice President, Jean Ragalie, reported in Monday’s “DMI Update” that it’s a partnership between the NDC, the National Football League, and USDA.

In its first year it’s already in 60,000 schools across the U.S., according to Ragalie, and is expected to continue to grow. When asked why it’s so popular, Ragalie said it came about at the right time and the right place.

“Kids are fatter, weaker, and wider than ever before,” Ragalie said, “And schools are a critical place for us to get our students and youth eating better and moving more and this program is a one-stop shop for schools to look at nutrition and physical activity.”

One of the “magic formulas,” she said, is that it encourages kids to eat more of the foods that they aren’t eating enough of, which includes low fat and fat free dairy products. The program will get even more dairy products into the schools, she concluded, “so kids are eating more nutrient rich foods than ever before.”

http://www.fueluptoplay60.com/getinvolved/about.html


The last paragraph:

The United States Department of Agriculture (USDA) has joined this effort. Its involvement and educational resources also maximize reach and impact for the program. Fuel Up to Play 60 is funded with an initial private-sector financial commitment of $250 million over five years by America's Dairy Farmers. Funding is expected to grow as government, business, communities and families join this effort. More than 60,000 - or 60 percent - of the nation's 96,000 private and public schools are currently enrolled in Fuel Up to Play 60.

$250,000,000 You would have thought someone would have checked the science.

http://www.reuters.com/article/idUSHAR26781420080102

(Reuters Health) - The amount of calcium and vitamin D in the diet appears to have little or no impact on the risk of prostate cancer, but the consumption of low-fat or nonfat milk may increase the risk of the malignancy, according to the results of two studies published in the American Journal of Epidemiology.

But...

In an overall analysis of food groups, the consumption of dairy products and milk were not associated with prostate cancer risk, the authors found. Further analysis, however, suggested that low-fat or nonfat milk did increase the risk of localized tumors or non-aggressive tumors, while whole milk decreased this risk.

Fads prevail over everything. Dairy farmer money should be withdrawn from this project.

More Melamine

http://news.xinhuanet.com/english2010/china/2010-07/13/c_13398205.htm

Here we go again. Yes, we do continue to import caseins from China,
324,076 pounds Jan through May 2010.

New Zealand sees this as an opportunity to export more product to China.

Here is the story:

Official pledges stricter actions against melamine-tainted milk products
English.news.cn 2010-07-13 20:03:15

BEIJING, July 13 (Xinhua) -- Health authorities must step up efforts to trace hidden melamine-tainted milk products that should have been destroyed, in the wake of large batches of contaminated products turning up this month in two provinces, a Health Ministry official said Tuesday.

"From the problematic milk powder found in Qinghai, we can see that we need to do more in this work," Chen Rui, a vice director with the Ministry of Health's food safety department, told a press conference.

Food safety incidents must be thoroughly investigated and the perpetrators must be severely punished, he said.

Melamine added to milk products can make the protein content seem higher. In the melamine scandal of 2008, the industrial chemical caused the deaths of six babies and sickened 300,000 others who had been fed with baby formula made from tainted milk.

China's government has repeatedly ordered all tainted products to be destroyed, but reports of tainted items have continued to emerge.

In the latest discovery, Chinese police authorities found 64 tons of raw materials for making milk powder and 12 tons of processed powder tainted with melamine at a factory in the far-western province of Qinghai.

Some packages of milk formula also tested positive for excessive melamine content in northeast China's Jilin Province. The tainted products were among 900 kg of milk formula that were found to be produced by a plant with suspected falsified production licenses.

Chen said about 25,000 tons of melamine-tainted dairy products had been destroyed since 2008.

He said authorities were still investigating the Qinghai case, and promised to publish progress in the investigation in a timely manner.

Pete

Pete's surgery went well today and he should be home tomorrow afternoon.

Note:

I should have mentioned I was talking about Pete Hardin publisher of The Milkweed.

Supply Management

I can see that there are arguments on either side of supply management. However, what I find very interesting is the big processors and their spokespeople are scared-to-death of the idea.

Obviously, there is an advantage to some to claim there is an over supply of milk. Those in the industry set up an independent, audited, open, transparent supply management, if they don't like the government involvement.

Here is IDFA's position:


http://www.cheesemarketnews.com/guestcolumn/2010/25jun10.html

Guest Columnist
Perspective:
Industry Issues

Opportunity counts

Connie Tipton

Connie Tipton is president and CEO of the International Dairy Foods Association. She contributes this column exclusively for Cheese Market News®.

“In the middle of difficulty lies opportunity.” — Albert Einstein

Obstacles challenge us on our path through life, but opportunity keeps us going. Our freedoms and opportunities in this country are immense and unique. Yet this is so fundamental for most Americans that we forget how important it is.

In the U.S. dairy industry there have been many challenges, but we can see growing opportunities as our economy and economies around the globe rebound. Credible research done by top-notch organizations outside the dairy industry shows the U.S. dairy industry is unique in its ability to capture growing new markets and to be the dairy production platform for people around the world.

Frankly, if you had told me 10 years ago that we would have commercial exports of 10 percent or more of our milk supply without subsidies, I wouldn’t have believed it. But as the world has changed, we have found more and more world market opportunities for U.S. milk. This is indeed an exciting opportunity for U.S. dairy and an opportunity we can’t afford to squander.

This is why I feel so strongly that our policies must be designed to best position us for a future that will unleash this opportunity for the entire U.S. dairy industry, so that we can create jobs and play our part getting our nation out from under our current economic problems.

The health of the U.S. dairy industry depends on the financial viability of our milk producers and processors. A margin insurance program, coupled with new risk management tools to better manage price swings, will go a long way to allow the U.S. dairy industry to remain competitive, both with dairy ingredients in the domestic market and the growing world dairy trade. But if those policies include supply management, we will surely lose the opportunity that is so close at hand.

Supply management is being touted as a way for farmers to control their own destiny, but nothing could be further from the truth. Control is turned over to the bureaucrats in Washington who will decide how much supply is enough and what penalty must be exacted on those who don’t comply with the government decision. Forget freedom to produce and grow as you think is best for your farm. And forget the prosperity that is nearly in the palm of our hands with growing market opportunities.

Bluntly put, I believe supply management will destroy our dairy industry’s opportunity for the future.

I have personally witnessed the move by Canadian dairy manufacturing companies into the U.S. market because we have a growing milk supply and they are stymied on growth in Canada by their decades-old supply management system. If we go the same route as Canada, we will witness not only Canadian companies leaving the United States for a better milk market, but probably some of our own U.S. companies looking elsewhere for their expansion. That’s a recipe that dooms our future as a growing industry.

Supply management will stop U.S. dairy exports at a time when emerging markets are crying out for more dairy products. It will make our dairy industry less competitive and will result in food manufacturers finding ways to reformulate and replace dairy ingredients with lower cost options. Our products and ingredients will be passed by for alternatives where they exist. In some cases we’ll have to rely on more imports and products manufactured elsewhere instead of here in the United States.

Supply management will not impact everyone the same. Many states like Washington, Minnesota and Wisconsin have been growing much faster than average, and they will be forced to slow down. Supply management policies will pit producers against producers and states against states. This is NOT the direction to take.

These will be real consequences of supply management and we must not let this be the future for the U.S. dairy industry.

As Harry Truman reminded us, progress occurs when courageous, skillful leaders seize the opportunity to change things for the better. We are forming a coalition to fight for freedom of choice for dairy farmers and for opportunity and growth for the U.S. dairy industry. I invite you to join us.

CMN

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.

World Dairy Farm Milk Prices

According to an organization in the Netherlands, the original EU countries rolling average for the last 12 months 27.65 Euro/100Kg., Fonterra average payout 24.18 Euro/100Kg and, are you ready, the USA averaged 22.61 Euro/100Kg.

A kilogram is equal to 2.2046 pounds.

Now we are always hearing about trade barriers but, what about payment barriers? An argument can be made that costs of production are higher in Europe, and there is no real indication that European farmers are getting rich but, our price compared with New Zealand?

History Part II

I can hire one half of the working class to kill the other half.
Jay Gould
US financier & railroad businessman (1836 - 1892)

Jay Gould could have been talking about dairy farmers but, it isn't the farmers that are the problem. The problem is the leadership, which includes land-grant experts.

A paper on the 196 Farm Bill written by Ed Jesse is available at: http://future.aae.wisc.edu/publications/mpb55.pdf

Jesse says in the paper:

"Upper Midwest objections to the Compact are grounded in its effect on the supply of milk for manufacturing purposes and the resulting effect on prices for manufactured dairy products."

"The Compact sets fluid milk prices higher than federal order minimums. This decreases fluid milk consumption and, through an increase in the blend price to producers, increases milk production. Larger production and reduced fluid consumption add to the supply of manufacturing milk, lowering manufacturing milk prices both inside and outside the Compact area."

As can be seen in the graph in the previous post, Jesse's argument is pure fiction.

Now, move ahead to the present.

See: http://www.agriview.com/articles/2010/07/08/dairy_news/dairy03.txt


The article is about supply management, which IDFA opposes as they did the Compact.

Here is Jesse:

Jesse said there are differences of opinion based largely on which region of the U.S. a producer lives and farms in. For example, Jesse said California is pushing supply control “hard” because “they’ve lost their competitiveness because of higher feed prices. They want to ensure that they can keep their market share by forcing others to cut back...”

Evidence of that “hard” push for mandatory supply controls is seen in the names of the authors and co-authors of the two versions of the Dairy Price Stabilization Act of 2010. Representative Jim Costa, a Democrat from California, has signed on.

The bills also have backing from senators and representatives from Northeast states, which, Jesse said, are also at a competitive disadvantage to Wisconsin and other Upper Midwest states when it comes to producing milk somewhat inexpensively. Senator Bernie Sanders, an Independent from Vermont, is the lead author of the Senate bill, while Senator Patrick Leahy, a Vermont Democrat, has also added his name to the legislation. Meanwhile, the House bill bears the names of Peter Welch, a Democrat from Vermont, along with the names of John Larson and Joe Courtney, a pair of Democrats, both from Connecticut.

“They’re fairly strongly in favor of this,” said Jesse, of the Northeast. “I think they see it as a way of n just like California n ensuring that they can continue to produce milk and support local communities. That’s not a bad objective, but at the same time, I think you have to consider where milk can be produced the most efficiently, and consider the movement of milk as opposed to the local supply...”

Jessie worries that a supply control program might hurt the growth in dairying that Wisconsin has enjoyed the last few years. And he said that Canada’s example shows that there is “no clear evidence” that a milk quota system helps retain dairy farm numbers.

"It's déjà vu all over again" as Yogi Berra used to say.

Basically, any plan which stand a real chance of putting more money in the farmer's pocket will be opposed by land-grant experts - who are on the public dole.

History

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There's an old expression about "diggin up bones." But, there is also the long understood truth about those who will not learn from history. So, let's look back at the very heated debate about the Northeast Dairy Compact. The Compact ran from 1998 to September of 2001.

The Compact's basic idea was to take some power from the big guys and put more money in the pockets of Northeast dairy farmers.

There are so many bills and issues in Washington, DC that no politician can grasp the details of every issue. Rather than wasting time trying to figure everything out, politicians will look to politicians who have a leadership position on certain issues. Most politicians assume the politicians in the upper Midwest will look out for dairy and understand the issues.

If you are a lobbyist, you can use this simple fact to your advantage.

IDFA hired M&R Strategic Services to defeat the Northeast Dairy Compact. M&R utilized focus groups to find "push button" issues. The two they came up with was "milk tax on the poor" and "unfair to upper Midwest dairy farmers."

Then IDFA paid for a bogus "study" by Ken Bailey which could "prove" the Compact would harm the upper Midwest. NE dairy farmers were going to overproduce and drive milk prices down for the upper Midwest. The upper Midwest fell for it.

Now, lets look back. Was there any basis for the claim the upper Midwest would suffer? As can be seen in the above graph, the "model" used to defeat the Compact was a lie.

There is a very important lesson to be learned about how DC works on dairy issues from the Compact.

Letter to National Milk

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There is a genuine need for an organization which represents the interest of dairy farmers. That organization in not NMPF.

Here is a link to NMPF "associate members": http://www.nmpf.org/about-nmpf/associate-members

Gary Genske raises some important points.

CWT What a Haul

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Above is the latest from CWT. Notice the quantity 39 million pounds?

Block Cheddar on the Chicago Mercantile Exchange has averaged $1.39 per pound, March 2010 through June 2010.

CWT enhances the deal at $1.40 per pound.

World Cheddar price has averaged $1.78 per pound in the same time period.

Do the math. Easy money.

Fonterra's Latest Auction

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As you can see from above all product prices in Fonterra's globalDairy auction fell.

Today, on the CME grade A NFDM lost tow cents to close at $1.21/lb. For comparison, the average Fonterra auction price for SMP was $1.39 per pound.

We continue to be way below world prices. How long ago were we told we need to produce at world prices?

Bickering System Going Nowhere

If you look at the recent DOJ hearings in Madison Wisconsin, you might note there is not one Republican politician in the lineup. See: http://www.justice.gov/atr/public/workshops/ag2010/wisconsin-agenda.htm

We are 18 months into a dairy farm milk price depression and there is really nothing out of DC.

Nobody really talks about the situation but, a two party system can be like a couple bickering. Not much discussion and nothing really changes.

NMPF has a program which it is promoting. FAPRI's analysis says there is little change. See: http://www.fapri.missouri.edu/outreach/publications/2010/FAPRI_MU_Report_05_10.pdf

Those on the gravy train try to keep their seats. In the 2006 election cycle the dairy PACs gave 34% to Dems / 66% to Repubs. In 2010 it is 56% to Dems / 44% to Repubs.

As you can see it is not the principle,it is the money.

Fourth of July

Today, we Americans celebrate July 4th without any apparent questions about the meaning of freedom. At the time of the American revolution 90% of the eligible voters, granted they were male and white,were self employed.

Today, most Americans are employees and I would hold that is an important thought to give pause as to the meaning of freedom.

Dean Foods has 25,820 employees and Kraft Foods has 97,000 employees. These corporations are top-down organizations, not democratic institutions. More
importantly, they are along with other big players in dairy, are bureaucracies - big business is essentially not much different from big government. They are big buddies.

So, I find it very strange when some people advocate what they call "free markets." What is called "free markets" is neither free nor a market. I am a big supporter of both but, lets call a spade a spade. We are today close, very close, to oligarchy.

Farm Picture

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The Federal Reserve regularly publishes a "Flow of Funds Report", which is available at:http://www.federalreserve.gov/releases/z1/Current/z1.pdf

There is a lot of meat in this report. For instance employee compensation fell in 2009. What is not shown is that men between the age of 25 and 65 have an unemployment rate of 22%, which does not include those working reduced hours or part time. And people wonder why farmers are still hanging on - there are no jobs.

What is shown in the above graph is that farms, all farms, lost net investment in two out of the four years prior to the financial collapse. Out of the six years shown, only two were positive.

For comparison the U.S. Bureau of Economic Analysis states: " Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $116.9 billion in the first quarter, compared with an increase of $108.7 billion in the fourth quarter."

Dairy Politics

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In 1939 the Supreme Court in the Rock Royal case affirmed dairy farmers should get cost of production. The actual words of the Court bear repeating:

By Section 2, 7 U.S.C.A. § 602, it is declared to be the policy of Congress, through the exercise of the powers conferred upon the Secretary of Agriculture, 'to establish and maintain such orderly marketing conditions for agricultural commodities in interstate commerce as will establish prices to farmers at a level that will give agricultural commodities a purchasing power with respect to articles that farmers buy, equivalent to the purchasing power of agricultural commodities in the base period.

In other words "parity."

Then in 1981, Ronald Reagan signed a bill eliminating parity. The hue and cry from all experts was that without the end of parity, dairy farmers would continue to overproduce. Processors and co-ops dumping dairy products did not have to prove anything. The government stood ready to buy dairy products, which met standards.

The only basis for the claim would have been linear projection of recent milk production. So, projecting out the data available in 1981 indicates production would have been 160 billion pounds in 2009.

Trim a fruit tree and you get more, not less, fruit. Dairy farmers took the only option left and produced more - 29 billion pounds more in 2009.

Beware of the scams conjured up by people in high places. Critical thing should not be optional for dairy farmers,there is a high price to pay for being a follower.

Butter Production Off

Today, USDA's "Dairy Products" was released. Butterfat test are still low and the butter production in May was minus 5.6% compared with May 2009. Butter production was even down from April 2010 - 1.3%.

The odd thing is where is all the butterfat coming from to increase cheese production? Something sneaky going on.