Northeast Case

In the antitrust case filed in Federal District Court, District of Vermont, the judge, Christina Reiss handed down a decision on the defendants "Motion to Dismiss" yesterday August 30, 2010.

The plaintiffs Alice Allen and Laurance Allen, DBA Al-lens Farm and Garrett Sitts and Ralph Sitts have filed a lawsuit against the defendants, Dairy Farmers of America, Inc., Dairy Marketing Services, LLC, Dean Foods Company and HP Hood LLC.
Overall, the decision by Judge Reiss can be viewed as a positive step forward.

“DFA's and DMS’s Argument in Favor of Dismissal of Plaintiffs’ GNEMMA price-fixing claim on the basis of Capper-Volstead immunity is considerably less persuasive. According to the Amended Complaint, GNEMMA is an over-order pricing agency comprised of DFA, for cooperatives that market their milk through DMS (Dairylea, Land O Lakes, St. Albans, and Maryland and Virginia Milk Producers Cooperative Association Inc.", states the opinion. The Judge continues, "the Amended Complaint alleges that "GENMMA’s member cooperatives… Fix and monitor the over-order premiums that they will distribute to their respective member farmers in the Northeast." Continuing, “It further asserts that by establishing and participating in GENMMA, DFA eliminated competition between cooperatives in the Northeast for members and sought to bring cooperatives that did not participate in DMS into a common decision-making and strategic organization." "Plaintiffs allege that they and class members have been injured by these activities through their receipt of artificially depressed milk prices."

DFA and DMS of course, argue Capper-Volstead immunity. "As price-fixing is otherwise a per se violation under Section 1 of the Sherman Act, and as a cooperative is generally in the best position to establish whether its members are farmers-producers, the court finds more rational the approach taken by those courts that interpret Capper-Volstead immunity as an affirmative defense to be established by the defendant seeking its protection." writes Judge Reiss.

In the next paragraph, referring to the Capper Volstead Act, “It is thus grants dairy cooperatives antitrust immunity with respect to price-fixing agreements with other dairy cooperatives,’[p]rovided, however, [t]hat such Association are operated for the mutual benefit of the members thereof…” The Judge writes, “The Act does not, however, extend immunity for conduct ‘outside the ”legitimate objectives” of a cooperative,’ including restraining Ormonde totalizing trade, or suppressing competition."

The Judge concludes, "Here, Plaintiffs have pled their way around Capper-Volstead immunity sufficient to survive a motion to dismiss. They allege the DFA does not qualify as a Capper-Volstead entity, and that the members of GNEMMA have not acted for their dairy farmer members’benefit but rather have “agreed to fix, reduce, stabilize or maintain at artificially depressed values the over-order premiums paid to dairy farmers in the Northeast."

In this case, the ruling on Capper-Volstead immunity is welcomed. The case will move forward.

Fonterra's New Warehouse

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Sales have been good for Fonterra, this year. America is a huge market.

Fonterra has rented a new warehouse, not far from Chicago, Illinois, near Interstates 55 and 80.

The new facility is over a million square feet and the asking price has been $3.50/sq. ft/year. Since the building has been unoccupied for some time, perhaps a lower price was negotiated.

Fonterra could never supply the dairy needs of America. Fonterra can only depress farm milk prices for American dairy farm families.

Furthermore, there is no evidence that American consumers have benefited from "stuff" from Fonterra being dropped in the U.S. cheese vats.

This is not competition. Consumers in New Zealand pay a great deal more for milk in the store.

What is happening is a zero sum game in which there are winners and losers -hardly market economics.

Surplus?

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A couple people contacted me regarding a map (see above) published in a recent Dairy Market News (DMN) printed report. The map appears to show the U.S. is produces a surplus of milk. I have only praise for the work done by the staff at DMN. But,I am not certain how the numbers were arrived at.

I do know how I arrived at the above graph which shows the U.S. is a net deficit nation since 1996. I took USDA's "Milk Production" numbers and subtracted USDA's "commercial Disappearances" numbers.

Someone could launch an argument about the numbers. Let me say the USDA does not count and powdered dairy protein (MPCs & caseins)in the Commercial Disappearances data. Therefore, America is even shorter of milk than my graph above shows.

Descending

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"Open Secrets" at: http://www.opensecrets.org/ has a wealth of information about money and politics. Above is DFA's Political Action Committee (PAC) donations for the current, 2010, cycle.

I pasted the data to an Excel spreadsheet. Excel has a sort feature for either "ascending" (highest at the top) or "descending" highest at the bottom. Somehow, it seemed more appropriate to sort "descending", which leaves Colin Peterson at the bottom.

Peterson is head of the House "Ag" committee and an old hunting/fishing buddy of former DFA head Gary Hanman. Nothing gets past Peterson.

As can be seen from his total dairy PAC contributions, Peterson is pretty well taken care of.

What is neede is a new GPS (Global Political Scheme) to navigate around the guy.

Now the News

Trading at the CME has quite a few players, comparatively. Of course, there is still a difference between the CME and a real market. Still, you can't help but wonder if milk is tight.

Dairy Market News latest:

Northeast/Southeast -

"Manufacturing milk supplies continue to tighten in the East due to increased Class I demand as more schools are opening or preparing to open soon. Seasonal declines in milk production are continuing in the Northeast with steeper declines noted in the Mid Atlantic and Southeast regions which have been affected by significant spells of heat and humidity. Schools have been back in session in the Southeast for over a week and trucking issues have lessened. Temperature issues however, remain and are causing some loads to be rejected. Class I pulls have increased in Florida as most schools are opening this week. Cream supplies remain very tight as milk production declines and components remain low. Demand for cream is very strong with cream cheese, ice
cream and butter makers vying for available supplies."

Central -

"Milk supplies are very tight and even bottlers are occasionally getting deliveries when they are available and not on their preferred schedules. For bottlers, it is not just calling up to get extra
volumes just when desired with just a phone call or two, as manufacturers are reluctant to let go of their supply. Finding a truck/trucker available is also a problem with spot loads. Class I demand was stronger again this week between retail feature activity in selected markets and increased volumes needed to fill the school milk pipeline."

And

"The possibility of getting extra manufacturing milk supplies in the upper Midwest is extremely unlikely, so there are not enough prices received to generate a spot price report. The current demand far exceeds the few if any loads offered."

What is Real, What is Normal?

Graphs Courtesy of Robert Shiller
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Robert Shiller is a world renowned economist from Yale University. He is particularly known for his work on the housing bubble.

In a June 2009 Project Syndicate editorial, Shiller concludes, "The sobering truth is that the current world economic crisis was substantially caused by the collapse of speculative bubbles in real estate (and stock) markets."

Every dairy farmer should understand, the world economic crisis brought about a crash in dairy farm milk price.

Essentially, what the above graphs are really showing is greed and concentrated power.

Now everybody wants to know when things will return to normal? The above graphs indicate some problem in defining normal. For dairy, what has passed for market economics is really "slash and burn" economics. There is no way what has been considered normal can continue.

This leaves us to contemplate how farm milk should be priced. Furthermore, we need to contemplate whose voices should be heard in the discussion on the future of farm milk pricing.

The political establishment takes great pains to point out the importance Of the 2012 Farm Bill. In fact, to go to Washington DC cost a minimum of $500 for most people. Few dairy farmers have the spare, multiple,$500.

Unless things change dramatically, the voice of the dairy farmer will not be a real part of the discussion for the upcoming 2012 Farm Bill.

Import Dairy?

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Many suggestions are made about importing dairy producto take up the slack of a declining U.S. milk production.

As can be seen in the graph above, courtesy of the Food and Agricultural Organization (FAO), that is not a reasonable idea. There is no country which can actually take up significant slack a drop in U.S. production would entail.

Which is not to say we produce all our needs. We are, through 2009, net importers of dairy.

China cannot replace American dairy needs the way they replaced good American jobs.

With FDA Its OK

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According to the Washington Post FDA never, ever inspected the two facilities involved in the massive egg recall.

http://www.washingtonpost.com/wp-dyn/content/article/2010/08
/23/AR2010082305118.html

Since they never used the power already given to them, they, the FDA seems to need more.

What does this have to do with dairy. If you take a look at the above data on MPC imports, the product coming from that lead dairy country, Singapore, should raise warning flags.

Additionally, the MPCs coming through Singapore entered the country at 54% of the price of the MPCs coming from New Zealand.

MPCs are not a legal food ingredient, but FDA has never, ever done anything about the MPCs dumped into the cheese vat.

Nobody wants an intrusive government but, a government agency, such as FDA, which is asleep at the switch is an invitation to disaster.

Margins

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With dairy farmers not able to pay their bills, the price of the above government contract is obscene.

With the price of the additional butterfat figured in , the per hundredweight "value" is pushing $80.

Eating Out

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While sale of dairy products have been good, the food service sales of dairy have been off.

Actually, sales at eating places have been flat since the "Great Recession" began, according to the Bureau of Economic Analysis (BEA). Logically, one might think price at the eateries might have dropped off. According to the Bureau of Labor Statistics (BLS) prices continued to rise.

Perhaps everyone is waiting for the other shoe to drop (double dip recession).

Rotten

Could have been dairy...

http://robertreich.org/post/985703357/corporate-rotten-eggs

Corporate Rotten Eggs

Friday, August 20, 2010

There are rotten apples in every industry. Or perhaps I should say rotten eggs.

One especially rotten egg is Jack DeCoster, whose commercial egg agribusiness, which goes under the homey title “Wright County Egg,” headquartered in Galt, Iowa, sends eggs all over the country under many different brands. Those eggs have now laid low thousands of Americans with salmonella poisoning, and may well infect thousands more.

DeCoster is recalling 380 million eggs sold since mid-May. Another commercial egg company, also headquartered in Iowa, and in which DeCoster is a major investor, is recalling hundreds millions more.

It’s not clear how recall rotten eggs are recalled. They’re not like Toyotas. They’re already in our food supply.

But this is only the beginning of the story.

Thirteen years ago when I was Secretary of Labor, DeCoster agreed to pay a $2 million penalty (the most we could throw at him) for some of the most heinous workplace violations I’d seen. His workers had been forced to live in trailers infested with rats and handle manure and dead chickens with their bare hands. It was an agricultural sweatshop.

Several people in Maine told me the fine wouldn’t stop DeCoster. He’d just consider it a cost of doing business. Evidently they were right. DeCoster’s commercial egg business has a record that would make a repeat offender blush.

In 2003, DeCoster pleaded guilty to knowingly hiring undocumented immigrants (who don’t complain about unsafe working conditions, below-minimum-wage pay, and unsanitary facilities). DeCoster paid a record $2.1 million penalty for that one.

In the 1990s he was charged by Iowa authorities for violating state environmental laws governing the runoff of manure into rivers. He continued to violate environmental laws so often that the Iowa Supreme Court approved an order barring him from building more hog structures.

In 2002 the U.S. Equal Employment Opportunity Commission fined DeCoster’s operation $1.5 million for mistreating female workers. The charges included rape, sexual harassment, and other abuses.

Earlier this year, DeCoster paid another fine to settle state animal cruelty charges against his egg operations in Maine.

In other words, the current national salmonella outbreak is just the latest in a long series of DeCoster corporate crimes. He’s fostered a culture that disregards any law standing in the way of profits. Along the way, DeCoster has abused the environment, animals, his employees, and his customers.

Corporations that play fast and loose with one set of laws are likely to cut corners on others. Look at Massey Energy Company, which owned the mine where 27 miners were killed several months ago. Massey also had a long record of law breaking, and had racked up an even longer list of alleged violations and settlements. Or consider BP, whose malfeasance even before the Gulf spill, included workplace safety violations, deaths, and other environmental disasters.

When I was Secretary of Labor, Bridgestone-Firestone’s refused to install safety equipment resulted in the maiming or deaths of its workers in Oklahoma. A few years later, its faulty tires caused still more deaths.

Some CEOs are just bad citizens, and the corporations they head get the message that the public be damned.

Too often, though, one level or agency of government doesn’t know about corporate malfeasance turned up by another level or agency of government. This is especially true when violations are settled out of court, as is now common. Government doesn’t have nearly enough inspectors or lawyers to bring every rotten egg to trial.

A national database of corporate crimes and settlements would tip off federal, state, and local inspectors to rotten eggs like Jack DeCoster’s agribusiness, Massey Energy, BP, Bridgestone Firestone, and other serial corporate offenders. Scarce inspection resources could be targeted at them rather than at the good eggs. Consumers could benefit as well.

And the rot wouldn’t spill over to other companies now under competitive pressure to treat fines and penalties as the costs of doing business.

Before we can get rid of corporate rotten eggs we need to know about them.

Congratulations

Barbra Martin is a dairy farmer and follows this blog. Take a look at this:

http://dairygoddess.wordpress.com/

It was like a dream come true as I watched the sunrise from my very own cheese “plant”. I had been inspected and tested and it was official.

I started my very first batch of cheese on Aug 17, 2010. I really am an optimist at fault. I never really expect ”glitches”. I don’t know why because I always have them. LOL

(continue reading at link)

Good luck.

Political Power

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In 1961 John F Kennedy was in office, in spite of the fact that many people thought there would never be a Catholic President. Hope seemed to be in the air and milk prices transmitted efficiently from farm to the public.

In the above graph, I have once again combined the categories of dairy products published by the Bureau of Economic Analysis as "Personal Consumption Expenditures" (PCE). Then I took the "All Milk" price times the farm milk production. The results are a graphic representation of market failing to efficiently transmit price signals.

The difference, in the time period from 1961 through 2008, between farm and consumer value changed by just over 600%.

Milk Production - The Novel and Other Works of Fiction

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USDA released the "Milk Production" report yesterday. According to NASS, milk production for July 2010,in the 23 lead dairy states was up 3% - wow!

Looking at Dairy Market News report for the third week of July 2010:

The heat wave which hit the Northeast a couple of weeks ago has now left the northern part of the region, resulting in more normal Summer weather. Unusual
heat remains in Pennsylvania and much of the Southeast, where some areas
have experienced temperatures above 90 degrees during about 19 of the last 25
days. In Vermont, the recent heat reduced milk production between 15% and
20% into last week and production has still not fully recovered to normal seasonal
levels. The reduced production has kept milk supplies tight and prompted some
processors to purchase spot market cream to meet contract commitments, at
prices above contract.

Midwest:

Hot, often muggy, summer weather has reduced milk intakes and tightened milk supplies. For both milk and cream, "Got Milk?" is a question asked milk suppliers by customers.

West:

CALIFORNIA milk production is trending lower on a weekly basis due to hot and humid conditions.

Well, it really seems not to matter. Prices on the CME have risen since the "Milk Production" report. And, as can be seen in the above graph the connection between price and production is pretty small.

CWT More Thoughts

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On August 16, 2010 Cooperatives Working Together (CWT) released this: http://www.cwt.coop/sites/default/files/news_releases/CWT-export-assistance-bids-081610.pdf

CWT remains something of a mystery. Between National Milk Producers Federation (NMPF) members and associate members, we have a pretty good list of those who are bumping cheese yields as noted on yesterday's post.

So, if NMPF and its subset CWT really wanted to enhance farm milk prices they could work to eliminate the practices of dramatically increasing yield. Unlikely.

Well, if a plant has gained all the so-call efficiencies, the pedal has to be to the floor all the time.

Maybe NMPF is working the farmer both ways. Too much cheese made because of tricks, which depresses prices. Then use the farmer's money to offshore the crap.

Blog Search

There are now well over 500 post. If you scroll to the bottom of the page, I have added a search tool for this blog. I have not tried it but, hopefully it will be useful.

Let me know what you think?

Cheese Stocks

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Virtually any dairy trade publication will weep and moan about the huge cheese stocks. The graph above (with a linear trend line) confirms the problem but, what is the cause?

See: http://themilkweed.com/Feature_10_Aug_2.pdf

We really don't need a lot of new laws relative to milk pricing schemes. We need the ones we have relating to processing enforced. We are now making the same amount of cheese with about one third less milk.

Export Price for Cheddar

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In the last post I showed the growth of exports compared to world trade in general. Such a boost might seem to suggest discount prices. Not so.

On average for the first six months of 2010,CME prices, upon which farm milk is based were $0.42 less than the export price for Cheddar.

Nice!

U,S, Dairy Exports and Global Trade

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At one time banks took local money and made local loans. That was a long time ago and now we have, without benefit of election, financial globalism. The global financial crisis severely affected world trade negatively.

One way to look at world trade is the Baltic Dry Index (BDI) data. Wikipedia says:

Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in various markets (supply and demand).

The supply of cargo ships is generally both tight and inelastic — it takes two years to build a new ship, and ships are too expensive to take out of circulation the way airlines park unneeded jets in the Arizona desert. So marginal increases in demand can push the index higher quickly, and marginal demand decreases can cause the index to fall rapidly. e.g. "if you have 100 ships competing for 99 cargoes, rates go down, whereas if you've 99 ships competing for 100 cargoes, rates go up. In other words, small fleet changes and logistical matters can crash rates..."[6] The index indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers, such as building materials, coal, metallic ores, and grains.

Because dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, such as concrete, electricity, steel, and food, the index is also seen as an efficient economic indicator of future economic growth and production. The BDI is termed a leading economic indicator because it predicts future economic activity.

Looking at the BDI relative to U.S. dairy exports is instructive. There really is a strong demand for dairy products globally. Don't think the stuff is going at fire sale prices either.

Since there is still a credit crunch, much of the money which should go to dairy farmers is being retained by others.

Something is Wrong

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The August 2, 2010 post covered the recession and "all milk" price. I am posting the graph again for comparison.

U.S. Department of Commerce's Bureau of Economic Analysis (BEA) publishes monthly, Personal Consumption Expenditures (PCE. The PCE tables indicate how much the public spent for a number of items. There are two lines for dairy which I have added together.

As can be seen, consumer spending for dairy hardly dropped during the "official" recession (calculated by NBER). The drop from begining to end was just about 2% and the fall in the Consumer Price Index (CPI) was about 5%. All of which means, the public actually increased purchases of dairy products during the recession.

So, there is something very wrong with conventional story about the fall in farm milk price.

Credible?

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Nonfat dry milk (NFDM) continues to be traded (?) on the Chicago Mercantile Exchange (CME). The CME charges a fee for each load traded to both the seller and the buyer.

In 2008 there were a total of 16 loads of Grade A traded on the CME - a real money maker for the Exchange. That works out to 5/100 of a percent of production.

In the real world the real sellers are the big co-ops, such as CDI and LOL. The traders on the CME tend to be brokers, not the manufacturers. The CME sends the price signal heard throughout the land. The signal has everything to do with will of the big players and nothing which could be recognized by Adam Smith as a market.

Double Dip

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Note: Search trends graph by Google & import/export graphs by USITC

On August 2, 2010 I posted a graph showing the connection of falling farm milk price and the "Great" recession.

The National Bureau of Economic Research (NBER) calculates the beginning and end of recessions. Recessions are generally marked by two quarters of falling Gross Domestic Product (GDP).

Take a look at the two graphs on exports and imports and then contemplate this formula: GDP = private consumption + gross investment + government spending + (exports − imports). We have once again posted a very negative trade balance - not a good sign.

As can be seen by the Google graph of search trends those searching Google for information on double dip recession is growing rapidly.

There is a total lack of confidence in the economic world as to which way the economies of the world are headed.

With prices heading up on the CME, one might hope for the best but, it would be good to exercise extreme caution.

Taken for a Ride

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Pretty exciting - all those exports in June 2010.

Take NFDM/SMP up 78% from June 2009. One might think that would help dairy farmers. But, that is dubious or just plain unbelievable.

Notice in the table above how the prices crash in the last week of June. The export price was $1.22 per pound. Notice how both the California and the NASS data is virtually identical - .99 statistical correlation.

The export volume was 79,870,453 pounds. That is more than California produced at a low price. Looks like it all left port in the last week.

Price fixing?

CWT Export Again

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CWT is at it again: http://www.cwt.coop/sites/default/files/news_releases/CWT-export-assistance-bids-080910.pdf

ARLINGTON, VA – Cooperatives Working Together (CWT) accepted three bids from Dairy Farmers of America and three bids from Land O’Lakes for a total of 644 metric tons (1.4 million pounds) of butter and anhydrous milkfat (AMF) to Europe, the Caribbean, and Central America. This product will be delivered August through December 2010.

Since CWT reactivated the Export Assistance program in March 18, 2010, it has assisted members in making export sales of Cheddar, Monterey Jack, and Gouda cheese totaling 18,616 metric tons (41.0 million pounds) to 23 countries on four continents. In addition, sales of butter and AMF totaling 11,237 metric tons (24.8 million pounds) have been made to nine countries on three continents.

Dairy economist models are, in my opinion, seriously flawed. In part because the models are never able to deal with complexity.

However, the models are consistent and the model shows exports return poorly. So, why export?

OH Yes!

http://www.dairyreporter.com/Financial/IDFA-outlines-surge-in-US-dairy-exports/?c=yG4S5w620ssNvvhFJ5kLdA%3D%3D&utm_source=newsletter_daily&utm_medium=email&utm_campaign=Newsletter%2BDaily

In a dairy market update, IDFA economic analyst Rob Blaufuss said that between March and May 2010 cheese exports were 83 per cent above the figures for last year, while butter and nonfat dry milk exports increased on 2009 by 189 percent and 72 percent, respectively.

American Dairy

http://www.google.com/hostednews/ap/article/ALeqM5iZt5G8ctV5H_T3Li8xFaUULokLVAD9HG4J2G0



I understand the consumer does not trust dairy from China. I wonder why?

LOS ANGELES — Shares of American Dairy Inc., a Beijing-based company that distributes infant formula in China, slipped more than 23 percent on Monday after the company swung to a second quarter loss and said it expects third-quarter revenue to miss estimates.

Shares set a new 52-week low of $9.66 earlier in the day. By late afternoon, shares fell $2.99, or 23 percent, to $9.89 on heavy volume.

The company's loss attributable to ordinary shareholders was $20.6 million, or 92 cents per share, in the three-month period ended June 30. That compares with earnings of $7.6 million, or 40 cents per share, a year ago.

Analysts expected earnings of 18 cents per share on revenue of $60.8 million, according to Thomson.

Sales rose 27 percent to $52.2 million from $41.2 million, with the expansions of the company's distribution network in China.

Sales of branded milk powder products, which consist mostly of higher margin infant formula products, were approximately $35 million, up 9 percent from a year earlier.

The company projects its revenue will exceed $55 million in the third quarter. Analysts expect revenue of $72.4 million in the quarter, according to Thomson.

Disappearance Act

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http://www.fda.gov/ForIndustry/ImportProgram/ImportRefusals/default.htm

As can be seen in the above image and at the above link, FDA stopped, by the end of June, making public any import they detained.

GAO came out with a new report "Food Safety" in May, 2010: http://www.gao.gov/new.items/d10699t.pdf

The report is titled: "FDA Could Strengthen Oversight of Imported Food by Improving Enforcement and Seeking Additional Authorities"

As they say "Hearty appetite"!

Some Things Are More Difficult

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Note: I did not create either graph. The first is by USDA and the second is by Mark Stephenson (presented at a FMMO hearing July 9, 2007 Pittsburgh, Pa)

I will have to admit, I do not get why some people think the prices reported by NASS plants are somehow different from the CME. Yes each NASS plant "negotiates" with customers, but it is alway, always, CME plus a little insignificant sliver.

So, to me, it is difficult to imagine any improvement might be obtained with more frequent reporting (even if not delivered by pony express).

What I do get is the "make allowance" which is taken from the NASS price to arrive at "farm value." NASS and the make allowance were brought about to hide the fact that the same crooks were setting farm milk price.

The make allowance is fixed by regulation. Built into the make allowance is a return on investment (ROI). Above shows the breakdown for NFDM at 9% ROI. Cheddar is 8%. All in all a pretty good return in this day and age.

On the internet, I see "money market account" returns of .74% - few even have the money to put in a MMA. If a child set up a lemonade stand and invested the proceeds, in ten years, the ingredients for the lemonade would cost more than the money in the account.

Court Case

On August 4, 2010 Judge Greer hand down a Summary Judgment in
Food Lion, LLC, et al. ) v. Dean Foods Company, et al., )
No. 2:07-CV-188

This case is a parallel case to the Southeast dairy farmer case. Supermarkets are alleging Dean and DFA "fixed" prices:

This multi-district class action antitrust case involves allegations by plaintiffs Food Lion, LLC (“Food Lion”) and Fidel Breto, d/b/a Family Foods (“Breto”), on behalf of themselves and a class of all others similarly situated, 1 purchasers of processed milk, involving allegations against Dean Foods Company (“Dean”), Dairy Farmers of America, Inc. (“DFA”), National Dairy Holdings, L.P.(“NDH”), Dairy Marketing Services, LLC (“DMS”), and Southern Marketing Agency, Inc. (“SMA”) (collectively, “defendants”) for violations of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2.

The supermarkets are represented by one of the most reputable firms in antitrust, Akin Gump.

His Honor is not fully happy with the Plaintiffs. Most particularly he takes some shots at the plaintiff's "expert.":

In deposition, Professor Froeb admitted that he did not consider the relevant market in that context but rather that he used a “different approach” in arriving at his conclusions. Professor Froeb also admits that he did not assess the “commercial realities,” Id., but rather relied solely on his theoretical model. Such an approach may be academically acceptable; it does not, however, comply with the Supreme Court’s dictates with respect
to construction of the relevant geographic market. Furthermore, Professor Froeb’s construction of his model with reference to a single customer, Food Lion, also does not comply with the relevant legal requirements. Professor Froeb admitted that he constructed his model with reference solely to “the regions where Dean and Food Lion engage in the sale and purchase of milk.”

I would go a step further and say "such an approach" is practically required in academia. The difficulty of obtaining an "expert" cannot be overstated.

In any event the Judge dropped SMA as a defendant. He also dropped most of the claims (in large part because of the "expert"). He did leave one claim stand:

In Count I of the amended complaint, plaintiffs allege a violation of § 1 of the Sherman Act by Dean, DFA and NDH. More specifically, the plaintiffs allege a horizontal agreement among Dean, DFA and NDH to lessen competition for sales of processed milk to retailers in the southeast and, in fact, not to compete for such sales.

The case will move forward on the one count.

Visions of paint drying are appropriate.

Milk Production Slowing in East

It has been hot - very hot. The latest report on milk in the East is telling:

Milk production in the Northeast and Southeastern parts of the U.S. is
declining and in many areas dropping quite sharply. Hot temperatures, and in
instances near record setting temperatures, are the most significant factor in
the milk decline. Reports continue to indicate that solids content and
butterfat levels on incoming milk are lower than usual for this time of the
season. Milk handlers state that milk volumes are generally sufficient to
currently maintain bottling and processing schedules, but will not be
sufficient in a few weeks once school bottling programs resume. Milk is
starting to enter the Southeast from Northern areas this week. For the first
time this season, 35 loads of milk entered the Southeast, but did not flow as
far south as Florida yet. Florida milk handlers did not ship any volumes out
this week which was the first also for the season. Milk handlers state that
for the next 4 - 6 weeks, it will be very interesting to see what volumes of
milk will be needed to supplement shortages. At the current pace of milk
production declines, some are speculating that imports will be significantly
heavier this year. Cream markets are firm as prices continue to increase.
Cream suppliers and handlers are stating that there is basically no cream
available for sale. Some cream buyers are questioning what impact the recent
CWT bonus award for 1,700 MT of domestic butter for export will have on an
already tight butterfat supply. The shipment of this butter will be from now
through the end of November, when butterfat demand is typically at high levels
anyway. Often export butter is 82% butterfat versus domestic 80% which will
further absorb limited cream supplies. Condensed skim markets are generally
steady with a significant portion of condensed clearing the market versus
headed to the dryer.

Turning a New Page

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http://www.cwt.coop/sites/default/files/news_releases/CWT-export-assistance-bids-073010.pdf



Cooperatives Working Together (CWT) has just announced a new "export enhancement." This year, with U.S. prices below world prices exporting dairy products has not been difficult. I cannot remember a dairy trade balance so much in our favor.

Not sure why anyone would need a bonus, or just what they will do with it.

Fonterra's Auction

Today, August 3, 2010 Fonterra held another internet auction for three dairy products. Prices fell -8.3% from the last auction.

The auction sells, Anhydrous Milkfat (AMF), Skim Milk Powder (SMP) and Whole Milk Powder (WMP).

Translating to U.S.equivalent in pounds:

$1.57/lb for 80% bf American butter adjusted from AMF.
$1.256/lb for SMP.
$1.349 for WMP.

What does this mean - who knows? I am constantly having to tell people my crystal ball broke. There is some comfort from a Federal Reserve blog on predictions. See:http://macroblog.typepad.com/macroblog/2010/08/what-makes-forecasting-tough.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+typepad%2FRUQt+%28macroblog%29

Here's a quote:

"How do economists fare when it comes to real forecasting, to predicting [gross domestic product] GDP growth and inflation one year out? About as good as a coin toss, according to Bryan's research. Less than half the economists did better than the naive forecast, which is based on no understanding of the economy and merely assumes next year's outcome will be the same as this year's. It's what you'd expect if the results were purely random."

People seem to desperately want predictions, nevertheless, and pay "experts" good money to make useless predictions.

I think the point is - dairy farmers should be paid enough for their milk to make it through good times and bad. That is presently not the case.

Restaurant Sales

http://www.restaurant.org/pdfs/research/index/201006.pdf

Industry Outlook Softened in June as the
Restaurant Performance Index Declined
for the Third Consecutive Month
As a result of a dampened outlook among restaurant
operators, the National Restaurant Association’s
comprehensive index of restaurant activity declined for the
third consecutive month in June. The Association’s
Restaurant Performance Index (RPI) – a monthly composite
index that tracks the health of and outlook for the U.S.
restaurant industry – stood at 99.5 in June, down 0.3 percent
from May and the lowest index level since February.

(more at link)

Generally the soft "eating out" sales would be bad news for dairy but, there is talk about a large increase in frozen pizza sales for home consumption.

Recession & All Milk Price

(click on image to enlarge)

We have had two recessions in the past ten years as indicated officially, by the National Bureau of Economic Research (NBER).

The first was the dot.com bubble. This seemed to have no effect on farm milk price. The most recent recession time period, seems to be very much a factor in farm milk price.

In spite of all the talk about supply/demand, this most recent recession was about finance. Credit tightened and the buyers of milk were able to "extract" their needs from dairy farmers.

Officially, according to NBER we are out of the recession. However, there are many who talk about a double dip recession. That is, a second following on the heels of the first.

The possibility of a double dip is a genuine cause for concern.

Although, officially we are out of the recession, to most people we may as well still be in recession. We are likely to have a "jobless" recovery. That will keep them down on the farm.