Dean Settlement Hearing April 15th

"Ignorance is preferable to error, and he is less remote from the truth who believes nothing than he who believes what is wrong.' Thomas Jefferson

So we come to the lot of dairy farmer believer: http://www.burlingtonfreepress.com/article/20110414/NEWS02/110413042/0/NEWS0213/Some-farmers-unhappy-Dean-Foods-settlement?odyssey=nav|headhttp://www.blogger.com/img/blank.gif

A quote from the article:

Yet Friday morning, as many as two dozen dairy farmers will converge on federal court in Burlington to show their objection to the Dean Foods settlement, saying it could put them out of business. These farmers say the settlement, far from restoring competition, would enable Dean Foods to start dictating even lower milk prices.

Obviously those farmer cannot remember before Suiza/Dean came on the scene and bonuses were actually paid.

There is a case in the Southeast where there was a hearing on January 20, 2011. On page 90 of the transcript: "NEXT WE COME TO PROMISE OF PREFERENTIAL PRICES. THESE ARE CONTEMPORANEOUS NOTES OF A 1998 ENGLES-HANMAN MEETING WHICH SHOWS THAT DFA AGREED TO USE CREDITS AND REBATES TO HELP SUIZA EXPAND. GARY HANMAN WROTE, QUOTE,NEED ACCESS TO MARKET, WILLING TO PRICE MILK SO YOU CAN BE COMPETITIVE, CAN GIVE CREDITS INTO AREAS AS YOU EXPAND,END QUOTE"

The Howrey law firm has invested $15 - 20 million in the southeast case and have box after box of discovery material.

On page 91 of the transcript: "SUIZA'S PLAN, I'M ON SLIDE 20, WAS HATCHED DURING A HUNTING TRIP HOSTED BY HANMAN, AND ATTENDED BY MR. ENGLES, MR. HANMAN, MR. BOS, MR. SCHENKEL, HOWARD DEAN AND SOME OTHER PEOPLE. OLD DEAN HAD A PRICE ADVANTAGES OVER BOTH SUIZA AND DFA IN BOTTLING BECAUSE OLD DEAN PROCURED LESS EXPENSIVE MILK FROM INDEPENDENT FARMERS. OLD DEAN HAD A PRICE ADVANTAGE OVER DFA IN MILK PROCUREMENT BECAUSE, BY ELIMINATING THE MIDDLEMAN, DFA, OLD DEAN PAID ITS INDEPENDENT FARMERS MORE THAN DFA PAID
ITS MEMBERS."

On page 118 of the transcript: "HANMAN ALSO HAD A MULTI-MILLION DOLLAR BONUS BASED ON INCREASES IN VALUE OR RETURNS ON EQUITY ON SUIZA/DEAN'S BOTTLING PLANTS AND DFA'S JOINT
VENTURE BOTTLING AFFILIATE DURING THE 1998-2004 PERIOD. MR. HANMAN RECEIVED NO BONUSES BASED ON INCREASING MILK PRICES. THE WHOLE POINT OF DFA IS TO GET THE BEST PRICES
FOR THEIR FARMERS. NONE OF HIS BONUSES WERE BASED ON THAT, THEY WERE BASED ON OTHER THINGS THAT MOTIVATED HIS ACTION."

While some DFA/DMS farmers may well believe they are getting the best possible deal now, the facts do not support that conclusion.

DFA is very good at managing herd behavior.

More on DFA's Opposition

DFA in documents file in Vermont Federal District Court on January 18, 2011 objected to the settlement with Dean Foods.

In a court document, Greg Wickham, general manager of DMS states:

“DMS is an LLC is also a common marketing agency that today markets milk for almost 8000 dairy farmers in the northeastern United States. DMS is owned by three cooperatives: Dairylea, DFA and St. Alban’s. Although DMS to is not directly have any farmer members, it is indirectly owned by the farmers who belonged to and own Dairylea, DFA and St. Albans and DMS's operations are overseen by a Board of Directors made up of dairy farmers from each of its owner coops. These three coops have all designated DMS as their exclusive marketing agent for raw milk in the northeastern United States. As of August 2010 they were about 1,441 Dairylea producers marketing milk through DMS in the Northeast, about 1,463 DFA producers and about 446 dairy farmers were members of St. Albans.”

DMS is not an "common marketing agency," in any usual sense of the term. It operates actually as a market allocating agency. There is quite a difference.

Wickham also states,"In addition, DMS and 2010 markets milk of hundreds of independent dairy farmers were not members of any cooperative," and fails to mention that many quite possibly most, are not voluntarily participating in the DMS system.

"In September 2010, for example, DMS marketed total of 1.272 billion pounds of raw milk, 1.166 billion pounds of which was marketed to plants in Order I” according to the court document. That volume represents 60% of Order I milk.

With all of that market share, Wickham complains:

"For example, there is one Dean planted which we primarily provide milk for class I purposes, and also ship about 10,000,000 pounds a month of milk that is used for class II purposes. With respect to that Class II milk, we have told Dean's repeatedly that we felt the milk was underpriced by over $1.00/cwt, but for years they were unwilling to give ground in the negotiations. Even with the recent price increase to that plant, it is in my view still underpriced by $40 - .50/cwt."

What he is saying, is that Dean Foods has more market power than an organization,DMS, which by their own reckoning has 60% of the milk in Order I.

DFA & Northeast Settlement

DFA has launched a massive PR campaign regarding the settlement with Dean Foods in the Northeast case.

http://www.bizjournals.com/kansascity/news/2011/01/19/dairy-farmers-of-america-protests-30m.html

According to the article and the court "DFA claims that such an arrangement would cause price erosion for dairy farmers."

Really,the arraignment DFA has had with Dean allows Dean to pay no premiums. You really can't go much lower than FMMO minimums. No wait, yes you can if you reblend dairy farmers milk checks as DFA has commonly done in Missouri, where they are headquartered.

See the mail box prices: http://www.fmmaclev.com/MailBoxes/MAILBOX2009.pdf

Real Names

There is an ancient saying, "The beginning of wisdom is to call things by their real names."

So: http://www.capitalpress.com/dairy/CRD-dairy-risks-w-art-112610

The article quotes Ed Gallagher, Dairy Farmers of America's vice president of economics and risk management.

"We've got to do better yet," he said. "The market doesn't care what anybody's cost of production is. The long-run average price will just about equal long-run costs."
Margins keep tightening, and they're likely to tighten further.

Gallagher has the ability to know when butter has fallen $0.515 since the first of the month who did the dirty deed. DFA knows how easy it is to manipulate the CME - they got caught. DFA has not participated in the cash market since January 2009. CFTC has a person assigned to watch DFA at the CME. But, has DFA repented from their ways of leading farmers to think there is a real market?

SE Case Class Certified

(click on image to enlarge)


This ruling has been long anticipated. In a class action suit those who are part of the class have to be verified by the judge - this has now been done.

Mostly, the Judge granted certification of all classes with the main exception of DFA members in the Southeast claim for “breach of contract.” The Judge seems to think those DFA member somehow benefitted from DFA’s action. The Judge stated, “To the extent that DFA has engaged in the wrongdoing alleged in plaintiffs’ complaint, it would appear on the surface that most, if not all, of DFA member dairy farmers have in fact benefitted from DFA wrongdoing.” “On the surface” indeed.

In footnote 9 on page 19, the Judge states, “Plaintiffs’ breach of contract claims appear to focus on claims that DFA has participated in “sweetheart” deals, made “secret” payments to insiders, wasted money on unnecessary expenses, and the like.”

If the Judge owned cows and shipped milk in the Southeast he might have a better grasp of the facts in the DFA member’s claim.

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.

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.