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.