Dairyline: Ethanol subsidies burn dairy farmers

Lee Mielke

By LEE MIELKE

For the Capital Press

Last year the U.S. produced a record 13.2 billion bushels of corn. This year is on track to be the third highest -- but livestock producers are facing corn prices that are through the roof. The Milk Producers Council's Rob Vandenheuvel pointed out in the council's weekly newsletter that current prices are almost 50 percent higher than six months ago and almost three times five years ago, and he asks why?

He points to ethanol, which even Al Gore admits was not good policy. Vandenheuvel said you need to look at how the U.S. uses its corn crop and, right now, about a third of the corn goes to ethanol plants. That has put a great strain on the other users of corn, particularly livestock agriculture.

That competition has driven prices higher, resulting in higher feed prices for farmers and ultimately higher food prices for all consumers.

Vandenheuvel also points out that converting corn to ethanol has not made the U.S. any less reliant on foreign oil. He admits he's not an expert, but he cites others who report on the fuel needed to grow, harvest and transport the corn to ethanol plants.

"We use as much fossil fuel harvesting the corn than we would have if we just burned the gas in the first place rather than using ethanol," he said.

This "new market" for corn is having other ramifications. Quarterly reports from agricultural lenders indicate farm income is rising, land values are higher and there's more robust demand for farmland, but the good economic news is not spilling into dairy regions.

Dairy Profit Weekly editor Dave Natzke said high commodity prices are behind most of the trends as better returns from corn and soybean crops add to income and farmland values.

Each quarter, Federal Reserve banks survey lenders in America's heartland on agricultural credit conditions, according to Natzke, and the third quarter showed sharp improvement.

According to those lenders, economic conditions improved from Texas to the Corn Belt. For example, Iowa farmland values were up 13 percent compared to a year ago, with Indiana and Michigan values up more than 10 percent. Kansas and Nebraska farmland values were up more than 10 percent; and irrigated cropland in the Dallas Federal Reserve bank region was up more than 8 percent.

"While much of the increased value is being driven by farmers seeking more land to grow high-value crops," Natzke said, "the lenders said record-low interest rates are helping boost demand, and non-farm investors are also finding farmland a good investment, due to appreciating values."

"Throughout the Heartland, bankers also report improved loan repayment rates, with a decline in loan renewals and extensions," he said.

While the rosy economic outlook for corn and soybean-producing areas is improving, dairy is another story. Dairy producers continue to struggle with higher production costs and narrow income margins.

In Wisconsin, for example, farmland values increased just 3 percent compared to a year ago, with quarterly increases up just 1percent, Natzke said. In the Chicago Federal Reserve District, Wisconsin was also the only state where the trend in forced sales and liquidations did not reverse from a year ago, and one-third of the bankers responding to the survey predicted additional legal resolutions to outstanding farm loans, he concluded.

Dairy markets

The cash dairy markets continue to send some mixed signals. Cheese prices were rebounding but petered out on Wednesday while butter is plummeting. The cash block cheese price gained a nickel the first two days of the Thanksgiving-holiday shortened week but gave back 2 3/4s on Wednesday and closed at $1.4675 per pound, up 2 1/4-cents on the week, but 18 1/4-cents below a year ago. Barrel closed Wednesday at $1.44, up a penny on the week, and 7 cents below a year ago. Three cars of each traded hands on the week. The NASS-surveyed prices were not available before our deadline because of the holiday.

The cash butter price plunged 11 cents on Wednesday, closing at $1.67, down 22 cents on the week, but still 14 1/2-cents above a year ago. It has lost 51 1/2-cents in four weeks. Only one car was sold on the week.

October butter stocks totaled 108.2 million pounds, down 21.8 million pounds or 17 percent from September and 82.4 million pounds or 43 percent below October 2009, according to preliminary data in the Agriculture Department's latest Cold Storage report issued Monday.

The October American cheese inventory, at 638.7 million pounds, was unchanged from September, but 58.9 million pounds or 10 percent above a year ago. September revised estimates were raised nearly 1.2 million pounds.

The CME's Daily Dairy Report points out that this was the first time since 1996 that commercial American holdings expanded during October and inventories grew in September for the first time since 1980.

The CME's Daily Dairy Report points out that this was the first time since 1996 that commercial American holdings expanded during October and inventories grew in September for the first time since 1980.

Total cheese stocks amounted to over 1.037 billion pounds, unchanged from September, but 68 million pounds or 7 percent above a year ago. September revised estimates were lowered nearly 4 million pounds.

Volatility

The University of Wisconsin's Brian Gould said the volatility we have seen in the past continues, especially considering what's happening in grain and dairy markets.

"Volatility is here to stay, I think," he said. "From day to day it's hard to say when things are going up and when things are going down."

Gould pointed out the availability of significant premium subsidies in the Livestock Gross Margin program, which is a subsidized revenue insurance program. It starts with the December contract.

Cooperatives Working Together

The Cooperatives Working Together program will export another 582,000 pounds of cheddar cheese to customers in the Middle East and Asia between now and March 2011. Export assistance was granted to Darigold and Dairy Farmers of America. The latest acceptance brings CWT's total cheese exports this year to 67.1 million pounds.

Thanksgiving

Thanksgiving Day still gives much to reflect on and blessings that even dairy farmers can be thankful for. Besides the obvious blessings of family and friends, health and strength, National Milk's Chris Galen reflected regarding milk prices, which at least are up from a year ago.

"Last year was probably the worst in the lifetimes of most dairy farmers in this country," Galen said. He reported that the Farm Bureau's annual survey of what it costs to make a typical Thanksgiving dinner is up from a year ago.

"In some respects, it's good news because it means dairy prices for things like cream cheese, butter and milk are higher and they needed to be, because farmers couldn't survive at the price levels where they were a year ago," he said.

"In some respects, it's good news because it means dairy prices for things like cream cheese, butter and milk are higher and they needed to be, because farmers couldn't survive at the price levels where they were a year ago," he said.

He warned that the U.S. economy is still fragile and, as consumers struggle, so do farmers. The best news, according to Galen, is that National Milk has used the past year to make progress on necessary reforms in dairy economics and dairy pricing.

There's more work ahead, he said, but as the year winds down, we can be thankful for the momentum for change that's been building. Details are being worked out in National Milk's "Foundation for the Future" program.

We called on DairyLine listeners to get involved in the process. Surely there are dairy farmers who have never written their congressman or senator, and lawmakers need to hear from their constituents.

"Congress will have a whole slew of things to look at next year, especially the budget, and a lot of other issues," he said.

There'll also be a lot of new members, he said.

"So in order to get their attention and to make dairy policy changes a front and center issue, we need to make certain that people contact their members of Congress," he said.

DMI Update

She stated that, as a dairy farmer, she wants everyone to know that the dairy checkoff is a program of dairy farmers, for dairy farmers and is directed by dairy farmers. She said none of the funding is from USDA or taxpayer dollars.

"Dairy farmers promote their own program," she said. "We pay for our own programs."

She added that DMI programs are directed to the health and wellness of all consumers, children and adults, but the mission of the dairy checkoff is to increase demand for U.S. dairy products on behalf of dairy farmers.

She reported that 50 percent of the checkoff budget goes toward the advancement of health and wellness, be it the "Fuel Up to Play 60" campaign, the development of low-fat, lower-sodium cheese or the reformulation of chocolate milk to fit the government's dietary guidelines. For more information, log on to www.dairycheckoff.com .

Beef Checkoff

The Beef Checkoff got high marks from Vermont dairy producer Jane Clifford.

"The beef checkoff is very important to dairy producers," Clifford said. "A portion of our income comes from cull cows, so that's a sale of beef and it's a significant portion. So it's important that the beef industry is strong."

The Clifford dairy has been in her husband's family for eight generations, she said. It is medium sized, milking about 220 cows three times a day. She said they are very thankful to be dairy producers and take it seriously. That means good care for the animals and of the land because "those are our assets that we are using for a short period of time and then somebody else will use them."

She believes that message is being taken to consumers via the Beef Checkoff and admitted it is frustrating when people suggest that farmers don't take good care of their animals or land.

"Those are our biggest assets," she said. "And if we don't take good care of them, then we won't be in business."

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