Dairyline: Producers to receive Christmas gifts from Uncle Sam

Lee Mielke

By LEE MIELKE

For the Capital Press

I begin by wishing DairyLine readers a happy and blessed Christmas. "There is a reason for the season" therefore I wish you the season's best.

U.S. Agriculture Secretary Tom Vilsack finally unveiled how USDA will distribute $290 million in emergency aid approved in the fiscal year 2010 Agricultural Appropriations Bill, referred to as the Dairy Economic Loss Assistance Payment, or DELAP. Eligible producers will receive a one-time direct payment based on the amount of milk produced and commercially marketed in the months of February through July 2009. Production information from these months will be used to estimate a full year's production to calculate the producer's individual payments, according to Dairy Profit Weekly's Dave Natzke.

Payments will be capped at 6 million pounds produced during the year. Based on current estimates for 2009 production, the emergency payment on eligible milk would equal about 32 cents per hundredweight, with an individual payment cap of about $19,000. Farmers should contact their local USDA Farm Service Agency offices for details.

Farm Service Agency Administrator Jonathan Coppess said the payments will be direct deposited in producer accounts sometime in the next two weeks. He defended the time it took to make the announcement, and said they got it turned around in near record time. But he understands that for hurting dairy farmers, "every day is nearly an eternity when the situation is as bad as it is."

While Coppess told DairyLine that he anticipated no legal challenges to the DELAP, Dairy Profit Weekly reports that not everyone is happy with it. California Congressman Jim Costa, D-Fresno, called the payment formula a disappointment. Although production is down somewhat in 2009, the average California dairy produced about 21.6 million lbs. or 216,000 hundredweight of milk in 2008. The cap of 6 million pounds -- 60,000 hundredweight -- means about 28 percent of California milk production is eligible for the DELAP payment.

While Coppess told DairyLine that he anticipated no legal challenges to the DELAP, Dairy Profit Weekly reports that not everyone is happy with it. California Congressman Jim Costa, D-Fresno, called the payment formula a disappointment. Although production is down somewhat in 2009, the average California dairy produced about 21.6 million lbs. or 216,000 hundredweight of milk in 2008. The cap of 6 million pounds -- 60,000 hundredweight -- means about 28 percent of California milk production is eligible for the DELAP payment.

Costa called California "ground zero" for the major meltdown in the industry.

"(DELAP) offers almost no viable assistance to our dairy producers," he said. "In fact, it's a slap in the face to every dairy producer in California. California leads our country in dairy production; we produce almost 25 percent of America's milk, cheese and cream, yet California will receive approximately 10 percent of the assistance.

"The payments most dairy families will receive won't even cover a month's feed bill, let alone help producers obtain a new line of credit at the bank. I received assurances that the assistance USDA provided would be distributed fair and equitably. I don't know a dairyman in my district who believes this is fair for California."

Price spread

As the markets awaited the preliminary November Milk Production report, industry eyes were on the large price spread that grew this week between Chicago Mercantile Exchange block and barrel cheese. It is the longest-lived spread ever and is hurting barrel manufacturers particularly.

The blocks closed the third week of December at $1.7025 per pound, up a quarter-cent on the week, and 40 cents above a year ago when the blocks plunged 21 cents, to $1.3025. Barrel closed December 18 at $1.44, down 2 cents on the week, 8 1/2-cents above a year ago, but 26 1/4-cents below the block price. Forty-five cars of block traded hands on the week and only two of barrel. The NASS-surveyed U.S. average block price averaged $1.6227, up 3.8 cents. Barrel averaged $1.5165, down slightly.

Butter closed at $1.3250, down 12 1/2-cents on the week, but 15 1/2 above a year ago. Eight cars were sold. NASS butter averaged $1.4520, down 4.6 cents.

Cash Grade A nonfat dry milk closed Friday at $1.37, down a penny. Extra Grade held all week at $1.40. NASS nonfat dry milk averaged $1.2756, up 1.4 cents. Dry whey averaged 36.34 cents, up 0.1 cent.

Cheese traders seem comfortable with prices where they're at, even with a big price spread. Downes-O'Neill dairy economist Bill Brooks said "we can't really say there's a shortage, but it does seem to be a pretty decent imbalance between those who need block cheese and those who have it and, at the moment, those who have it aren't really letting go of it for anything less than $1.70 or in that ballpark."

The barrel market seems more than adequately supplied, Brooks said.

"Buyers are getting a pretty good deal and, if sellers do have extra, they don't want to push it down any more because that just increases the negative spread between what they're paying for milk and the price they're receiving for their output."

Brooks warned of possible pressure in butter as domestic supplies build due to more milk entering the churn from school closings for the Christmas holiday. On the other hand, the international market appears interested in U.S. butter, he said, and "that could keep that pressure at a minimum."

USDA announced the January 2010 federal order Class I base milk price Friday at $15.03 per hundredweight. That's an increase of $1.04 from December but 71 cents below January 2009, and is above the trigger for an MILC payment to producers.

The NASS-surveyed butter price averaged $1.4823, up 12.9 cents from December. Nonfat dry milk averaged $1.2701, up 15.5 cents. Cheese averaged $1.5764, up 6.5 cents, and dry whey averaged 36.29 cents, up 1.8 cents.

California's January Class 1 milk price is $18.22 per cwt. for the north and $18.49 for the south. Both are up $2.18 from December and 80 cents above a year ago.

Natzke said the effect of these changes should increase the monthly pool prices paid to farmers for those three months by approximately 15.5 cents per hundredweight.

In 2009, the prices that dairy farmers receive dropped by more than half from 2008 levels, Natzke said. Dairy feed costs kept milk production costs at levels that greatly exceeded farm milk prices. As a consequence, California dairy farmers lost an estimated $1.4 billion in the first nine months of 2009.

Due to those economic factors, California's 2009 milk production reversed its 30-year trend, and is running almost 4 percent lower than the 2008 total, Natzke said. A growing number of California dairy farmers exited the industry in the latter part of 2008 and into 2009, he said, and, for the first time in decades, the state's milk production will be less than the total needs of its processing plants.

CDFA analysis said the adjustments will add about 3 cents per gallon to fluid milk production costs, which will likely be passed on to consumers, but the changes should not impact retail prices of other dairy products.

Natzke said the temporary price adjustment is not designed to recover the financial losses California farmers incurred over the past 12 months, it is designed to help them sustain their operations as milk prices begin to improve to near profitability, CDFA said.

World

With the backdrop of this week's controversial global climate change meeting in Denmark, Natzke reported that USDA and the Innovation Center for U.S. Dairy has agreed to work jointly in an effort to reduce U.S. dairy industry greenhouse gas emissions by 25 percent over the next decade.

With the backdrop of this week's controversial global climate change meeting in Denmark, Natzke reported that USDA and the Innovation Center for U.S. Dairy has agreed to work jointly in an effort to reduce U.S. dairy industry greenhouse gas emissions by 25 percent over the next decade.

Although specific details are sketchy, a primary effort under a memorandum of understanding signed by U.S. Agriculture Secretary Tom Vilsack and Dairy Management Inc. CEO Tom Gallagher, will be to accelerate adoption of methane digesters on dairy farms. Additional USDA research support could include a look at how feed mixtures affect methane emissions from cows, Natzke concluded.

Future

Lower forecast milk production in 2010, combined with continued recovery in dairy exports, is expected to lift milk and dairy product prices in 2010 according to USDA's Livestock, Dairy and Poultry Outlook. The report points out that 2009 feed costs have fallen substantially but are unlikely to fall as much next year.

The U.S. dairy herd is forecast to continue to contract in 2010, with most of the reduction coming in early 2010 and attenuating later in the year. The report also includes a special article on the Cooperatives Working Together program.

A number of proposals are being discussed around the country and on Capitol Hill to change how milk is priced to farmers. One proposal being supported by California's Milk Producers Council and several other producer groups around the U.S. is the Dairy Price Stabilization Program.

California dairy producer Geoffrey Vandenheuvel said growth and demand for dairy products in the U.S. is stable, averaging about 1 to 2 percent growth per year, in accordance with the population growth. The problem is, when milk prices are profitable, dairy farmers want to produce more milk, about 3 to 4 percent more, and "that's the incentive, that's the result."

"It's not sustainable if demand is only up 1 to 2 percent and is why we have crashes and we have gotten into a boom and bust," Vandenheuvel said.

The DPSP allocates market share, according to Vandenheuvel, and if a farmer wants to grow beyond that 1 to 2 percent, he would pay a modest market access fee. That fee would go into a fund and all of that money would be distributed to the producers who did not increase their milk output above the 1 to 2 percent.

He called it a "simple dollar in, dollar out agreement amongst us as producers, so that all of us don't try to increase at the same time, which is unsustainable." He added that the DPSP is unlike the Canadian system which "has a rigid fixed base that has accumulated tremendous, a lot of value because it's transferable."

Those elements are not part of the DPSP, he said. "The plan has been designed to not accrue a lot of value in base and would not be a barrier to new entrants." For more information, log on to www.stabledairies.com.

National programs

Dairy producers now have online access to the National Dairy Farmers Assuring Responsible Management program. The program was developed by the National Milk Producers Federation with support from Dairy Management Inc.

NMPF's Chris Galen said a federation New Year's resolution is to get farms and marketing systems enrolled in the program, which is voluntary, nation-wide and designed to "bring uniformity to animal care through education, on-farm evaluations, and objective third-party verification."

Consumers and processors are paying more attention to where food is coming from and the conditions under which animals are kept, he said.

"We need to be proactive and play some offense in talking about the good things that dairy farmers are doing every day on their farms," Galen said.

To learn more information, log on to www.nationaldairyfarm.com. Galen said the print materials will be supplemented in 2010 with videos because "we can describe things, but a lot of times, with dairy farm practices, it's better to illustrate them."

DMI Update

Dairy Management Inc. board member and Washington State dairy producer Liz Anderson has information on one of the innovative products developed with help by the dairy checkoff's partnership with Yoplait Yogurt. The "Smoothie" is a mix found in the freezer department of grocery stores.

The challenge in developing new food or beverage products is to come up with something that grocery chains are going to be willing to give the shelf space to and the dairy checkoff works with manufacturers to develop and test these kinds of new products, Anderson said.

The Yoplait Smoothies come in three flavors and will eventually be found in grocery outlets across the country, Anderson said.

"The more milk we sell, it helps us (dairy farmers) and helps make life long dairy consumers when we give the kids something they really like that uses a whole glass of milk."

Lee Mielke is a syndicated columnist and farm broadcaster based in Lynden, Wash.

Sign up for our Top Stories newsletter

Recommended for you