The monthly margins under the Margin Protection Program (MPP) were essentially the same for the two months of the most recent bimonthly period: $9.99/cwt for September and $10.00/cwt for October. The average margin for the September-October period was $9.996/cwt. The U.S. average all-milk price for October was $17.90/cwt, $0.10 higher than the September all-milk price. The MPP feed cost was $7.90/cwt for October, as reported by USDA’s Farm Service Agency (FSA), $0.09 higher than the feed cost for September. On a per-hundredweight-of-milk basis, the $0.09 feed cost increase was the net result of small changes in the feed cost components, which individually changed the formula calculation as follows: corn, -$0.01; soybean meal, $0.06; and alfalfa hay, $0.04.

The CME grain futures currently indicate that the monthly MPP feed cost will rise slowly from its current level through the end of next year, but remain below $8.70/cwt throughout that time. The CME dairy futures currently indicate that the all-milk price will remain below $16.50/cwt during at least the first half of 2018. Combined, the futures indicate that the MPP margin will drop below $8.00/cwt but remain above $7.50/cwt during the second, third and fourth bimonthly periods next year. The USDA MPP Decision Tool margin forecast for next year has moved a bit higher over the past month. As shown in the chart, the USDA tool projects that the MPP margin will remain above $8.00/cwt throughout 2018, with less than a 50-percent probability that it will fall below that level, based on the Nov. 30 CME futures settlements.

USDA’s MPP margin forecasts are updated daily online. NMPF’s Future for Dairy website offers a variety of educational resources to help farmers make better use of the program.

While in Cuba at the end of November, National Milk staff worked with the Pan American Dairy Federation (FEPALE) to advance U.S. dairy farmers’ interests in preserving global markets for U.S. cheeses and upholding science-based international standards that support the critical nutritional role of dairy.

More than a dozen Latin American countries attended FEPALE’s annual general assembly last week in Havana. While there, NMPF Senior Vice President for Strategic Initiatives Jaime Castaneda discussed issues of mutual interest with counterparts from across the Americas. Because of those efforts, FEPALE passed two resolutions that align with key priorities for the U.S. dairy industry:

• Rejection of the European Union’s (EU) aggressive stance regarding the treatment of geographical indications (GIs).  This is a topic of increasing relevance in Latin America, as the EU negotiates policies that benefit its own cheese products as it strikes deals with Mexico and the Mercosur bloc of countries, and prepares for talks with Chile in the near future. The resolution on current, past and future negotiations with the EU calls for no new GI restrictions on the use of commonly- used terms of importance to any country in the hemisphere.
• Resisting the World Health Organization’s (WHO) efforts to inappropriately incorporate broad policy guidelines (like restricting the promotion of milk and milk products to young children) in the Codex Alimentarius standards-setting process. The FEPALE resolution emphasizes the need for Codex standards to be based on high-quality science and objective criteria, which were not the basis of the WHO guidelines developed in 2016. It requested that the governments of the region object to incorporating WHO’s guidance into Codex standards and “continue to work with Codex under historical guidelines based on scientific foundations.”

NMPF staff have been working over the last several years to build a strong partnership with FEPALE members, an investment that helped shape the resolutions and generate support for them last week.

“The EU’s GI scheme and the WHO guidelines significantly threaten dairy trade and – more broadly – consumption,” said Castaneda. “We are very pleased that FEPALE recognized the dangers and took a strong stand in both cases.”

NMPF President and CEO Jim Mulhern traveled to Mexico shortly before Thanksgiving to engage with negotiators from all three North American countries regarding the U.S. dairy sector’s key priorities for the modernization of the North American Free Trade Agreement (NAFTA).

During the fifth round of negotiations in Mexico City at the end of November, National Milk staff met with officials from the United States, Canada and Mexico to advance U.S. dairy interests in three key areas: preservation of full access to the Mexican market; opening the Canadian market to U.S. dairy products while eliminating Canada’s market-distorting Class 7 milk pricing scheme; and improving rules designed to safeguard trade access such as those addressing Sanitary and Phyto Sanitary requirements, and geographical indications (GIs).

“All negotiations must carefully calibrate competing agendas and achieve balanced trade-offs. Hopefully the NAFTA parties are beginning to recognize that progress comes only through dialogue that strengthens the pact by addressing its shortcomings,” Mulhern said about the recent round of negotiations.  In the lead-up to the talks, as well as in their aftermath, a broad swath of organizations representing American agriculture remains concerned about preserving NAFTA, even as the Trump Administration works to improve it in important areas. NMPF has clearly and consistently underscored that withdrawal from NAFTA is not a viable option and would be devastating for the thousands of dairy farm families that rely on NAFTA to keep the door open to the industry’s No. 1 export market, Mexico.

NMPF, dairy cooperatives, state dairy associations and others in the dairy industry delivered that message to governors across the country last month in a joint letter that expressed concern about the potential U.S. withdrawal from NAFTA. More than 170 food and agriculture organizations and companies urged governors to “let President Trump know that you support a modernized NAFTA that maintains and enhances food and agricultural trade between the United States, Mexico and Canada,” and that withdrawal would have numerous adverse impacts on U.S. agriculture.

The letter was spearheaded by the NAFTA Food & Ag Trade Working Group, a coalition in which NMPF is involved, to ensure that American agriculture speaks with a united voice about the importance of preserving and improving NAFTA.

The sixth round of NAFTA discussions is scheduled for Jan. 23-28 in Canada. Negotiators hope to conclude a new deal by the end of March, as Mexico is holding elections later in 2018.

As 2017 draws to a close, Congress’ top priority is overhauling the current federal tax code. The U.S. House of Representatives and Senate each has passed their own tax reform bills, and are now reconciling the two versions to send a final bill to President Trump’s desk before the holidays. NMPF is working closely with members of Congress to shape the massive, complicated legislation so that it delivers a positive outcome for dairy farmers and their cooperatives.

NMPF is working with others in agriculture to preserve the benefits that farmers and cooperatives enjoy from the Domestic Production Activities Deduction (DPAD), also known as Section 199.  NMPF has long supported this deduction, which cooperatives claim on the proceeds from sales of agricultural products like milk.  Cooperatives pass through a majority of the benefit – nearly $2 billion nationwide – directly to their farmer owners, and reinvest the remaining proceeds in infrastructure improvements to help both the farmer and the cooperative.

While the House and Senate bills both repeal DPAD, the Senate legislation allows cooperative members to claim a new 23-percent deduction on their taxable income for qualified cooperative dividends, which refers to patronage dividends, per-unit retain allocations, qualified written notices of allocations, and similar amounts. Cooperatives could also claim the 23-percent deduction on taxable income, but it would be limited to 50 percent of their wages.  NMPF is attempting to improve these provisions to ensure that the final tax reform legislation continues to recognize the unique nature of how cooperatives are taxed.

In addition to DPAD, NMPF is working on several other issues in the legislation of importance, including:

• Estate Tax Relief – NMPF supports repealing the federal estate tax, which penalizes the transfer of farms between generations of family members. The House and Senate bills both make additional progress on this issue. The House doubles the existing exemption to $11 million for individuals and $22 million for couples, and fully repeals the tax after 2023. The Senate similarly doubles the exemption levels, but leaves the tax in place.  Importantly, both bills preserve a full stepped-up basis for inherited property, thereby avoiding what could have been another tax increase to offset repealing or reducing the estate tax.
• Depreciation – Both the House and Senate bills would allow farms and other businesses to immediately write off 100 percent of qualified property costs through 2022. Current law allows businesses a 50-percent write-off for 2017, which decreases in the coming years.
• Expensing – The House and Senate take different approaches to expanding the Section 179 provision made permanent by the NMPF-backed 2015 PATH Act. The House bill would temporarily increase the maximum allowance from $500,000 to $5 million through 2022, and would expand the provision to cover used and new equipment. The Senate bill would permanently adjust the maximum allowance to $1 million, but would not expand the provision to include used equipment.
• Interest Deductibility – Both bills attempt to preserve the business interest deduction for most farmers. The House bill allows farms with less than $25 million in annual receipts to continue to deduct interest expenses, while the Senate bill allows farms with less than $15 million in annual receipts to continue to do so. However, the Senate bill exempts farms from that dollar limit if they agree to follow an alternative set of depreciation rules to offset the cost.
• Cash Accounting – Both the House and Senate measures would continue to allow farms to use cash accounting.
• Like-Kind Exchanges – Both the House and Senate would limit the use of Section 1031 like-kind exchanges to real property, removing their use for equipment.
• Environmental Stewardship – The House and Senate bills both phase down the Section 48 Investment Tax Credit is after several more years, per the 2015 PATH Act. Given the decision to let this tax credit expire, the Agriculture Environmental Stewardship Act to expand Section 48 to cover nutrient recovery systems and digesters was not incorporated into either chamber’s bill. NMPF will seek other legislative opportunities to address this issue over the coming months.

As the House and Senate work this month to prepare the final tax reform legislation, NMPF will remain closely engaged in seeking the best possible results on these issues.

I recently spent several days in Mexico City, which hosted the fifth round of the North American Free Trade Agreement (NAFTA) negotiating sessions, just before Thanksgiving. Following conversations there with lead negotiators from the United States, Mexico and Canada, I am cautiously optimistic about where things stand, while remaining concerned about the damage that withdrawal from this agreement would impose on America’s dairy farmers and processors.

There is reason for some optimism because, despite concern over the huge differences between the United States and our most important trading partners on some very big, difficult issues, we started to see signs in Mexico City of incremental progress. Additionally, while President Trump’s threat of withdrawal from NAFTA cast a pall over previous negotiating rounds, there was less focus on that threat as negotiators tried to move forward on some of the less controversial issues.

Our organization has worked hard to advance dairy-specific goals as priority areas for NAFTA 2.0, and we’re very pleased those goals are strongly reflected in key provisions of the U.S. government’s proposal.  We’ve repeatedly stressed that for NAFTA to generate a positive outcome for the U.S. dairy sector, the agreement must end Canada’s new Class 7 pricing scheme and provide U.S. dairy access to customers and markets north of our border. Canada is reluctant to bend on these issues, but the Trump Administration made clear in its updated negotiating objectives, released shortly before last month’s meeting, that action on these two issues is critical.

To gain a final agreement, the Ottawa government will eventually have to recognize that change in their dairy policies is needed.  Even they know that a free trade agreement is about reducing trade barriers, not erecting new trade-distorting ones like Class 7.

I am also reassured by how high-profile and impactful our parallel message on NAFTA has been: that nothing be done that would jeopardize our strong dairy trade with Mexico, including any harmful actions by Mexico on geographical indications (GIs) in their parallel trade negotiations with the European Union.

In scores of conversations with our trade negotiators and members of Congress, we have continually reminded officials that damaging our $1 billion-plus-per-year export market – a market specifically created by NAFTA – would be disastrous for America’s dairy farmers.

On GIs, we are very pleased that the U.S. government has communicated clearly to Mexico that any loss of market access into Mexico by sanctioning the EU’s attempted confiscation of common names such as asiago, gorgonzola and many other cheeses is unacceptable.

For U.S. agriculture as a whole, our collective customer base in Mexico has become an invaluable asset, one that would be placed at great risk if tariff-free access were to change. In a letter sent in October to Commerce Secretary Wilbur Ross, NMPF joined dozens of other farm groups in reminding the administration that the United States sold $43 billion worth of food and agriculture goods to Canada and Mexico last year, making our NAFTA partners the largest foreign consumers of U.S. agricultural products. We emphasized that a U.S. withdrawal from NAFTA would also disrupt critical industry supply chains, close markets, eliminate jobs, and increase prices for many of the basic goods purchased by American consumers.

There are certainly still reasons to be concerned. Specifically, while these negotiations have clearly spelled out each nation’s goals and interests, they have yet to resolve any of the stickiest points. Issues largely outside of agriculture, like rules of origin, dispute settlement, government procurement and a proposed sunset clause, are major challenges that the three countries must address.

But we saw a ray of hope on these tough issues when Mexico’s Economic Minister proposed an alternative to the administration’s much-criticized sunset clause. Rather than simply rejecting the U.S. proposal that NAFTA terminate after five years, Minister Ildefonso Guajardo indicated a desire for periodic reviews to assess how the treaty is working. Building on that positive development, the U.S. seemed to suggest some flexibility and a possible willingness to adjust its position.

If the parties can come to agreement on this issue, it would portend the possibility of compromise on some of the other tough issues. It’s that kind of momentum that is needed to bring these negotiations to a successful conclusion.

Negotiators will get together again later this month in Washington, with more formal talks on the agenda in early 2018.  But the clock is ticking. With Mexico holding presidential elections in June, it is generally viewed that major progress toward an agreement must be achieved by the end of March. The longer this process drags on, the greater the likelihood that an impasse could derail the negotiations. So this recent progress – though small – is important.

All negotiations must carefully calibrate competing agendas and achieve balanced trade-offs. Hopefully the NAFTA parties are beginning to recognize that progress comes only through dialogue that strengthens the pact by addressing its shortcomings.  NAFTA can be modernized and improved, and a key part of that for our industry is fixing a major shortcoming: Canada’s egregious dairy policies – both on Class 7 and market access.

In addition, the final agreement must maintain the great progress that the existing NAFTA agreement has created for our growing dairy trade with Mexico, our most important market.

While we have a long way to go, and the negotiations could still founder, the small signs of progress are positive. Now is the time to pick up the pace.

Washington, D.C. – The nation’s two leading dairy organizations applauded Agriculture Secretary Sonny Perdue on Wednesday for allowing school districts to offer low-fat (1%) flavored milk as part of the National School Lunch and School Breakfast programs. An interim final rule implementing the regulatory changes needed to reinstate low-fat flavored milk in schools was announced today on the Federal Register site and goes into effect for the 2018-2019 school year.

The regulation implements changes that Secretary Purdue proposed earlier this year to streamline the process by which schools can serve low-fat flavored milk without first obtaining a special exemption. In 2012, the U.S. Department of Agriculture eliminated low-fat flavored milk as an option in the school meal and a la carte programs, which resulted in a large drop in milk consumption in schools. Students consumed 288 million fewer half-pints of milk from 2012-2015, even though public school enrollment was growing.

“We appreciate the Secretary’s understanding that the regulatory process needed to move quickly so schools may include low-fat favored milk in their menu planning and procurement processes,” said Michael Dykes, D.V.M., president and CEO of the International Dairy Foods Association (IDFA). “Today’s action will help reverse declining milk consumption by allowing schools to provide kids with access to a variety of milk options, including the flavored milks they enjoy.”

“Secretary Perdue’s willingness to provide greater flexibility to schools recognizes that a variety of milks and other healthy dairy foods is critically important to improving the nutritional contributions of child nutrition programs in schools,” said Jim Mulhern, president and CEO of the National Milk Producers Federation (NMPF). “The math here is quite simple: More milk consumption equals better nutrition for America’s kids.”

Earlier this year, Congress passed the FY 2017 omnibus appropriations bill that included provisions to allow schools to offer low-fat flavored milk.  In addition, Reps. Glenn Thompson (R-PA) and Joe Courtney (D-CT) have introduced legislation, the School Milk Nutrition Act, to expand the ability of schools to offer various milk options.  Their ongoing efforts in Congress have led to a greater awareness of the milk shortfall challenge in schools that today’s USDA action begins to address.

In a joint letter last June, IDFA and NMPF urged Secretary Perdue to quickly finalize plans for low-fat flavored milk’s return to school menus for the 2018-2019 school year.

The publication of the interim final rule will allow school districts to solicit bids for low-fat flavored milk next spring before the 2018-19 school year begins, giving milk processors time to formulate and produce a low-fat flavored milk that meets the specifications of a particular school district. The USDA action now allows schools to offer low-fat flavored milk during the next school year without requiring schools to demonstrate either a reduction in student milk consumption, or an increase in school milk waste.

###

The National Milk Producers Federation (NMPF), based in Arlington, VA, develops and carries out policies that advance the well-being of dairy producers and the cooperatives they own. The members of NMPF’s cooperatives produce the majority of the U.S. milk supply, making NMPF the voice of dairy producers on Capitol Hill and with government agencies. For more on NMPF’s activities, visit our website at www.nmpf.org.

The International Dairy Foods Association (IDFA), Washington, D.C., represents the nation’s dairy manufacturing and marketing industries and their suppliers with a membership of nearly 525 companies within a $125-billion a year industry. IDFA is composed of three constituent organizations: the Milk Industry Foundation (MIF), the National Cheese Institute (NCI) and the International Ice Cream Association (IICA). IDFA’s nearly 200 dairy processing members operate more than 600 manufacturing facilities and range from large multi-national organizations to single-plant companies. Together they represent more than 85 percent of the milk, cultured products, cheese, ice cream and frozen desserts produced and marketed in the United States. Visit IDFA at www.idfa.org.

From Emily Meredith, Chief of Staff, NMPF:

ARLINGTON, VA – “The National Dairy FARM (Farmers Assuring Responsible Management) Program – like farmers and residents across the state of Florida – is outraged and saddened by the recent videos showing improper animal care practices on Florida dairy farms. The dairy industry cannot succeed without healthy and well-cared for animals, and animal abuse of any kind is never tolerated.

“All of the Okeechobee County farms appearing in the video are members of Southeast Milk (SMI), a dairy cooperative that has been a participating member of the National Dairy FARM™ (Farmers Assuring Responsible Management) Program since 2016.

“The FARM Program, established in 2009 by the National Milk Producers Federation, comprises dairy farmers, cooperatives and processors across the United States. The program, whose participating farms produce 98% of the nation’s milk supply, expects its members to follow rigorous guidelines for dairy farm animal care practices. In helping members keep pace with the latest available veterinary science and with evolving agriculture technology, the FARM Program creates a culture of continuous improvement.

“In the coming weeks, the FARM Program’s animal care experts will work with SMI to accelerate the adoption and implementation of the newest iteration of the program, Version 3.0. This version requires:

• Enhanced training of workers,
• Stricter requirements for working relationships with veterinarians, and
• Stronger corrective action plan requirements for farms that are not meeting guidelines and standards.

“The FARM Program is also exploring options to make more on-farm monitoring solutions and employee training and management solutions even more available and accessible to all farmers. Dairies are 24-7-365, always-on facilities, and it is essential for farmers and farm managers to be able to evaluate every part of day-to-day operations to ensure compliance with FARM Program training and best practices.

“This past month has been a sobering reminder of the need not just for continuous improvement in our on-farm best practices, but also for continued adherence to the standards established by our industry.”

###

The National Milk Producers Federation (NMPF), based in Arlington, VA, develops and carries out policies that advance the well-being of dairy producers and the cooperatives they own. The members of NMPF’s cooperatives produce the majority of the U.S. milk supply, making NMPF the voice of dairy producers on Capitol Hill and with government agencies. For more on NMPF’s activities, visit our website at www.nmpf.org.

 

This month’s CEO Corner is a video of Jim Mulhern’s presentation at the recent 2017 NMPF annual meeting in Anaheim, California.

Jim provides an overview of the federation’s activities with its members, checkoff groups, and other farm and dairy organizations.  These include making needed improvements in the farm bill; reforming immigration policy; protecting and expanding export opportunities; prompting the FDA to enforce food labeling standards; and challenging the fear-based marketing claims made about modern farming practices.

For more on NMPF’s 2017 annual meeting, click here.

Months of legal discussion over whether and how livestock farms must comply with air emissions regulations have yet to be resolved in court, and National Milk remains firm in its recommendation that farms that could be impacted should not file emissions reports until the legal process is complete.

NMPF has been actively engaged with the Environmental Protection Agency, Congress and other animal agriculture organizations to find a solution to the problem created by the U.S. Court of Appeals’ decision to end the nine-year-old federal exemption for reporting air emissions from manure. In 2008, EPA exempted all livestock operations from reporting under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) regulation, and exempted all but the largest livestock operations from reporting under the Emergency Planning Community Right to Know Act (EPCRA).

However, last April, a federal appeals court ended EPA’s exemption for reporting of livestock air emissions under CERCLA/EPCRA, following legal challenges made by activist groups. EPA sought and was granted additional time from the court to delay the effective compliance date so that the agency could develop materials to help farmers understand their obligations. In late October, the EPA filed a motion requesting that the stay remain in place until January 17, 2018.  The appeals court has yet to act on that motion, and several others, even though the Nov. 14 court-established compliance deadline has passed.

Based on our interpretation of the regulations and the various court findings, NMPF believes any reporting now would be premature as the industry waits for additional legal direction.  Confirming NMPF’s guidance, the EPA’s website concurs that “farms with continuous releases do not have to submit their initial continuous release notification until the D.C. Circuit Court of Appeals issues its order, or mandate, enforcing the Court’s opinion of April 11, 2017.  No reporting is necessary until the mandate is issued.”

NMPF maintained its full-court press on its NAFTA priorities as negotiations over the North American Free Trade Agreement (NAFTA) continue this month. NMPF President and CEO Jim Mulhern and Senior Vice President for Strategic Initiatives and Trade Policy Jaime Castaneda will attend the next round of negotiations, which started Nov. 15 in Mexico City, where they will continue to press trade officials to open Canada’s dairy market and maintain existing access to Mexico’s.

As a prelude to this weekend’s fifth round of talks, NMPF participated in an early November roundtable discussion with House Agriculture Committee members that was organized by Chairman Mike Conaway (R-TX) and Ranking Member Collin Peterson (D-MN). The roundtable was part of the committee’s continued focus on obtaining input from the agriculture community about the stakes for farmers in the NAFTA talks.

Shawna Morris, NMPF’s vice president for trade policy, was one of a handful of farm association executives there discussing the importance of the agreement with Mexico and Canada to America’s dairy farmers. Morris told the House committee that “U.S. dairy farmers cannot afford to lose NAFTA or see new restrictions on U.S. agricultural exports put in place. We support mending but not ending NAFTA by preserving the market access established under the agreement already and focusing on how to further deepen our most important FTA.”

Following the discussion, Rep. Conaway noted that “All parties today were on the same page – NAFTA is important to agriculture and agriculture must remain a top priority in the negotiations. I am hopeful that both Canada and Mexico will come to the next round of negotiations prepared to have substantive conversations.”

Rep. Peterson expressed his concerns about the impact Canada’s supply management program is having on U.S. dairy and poultry producers: “I have expressed my concerns to the administration and urge them to continue working to get these farmers a fair deal. We can’t go backward,” he said.

The critical importance of preserving the agreement and building upon it has been a key talking point that NMPF and numerous other organizations and companies have hammered home in letters to Commerce Secretary Wilbur Ross in October and to America’s governors in mid-November.