What a change 2014 has brought for the nation’s dairy farmers. Milk prices have reached record levels, and feed prices have plunged to the lowest level in nearly a decade, thanks to ideal growing conditions in the Corn Belt.

It’s a long way, indeed, from the dark days of 2009, when farmers lost money on every hundredweight of milk they produced, month after month. That prolonged period of non-existent operating margins between 2007 and 2009 robbed farmers of a collective $20 billion in equity.

As dark as 2009 was, the present moment, at least, stands in bright contrast. But high prices have a history of curing high prices, and we all know that commodity production is a cyclical business. Just as stormy weather never persists, neither do the sunniest days. That’s why we have rainy-day plans, for the challenging times that inevitably follow the good ones.

Thus, in the midst of our present good fortune, 2014 has also brought the dairy producer community a new way to prepare for those rainy days, in the form of the Margin Protection Program contained in the Farm Bill passed by Congress earlier this year and just implemented by the U.S. Department of Agriculture.

This month, dairy farmers will have the opportunity to learn about and eventually enroll in the new MPP. It’s a risk management program for the 21st century, one that recognizes that past federal programs to help farmers – those that targeted the milk price alone – are no longer adequate in an era when feed costs are much more volatile than in the past (2014’s anticipated bumper crop notwithstanding…we can’t count on perfect weather ever year).

The program that is debuting this month represents NMPF’s vision for how farmers can protect against the types of catastrophic conditions we experienced in 2009, and again as recently as 2012. It will protect against the most critical gap on a dairy farm: the difference between a farmer’s milk price, and the cost of corn, soybean meal and alfalfa hay that farms typically use to produce that milk.

Producers will be able to insure their margins on a sliding scale, deciding both how much of their milk production to protect, and the level of margin they wish to cover. Basic margin coverage, at $4 per hundredweight, is at essentially no cost to the farmer, aside from a $100 annual registration fee. Above the $4 level, coverage is available for an escalating scale of premiums.

Let’s look at an example of how MPP might have worked in 2012, when margins dropped below $4. Consider a 500-cow dairy with 90 percent of its production covered and its margin insured at $6.50 per hundredweight. Had MPP been in effect, that farm would have paid a premium of $21,500 in 2012. But it would have received benefits of more than $140,000, for a net gain of at least $120,000.

A 100-cow dairy with similar coverage would have paid a premium of approximately $1,600 and come out $23,600 ahead, while a 1,000-cow dairy would have paid a $56,000 premium and come out $260,000 ahead.

Most importantly, the safety net would have gone a long way toward keeping these farms from financial ruin, as margins dipped below $4 per hundredweight.

The ability to use a voluntary, flexible government program to insure margins had its genesis at the grassroots level, through an NMPF effort we called “Foundation for the Future.” Dairy producers and their co-ops were instrumental in coming together through NMPF, and convincing Congress to include the concept in the 2014 farm bill.

Over the last six months, NMPF has worked closely with the Agriculture Department on the details of how to implement MPP. On balance, we’re pleased with the way things turned out. Looking ahead, in the coming months we’ll be putting a lot of effort into explaining why it’s critically important for farmers to sign up for MPP. To help producers make coverage decisions, we have multiple tools on our websites, including a downloadable calculator allowing them to gauge the program’s potential impact on their farms.

Above all, producers shouldn’t let today’s healthy margins lull them into inaction. MPP’s insurance protections aren’t likely to be triggered the remainder of 2014. But U.S. milk production was up nearly four percent in July, suggesting that a surge in milk production could be coming down the pike. If supply begins to outstrip demand (and eventually there is always a day of reckoning that arrives), farmers need to protect themselves when the time comes.

Fortunately, producers can sign up between now and December 5 for minimal cost, and will be able to adjust their coverage for future years on an annual basis. However, they need to be in the program to make those adjustments.

If current conditions continue 2014 will be remembered, fondly, as one for the record books. But it will also be remembered as the time when we established a new foundation that will help greatly in those years when strong milk prices are nowhere to be found.

Sign-Up for NMPF-Designed Insurance Program Runs Through November 28

ARLINGTON, VIRGINIA – The new margin protection insurance program for dairy farmers, which was developed by the National Milk Producers Federation and enacted in the 2014 Farm Bill, was formally unveiled today by Agriculture Secretary Tom Vilsack. NMPF said it is pleased with the overall provisions of the new program, and urged farmers to begin familiarizing themselves with what will be a “valuable tool” to help manage farms’ financial risks in the future.

“Today’s release of the new dairy program’s details is the culmination of five years of work by NMPF, the nation’s dairy cooperatives and other farm groups to create an important new safety net for dairy farmers,” said Jim Mulhern, President and CEO of NMPF. “We applaud the U.S. Department of Agriculture on its hard work during the past six months putting the final touches on the dairy provisions of Congress’s Farm Bill. While some of the issues we raised could not be fully resolved in the short time available to complete the rulemaking, we’re pleased with the final package.”

Mulhern said NMPF will be working in the coming weeks to help dairy farmers understand the importance of the new safety net program. He said the organization is updating its www.futurefordairy.com website with relevant information for farmers, including a spreadsheet of historical margin trends, and an online calculator that will allow farmers to enter pricing and production data to help them select insurance coverage levels in the future.

Every farm producing milk commercially is eligible to sign up for the new program. USDA said producers can sign up at their local Farm Service Agency offices starting on Sept. 2, and the sign-up period will run through November 28. This 13-week period will allow farmers to register for coverage for the last four months of calendar year 2014, as well as for the entire year of 2015. There is a $100 sign-up fee for each calendar year, which qualifies a farmer to receive free, basic margin insurance coverage. Once farmers pay that fee, they are enrolled in the MPP for its duration, through 2017, and must annually pay at least the $100 fee.

The MPP allows farmers to protect the margin between milk prices and feed costs. Producers will insure their margins on a sliding scale, and must decide annually both how much of their milk production to cover (from 25% up to 90%), and the level of margin they wish to protect.

Basic coverage, at a margin of $4 per hundredweight, is offered at no cost. Above the $4 margin level, coverage is available in 50-cent increments, up to $8 per cwt. Premiums are fixed for five years, but will be discounted by 25% in 2014 and 2015, for annual farm production volumes up to 4 million pounds. Premium rates are higher at production levels above 4 million pounds.

Importantly, USDA agreed with NMPF that the lower premiums will apply to the first 4 million pounds of a farm’s enrolled annual milk production, regardless of the farm’s total production. For example, a farm with an annual production history of 8 million pounds that elects to cover 50% of its production history would pay the lower rate on all 4 million pounds enrolled in the program. Farmers will be able to change their coverage (the percentage of milk insured, as well as margin level) on an annual basis, with USDA establishing a 90-day enrollment window of July 1-Sept. 30 each year after 2014.

The MPP’s margin definition is the national all-milk price, minus national average feed costs, computed by a formula NMPF developed using the prices of corn, soybean meal, and alfalfa hay. Farms in the program will be assigned a production history consisting of their highest milk production in either 2011, 2012 or 2013. A farm’s production history will increase each year after the farm first signs up based on the average growth in national milk production. Any production expansion on an individual farm above the national average cannot be insured.

When the margins announced by USDA for the consecutive two-month periods of Jan.-Feb., Mar.-Apr., May-June, etc., fall below the margin protection level selected by the producer (from $8/cwt. down to $4), the program will pay farmers the difference on one-sixth (or two months’ worth) of their production history at the percentage of coverage they elected to insure. Premiums must be paid either in full at sign-up, or 25% by February 1, with the remaining 75% balance to be paid by June 1. NMPF had urged USDA to provide greater flexibility on producer premium payment, such as through milk check deductions. “While USDA advised us they did not have time to set up such a system for the initial launch of MPP, we will continue to work with the department in an effort to modify this feature for future years,” Mulhern said.

“The new Margin Protection Program is more flexible, comprehensive and equitable than any safety net program dairy farmers have had in the past,” Mulhern said. “It is risk management for the 21st century, and we strongly encourage farmers to invest in using it going forward.”

Also today USDA issued the rules for another element of the farm bill’s dairy title design to help farmers: a Dairy Product Donation program through which USDA will purchase consumer-packaged dairy products for food assistance programs during extreme low-margin periods. “This is a positive step as well,” said Mulhern, “since it will stimulate demand, help dairy farmers when they need it most, and provide additional food to those in need.”

Additional Resource: MPP Backgrounder

 

The National Milk Producers Federation, 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 more than 32,000 dairy producers on Capitol Hill and with government agencies.

Veteran Industry Expert to Focus on Environmental Issues

ARLINGTON, VA – Clay A. Detlefsen, an attorney and long-time industry specialist in dairy regulation and policy issues, will join the National Milk Producers Federation as senior vice president for regulatory and environmental affairs, the organization announced today. Detlefsen, who worked for the International Dairy Foods Association for a quarter-century, will also focus on legal issues as NMPF’s staff counsel after he starts on Aug. 18.

NMPF President and Chief Executive Officer Jim Mulhern praised Detlefsen for his knowledge of issues including FDA inspections, food safety and defense, workplace safety and, in particular, sustainability and the environment.

“Clay is already recognized as a trusted voice on many issues facing our industry,” Mulhern said. “He will enhance our existing resources on many fronts, and, most important, his addition will enable us to increase our focus on the environmental challenges and opportunities that dairy farmers and their cooperatives are facing.”

Detlefsen will be working with NMPF’s existing regulatory staff, including Vice President of Sustainability and Scientific Affairs, Jamie Jonker; Vice President of Dairy Foods & Nutrition, Beth Briczinski; and Vice President of Animal Care, Betsy Flores.

Detlefsen joined IDFA, which represents dairy processing companies, in 1990. He was named vice president for regulatory affairs in 2002. In addition to leading the organization’s work on sustainability and environmental issues for the last several years, Detlefsen has been deeply involved in the dairy industry’s work on the landmark Food Safety Modernization Act, the most sweeping reform of food safety laws in more than 70 years — much of that in conjunction with NMPF. Since 2001, Detlefsen also has been a leading food industry adviser on protecting the safety and security of food processing plants and distribution systems from intentional adulteration and terrorism.

A resident of Burtonsville, Maryland, Detlefsen has a bachelor’s degree in microbiology and MBA in finance from the University of Maryland, and a law degree from the University of Baltimore.

He will be reachable at cdetlefsen@nmpf.org.

 

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 more than 32,000 dairy producers on Capitol Hill and with government agencies.

After years of work by NMPF and its member cooperatives, a better federal dairy program is expected to finally emerge between now and Labor Day. Barring any last-minute glitches, producers will soon be perusing the details of this new, and very different, safety net based on margins rather than just milk prices.

The Dairy Margin Protection Program will offer farmers basic insurance against 2009-type catastrophic margins for only $100 per year, and higher levels of coverage for an additional premium. 

The regulation implementing the program has moved from the Agriculture Department to the Office of Management and Budget – a key bureaucratic step – and USDA expects to have it out in time to launch the sign-up process following the Labor Day weekend.

In the meantime, local Farm Service Agency offices are getting up to speed on the program and preparing to assist farmers once the sign-up period begins. The USDA plans an August letter to farmers explaining the new program.

Many program details won’t be final until the implementing regulation is published, but NMPF has been urging USDA to make the program farmer-friendly. There will be a USDA handbook on the program, and a consortium of land-grant universities will also be helping producers calculate farm-specific margin coverage options.

NMPF will schedule webinars and will have a simple, downloadable web-based tool to help producers navigate the decision-making process. The online tool will allow farmers to plug in their own numbers and quickly and easily see the program’s potential impact.

A detailed summary of what was in the legislation that created the program can be found at www.futurefordairy.com. Following is a rundown of some of the key areas that USDA will be addressing in the final program announcement:

Registration – NMPF anticipates an initial sign-up period of approximately 90 days, probably stretching to the end of November or early December. The program will operate on a calendar-year basis. After the first year, the annual sign-up period may be moved forward from this year’s later start. It is anticipated that sign-up in 2015 and subsequent years could begin in mid- to late-summer and run to October.  Participating producers will be able to adjust their level of participation each year.

Margin calculations – USDA will use National Agricultural Statistics Service data to make the margin calculations. Margins will be averaged over specific two-month periods, starting with January-February. Preliminary margin numbers are expected to be announced mid-month, with final numbers by the end of that month. In any month in which margin payments are authorized, USDA has indicated it will try to process them as soon as possible after the final margin numbers are announced.

LGM v MPP – Producers can’t be in both programs, so they will have to pick one or the other. Initially, for those already in the Livestock Gross Management Program, USDA has announced rules to provide some flexibility.

Conservation compliance – As with other farm programs, farmers are expected to be required to comply with conservation regulations to participate in MPP.

Premiums – NMPF believes Congress intended for lower premiums to apply to the first 4 million pounds of milk enrolled by every producer for coverage under the program. NMPF has urged USDA to implement the program that way.

Ownership structures – One producer can have more than one farm, and each will be treated individually under MPP. Also, one farm can be owned by multiple producers, but USDA will need approval from all the owners to make payments.

Moving production history – If a dairy farm is sold, NMPF has recommended that the production history can either move with the farmer to a new facility or stay with the farm, but not both.

NMPF and its member co-ops will provide additional information and analysis as USDA decisions are announced.

The surge in undocumented children coming across the Texas border has thrown yet another monkey wrench into the immigration reform debate. And Congress’ failure to pass a stripped-down funding bill to address the border crisis before the August recess suggests the likelihood of action on comprehensive reform this year is now close to zero.

Administrative actions by the White House, either on their own or coupled with a quick border enforcement funding boost, are still possible. But they are at best a band-aide and cannot resolve the workforce problem confronting agriculture, and dairy farms in particular. So it will probably be 2015 before any lasting solution is possible.

In the meantime, NMPF will continue to make the case for comprehensive reform, working with other farm groups through the Agriculture Workforce Coalition. Farmers must be able to keep their current workers and attract and retain a future workforce. In addition, any farmers who may have employed undocumented workers in the past need assurances they will be held harmless.

“The problem is not going away,” said NMPF President Jim Mulhern. “The state of play may have shifted on Capitol Hill, but the economic reality outside of Washington has not. Our work will go on.” 

The United States exported 17.3 percent of its milk production in June, the highest percentage ever achieved for the month of June and one of the highest monthly percentages ever.

The increase from the previous June record – 16.5 percent in June 2013 – resulted partly from increased butter and cheese exports since last year. An important factor boosting butter and cheese exports was export assistance provided by NMPF’s Cooperatives Working Together, the voluntary, farmer-funded program that helps member cooperatives expand markets for U.S. dairy products overseas.

Between January and May, CWT helped with approximately a quarter of U.S. butter exports and more than half of U.S. American cheese exports. In the first six months of the year, butter exports were up 42 percent compared with 2013 and American and cheddar cheese exports were up 65 percent. CWT sales have helped keep U.S. butter and cheese prices above world levels during a significant downturn in world prices.

In July alone, CWT committed to assist with 26 million pounds of dairy product export sales arranged by five CWT-member cooperatives. That includes 21 million pounds of cheese, 1.2 million pounds of butter and nearly 4 million pounds of whole milk powder. Destinations include all six continents. The five cooperatives were Dairy Farmers of America, Land O’Lakes, Michigan Milk Producers Association, Northwest Dairy Association (Darigold) and Tillamook County Creamery Association.

Question: When is lactose, which occurs naturally in dairy products, considered “added sugar”?

Answer: When the Food and Drug Administration attempts to define added sugars for the purposed of the nutrition facts label on foods.  

The FDA proposed in March to update the nutrition facts label, including adding a line to identify added sugars in food products. NMPF didn’t object to the concept, saying it will clarify the contribution of lactose, or milk sugar, to dairy products. But it balked at FDA’s proposed definition, which appears to include dairy products used as food ingredients, even though the lactose – or “milk sugar” – in those products occurs naturally and does not function as a sweetener.  

NMPF said under FDA’s proposed definition the lactose in a tablespoon of nonfat dry milk incorporated into another food would count as an “added sugar,” while the lactose in a glass of milk would not. “Surely, that can’t be what FDA intends,” said Beth Briczinski, NMPF’s vice present for dairy foods and nutrition. “We assume this is simply an oversight, but either way, it needs to be corrected.”

NMPF also used its comments on revisions to the nutrition facts label to remind the FDA that it is allowing manufacturers of imitation dairy products, including soy “milk” and rice “yogurt,” to trick consumers into thinking their products are nutritionally equivalent to real-milk products.

“Consumers think non-dairy alternatives with the term ‘milk’ or ‘yogurt’ in their name are nutritionally the same as real dairy products, but they aren’t,” said Briczinski. “In addition, allowing these imitations to call themselves “milk” or “yogurt” is a clear violation of FDA’s own food standards and labeling regulations.

In separate comments on serving-size issues, NMPF supported reducing a typical serving of yogurt from eight ounces to six ounces but opposed increasing a serving of frozen desserts from half a cup to a full cup. “Consumption of both ice cream and frozen desserts generally has been declining steadily for two decades,” said Briczinski. “That strongly suggests that an increase in the frozen dessert serving size is not warranted.”

NMPF called a new biogas “roadmap,” unveiled by the White House August 1, a potential revenue-generator for dairy farms that can also help the industry reach its goal of reducing its carbon footprint 25 percent by 2020.

Biogas systems recycle organic material — including cow manure and food waste — into renewable energy, fertilizer, nutrients, cow bedding and more. They include methane digesters and other systems that reduce greenhouse gases.

“The Biogas Roadmap will help stimulate the biogas market in ways that could provide revenue-generating opportunities for dairy farms of all sizes,” said NMPF President and CEO Jim Mulhern. “The voluntary strategies in the roadmap validate the path the industry has already taken to reduce methane emissions.”

Under the roadmap, the federal departments of agriculture and energy and the Environmental Protection Agency will take a variety of steps to promote the development of biogas systems. Included will be looking for ways to strengthen the biogas market and seeking to enhance the use of biogas systems through current government programs.

The Innovation Center for U.S. Dairy worked with the White House on the roadmap. Research by the Innovation Center last year identified a potential $2.9 billion market for systems that digest cow manure and food waste. NMPF serves on the Innovation Center board.

The dairy industry will serve on a USDA working group that will implement the roadmap’s strategies. “Dairy farmers are taking many steps to provide nourishing dairy foods and beverages that are responsibly produced,” said Tom Gallagher, chief executive officer of the Innovation Center for U.S. Dairy. “Biogas systems are one of many technologies available to the industry that help us continuously improve our stewardship and contribute to our communities.”

NMPF told a Senate subcommittee in July the 2010 U.S.-Korea Free Trade Agreement has already given a shot in the arm to U.S. dairy exports but that abuse of geographical indications by the European Union is restricting access to the Korean market for U.S. cheeses. 

“The European Union is leaning on countries around the world to block imports of products by confiscating common food names and reserving them exclusively for cheese producers in their member countries,” said Shawna Morris, NMPF vice president for trade.

The U.S.-Korea FTA eliminated nearly all Korean tariffs on U.S. dairy exports. Even though its full impact is still years away, Morris said U.S. dairy exports to Korea in 2013 more than doubled the average of the three previous years. 

Despite this positive result, Morris said a separate 2011 FTA between Korea and the European Union is keeping U.S. gorgonzola, feta, asiago and fontina cheese out of the Korean market. “This is without question due to EU efforts to claw back use of certain dairy product names for the sole of use of EU producers,” she said.

EU pressure has resulted in similar restrictions on U.S. cheese exports to Central America, Peru, Colombia and most recently South Africa. Canada has also agreed to restrict cheese names and the EU is pursuing similar objectives in Singapore, Japan, the Philippines, Malaysia and Vietnam, as well as in China.

Moreover, it is clear the Europeans want to impose cheese name restrictions on the United States through the planned Trans-Atlantic trade agreement, which is currently being negotiated. That is “entirely unacceptable,” Morris said, adding that the U.S. dairy industry, together with other in the food industry and many members of Congress, want already-imposed GI restrictions rolled back.

Morris testified July 29 before the Senate Finance Committee’s international trade subcommittee.

Earlier in the month, Morris and Senior Vice President for Strategic Initiatives and Trade Policy Jaime Castaneda traveled to Brussels to meet with those spearheading negotiations on the Trans-Atlantic trade pact. In addition to highlighting the common cheese name issue, they cited overly restrictive EU rules that have imposed unscientific requirements on U.S. dairy imports. These requirements have contributed to a $1 billion dairy trade deficit in favor of the European Union.

Farmers need to connect better with the public on the benefits biotechnology brings to producers, consumers and the environment. That’s the message Joanna Lidback, a dairy farmer from northeast Vermont, delivered to a House agriculture subcommittee in early July.

Lidback said biotechnology plays a major role in farmers’ ability to both feed a growing global population and make improvements on farms, no matter their type or size. “The science shows that GMOs are safe and bring tremendous benefits, but we in agriculture have failed to communicate this effectively with the public,” she said.

Lidback said the 45-cow dairy farm she operates with her husband would not survive if they were forced to use non-GMO feed. The only currently available feed, she said, is organic and their feed costs would jump from $5,160 a month to $11,370 a month. “Over the course of a year, that means our feed costs alone would increase by $74,520,” she testified. “I do not see how we could survive, let alone farm profitably, in the long term with those increased feed costs.”

Lidback testified before the House Agriculture Subcommittee on Horticulture, Research, Biotechnology and Foreign Agriculture on behalf of New England dairy cooperative Agri-Mark and the National Council of Farmer Cooperatives.

NMPF has asked the Environmental Protection Agency to withdraw recent guidance concerning when farmers must seek Clean Water Act permits for a long list of normal farming activities near wetlands. In comments submitted July 7, NMPF said the EPA’s guidance could actually discourage water conservation by changing the long-standing relationship between farmers and the USDA’s Natural Resources Conservation Service.

Officially called an Interpretive Rule, the EPA guidance was issued in March. It says producers are only exempt from needing Clean Water Act permits for more than 50 routine farming practices if they comply with detailed NRCS technical conservation standards. Until now, these standards have been voluntary, and the farming practices exempt from the permit process.

NMPF said the guidance changes NRCS’s role from that of a conservation partner with farmers, to an enforcer of the Clean Water Act on EPA’s behalf. “Until now, NRCS has been the place producers could go for conservation advice, while EPA was charged with ensuring compliance with the Clean Water Act,” said Jamie Jonker, NMPF’s Vice President for Sustainability & Scientific Affairs. “The cooperative relationship with NRCS made it more likely farmers would adopt water conservation practices.

“Unfortunately,” Jonker said, “the interpretive rule moves NRCS into an enforcement role and, in the process, could set back conservation efforts.”