News for Dairy Co-Ops

Dairy will receive significant assistance from a federal package for producers USDA unveiled after Congress approved a $2 trillion coronavirus stimulus bill. But more work will need to be done to make sure all producers gain crucial aid as dairy farmers face an unprecedented crisis.

The National Milk Producers Federation expressed appreciation to Agriculture Secretary Sonny Perdue for including dairy in its $19 billion-dollar agriculture disaster assistance package released April 17. The plan includes up to $2.9 billion of cash aid for producers and purchases of at least $100 million per month in dairy products for distribution to the public through October.

“Federal dairy assistance is critically needed as the nation’s dairy farmers face an unprecedented collapse of markets resulting from the shutdown of much of the economy,” said Jim Mulhern, president and CEO of NMPF, the largest U.S. dairy-farmer organization. “Dairy’s fortunes have been especially grim, given the perishability of our product, its daily harvest and the fact that the virtual shutdown of the food service market has wiped out more than one-third of our product demand.”

The USDA plan included elements of an NMPF and International Dairy Foods Association joint plan of assistance to farmers and processors that had been sent to the department earlier this month. Still, as more information about the plan became available, some elements were of concern to NMPF:

• Payment caps are too low for the dairies that produce more than half the nation’s milk;
• USDA’s front-loaded its damages calculations toward the early months of 2020, which won’t match the timing of dairy’s deepest losses;
• Those loss calculations don’t reflect the full damage dairy will feel going forward, which USDA’s own calculations in its April WASDE report peg at roughly $8.5 billion; and
• A product-purchase program is unlikely to meet unprecedented food-bank demands.

Payment Caps a Worry

On payment caps, NMPF expressed its concerns over the possible USDA response even before the department’s plan was released, writing in a letter to President Trump on April 15 saying that “it is imperative that any program to provide relief to farmers accounts for the significant losses that all U.S. dairy farmers are facing.”

Later in the month, after research from Texas A&M indicated that dairy producers would face the steepest losses of any U.S. commodity group – with declines in net cash income outpacing the maximum federal payment available – NMPF again sounded the alarm. “The COVID-19 crisis presents grave danger for all dairies, from small operations to the producers whose milk nourishes the majority of U.S. consumers and keep supply chains running,” Mulhern said. “We have raised our concerns over payment limits with both President Trump and USDA, and with the Administration making important decisions in how it allocates aid, it’s important to highlight the very real impacts that lower support levels will have on dairy producers and the communities they serve.”

NMPF and dairy allies anticipate that progress in addressing these concerns can be made in coming weeks, as Congress readies another round of stimulus and USDA’s Commodity Credit Corporation receives funding for the next fiscal year in July.

Still, with a united dairy voice essential to prompt necessary change, NMPF is encouraging grass-roots activity in addition to its staff work on Capitol Hill. NMPF has set up a twitter hashtag, #dairyneverstops, to talk about farmer needs, and the NMPF webpage features calls-to-action items that encourage producers and their allies to contact lawmakers and urge more effective solutions for dairy in future stimulus.

With the coronavirus crisis massively disrupting dairy demand and supply chains, margins under the Dairy Margin Coverage (DMC) program fell dramatically in March and April. Even so, they may not accurately reflect the true losses producers are facing due to the unusual effects of the crisis on milk-component prices, a public-policy concern as USDA allocates billions of dollars in emergency assistance.

The DMC margin for March was $9.15 per cwt., 35 cents below the $9.50 per cwt. maximum coverage level for the program. The situation has deteriorated further in April: The full-year margin as of the April 28 forecast by USDA’s DMC Decision Tool, shown in the chart, was forecast to be $7.69, $1.81 per cwt. below the $9.50 trigger. Farmers enrolled in the program at all coverage levels, both under and over 5 million pounds of production history, would collectively receive $515 million in government payments at that margin.

Still, even margins that low – the lowest since 2009, if current margin formulas were projected backward – may understate the full loss for dairy.

Under normal circumstances in the U.S. dairy industry, the NASS-reported all-milk price used for DMC calculations behaves as what can be termed a commodity milk price. This means that, although it is determined using a survey methodology, it closely tracks the prices of the four basic dairy products: butter, cheddar cheese, nonfat dry milk and dry whey. These product prices determine federal milk marketing order class prices, which in turn determine order blend prices, which have a strong influence on prices paid to all dairy farmers. Futures prices for the four commodities can be used to forecast the all-milk price when that price effectively behaves as a commodity milk price. This happens when milk supply and demand are in reasonable balance, virtually all milk sold is processed, very little milk is sold at distressed prices, and producers whose milk is pooled on federal orders receive close to the federal order blend.

None of that has been true in recent weeks, making the issue of what the all-milk price reflects a key factor in allocating billions of dollars in payments to dairy farmers under the DMC and, potentially, under the Coronavirus Food Assistance Program (CFAP) this year. This year, dairy farmers will get little to no payment for large volumes of dumped milk, and additional large milk volumes will be sold at seriously distressed prices, none of which is reflected in a commodity milk price.

The forecast of the U.S. average all-milk price during calendar year 2020 released last month by USDA’s World Agricultural Outlook Board in the April 9 World Agricultural Supply and Demand Estimates (WASDE) report appears to recognize this issue. The forecast, $14.35 per cwt., was about $2.00 per cwt. lower than commodity milk price forecasts were indicating at the time, and the report further commented that its forecasts included “additional milk marketed but not processed”, i.e., dumped milk.

The Decision Tool’s milk price forecasts are essentially commodity milk price forecasts. If the reported all-milk prices over the next several months also account for the milk prices dairy farmers actually received, payments as determined under USDA loss calculations would be much larger.

The DMC margin calculation is required by law to use the NASS-reported all-milk price. The CFAP direct payment calculations for dairy currently being formulated by USDA will involve estimating the prices that would have been received by dairy farmers if the coronavirus pandemic had not occurred, which would be commodity milk prices because the assumed scenario would be basically normal industry conditions. Still, such a scenario should be compared with prices received under the current crisis conditions, which will not be commodity milk prices.

Although commodity prices, and hence commodity milk prices, have fallen as a result of the pandemic, actual prices received by dairy farmers will have fallen even more. If these calculations use the NASS all-milk price, it will be important that they reflect this difference. It will be critically important to see if NASS takes its cue from the interagency experts who made the April WASDE forecast when it reports the all-milk price for April a month from now.

The DMC information page on NMPF’s website offers a variety of educational resources to help farmers make better use of the program.

Highlighting a month of important regulatory activity extending beyond the coronavirus crisis, the long-awaited final Navigable Waters Protection Rule: Definition of “Waters of the United States was published in the Federal Register by the Environmental Protection Agency (EPA) and the Department of the Army on April 21. Publication of a final rule culminated a fight for clarity and common-sense in rulemaking that put NMPF and other farm organizations at the forefront.

This final rule establishes the scope of federal regulatory authority under the Clean Water Act. The Navigable Waters Protection Rule includes four simple categories of jurisdictional waters and provides specific exclusions for many water features that traditionally have not been regulated. Based on the expected publication date, the final rule would become effective on June 22, 2020. Information about the rule can be found on the EPA’s website at https://www.epa.gov/nwpr.

NMPF also submitted comments to the docket, “Simplifying Meal Service and Monitoring Requirements in the National School Lunch and School Breakfast Program,” on April 15, emphasizing milk’s role in meeting nutrient requirements for children and restating our support for the program. The rule aims to increase flexibilities focused on customers and to help state and local program operators overcome operational challenges that limit their ability to manage programs efficiently. Two specific proposed changes included making it easier to offer meat alternates — which include dairy options — with no minimum grain requirement in the School Breakfast Program and expanding the sale of calorie-free flavored water for all ages and grades.

NMPF’s comments supported the meat alternate change but urged the agency to gather more data about the impacts on milk consumption – and, in turn, student nutrition — when finalizing the proposal to expand the sale of calorie-free flavored water, including carbonated varieties, to children as young as kindergarteners.

In addition to submitting comments to the school nutrition docket, NMPF submitted joint comments with USDEC to the Codex Task Force on Antimicrobials Resistance (TFAMR) Draft Guidelines on Integrated Monitoring and Surveillance of Foodborne Antimicrobial Resistance on April 3. The comments touched on the need for significant revision due to aspirational elements that, if presented as requirements, would be unobtainable for many developing countries and could be used as nontariff trade barriers without any impact on mitigating the risk of anti-microbial resistance transfer through the food chain.

The U.S. and UK reaffirmed in April their commitment to negotiating a free trade agreement post-Brexit. A U.S.-UK agreement could present a new path forward for the unbalanced trade relationship between the U.S. and the UK, one of the world’s top cheese importers. Ensuring that the UK uses its exit from the European Union as an opportunity to move beyond the EU’s complex, often unfair trade policies is a critical element to that result.

Among NMPF’s top priority areas in UK negotiations is removing geographical indication (GI) restrictions that the EU has put into place to prevent the U.S. from exporting cheeses with common names to the UK and more broadly reforming how the UK deals with GIs.

To that end, NMPF and the U.S. Dairy Export Council (USDEC) have developed detailed policy recommendations outlining how to best tackle the issue of GIs and common food names. This draft language has been provided to U.S. trade negotiators to help guide successful negotiations. The text builds upon positive precedents that NMPF and USDEC helped champion in USMCA on these topics.

NMPF supports a comprehensive U.S.-UK trade agreement that uproots nontariff barriers to trade and opens up the market for U.S. dairy exports to the UK. The organization will remain engaged throughout the process to ensure that a final deal best positions U.S. dairy to fairly compete.

NMPF and the U.S. Dairy Export Council (USDEC) submitted comments to the U.S. Trade Representative (USTR) on April 28 outlining dairy’s trade priorities as the Administration moves forward with its intention to negotiate a free trade agreement (FTA) with Kenya.

A strong FTA with Kenya will open new doors for the dairy industry. Kenya is a developing middle-income economy and a population growth rate nearly twice the global average. While Kenya imported nearly $50 million of dairy products from the world in 2019, U.S. dairy exports have been discouraged from entering this market due to high tariff rates and burdensome certification requirements.

Successful negotiations to remove these tariff and nontariff barriers will deliver tangible benefits for U.S. dairy farmers and manufacturers. Perhaps more importantly, it will set a critical precedent and lay the groundwork for such dairy provisions to become the guidelines for any future negotiations with African nations.

The comments submitted by NMPF and USDEC outline specific priorities that, if achieved, would constitute a successful FTA: namely, the removal of high tariff rates and nontariff barriers for dairy products, strong sanitary and phytosanitary standards, and concrete safeguards for common food names.

Slowing the EU on Food Names

NMPF and USDEC also are encouraging USTR to incorporate and build upon the advances made in the U.S.-Mexico-Canada agreement to slow predatory European Union policies that erect de facto prohibitions on the import of many non-EU products into third-party countries. This includes barriers that undermine market access rights of U.S. dairy products labeled with terms such as “parmesan,” “Asiago,” “feta,” “romano,” or “gorgonzola.” These technical barriers to trade must not be tolerated.

NMPF was encouraged in that effort by USTR’s firm rebuke of EU dairy trade policies in its annual U.S. Special 301 Report released April 29. “Rather than trying to compete on a level playing field, Europe has tried to effectively institute a blockade of U.S. dairy,” Jim Mulhern, president and CEO of NMPF, said in a statement responding to the report. “This is unacceptable and harms America’s dairy industry and the rural communities our farmers and processors support.”

NMPF is committed to making dairy’s voice heard and will conduct follow-up outreach to U.S. negotiators regarding the dairy industry’s priorities.

NMPF’s coronavirus website expanded and evolved with the crisis itself, with documents addressing milk dumping and herd-culling while launching a regular toolkit update to keep members apprised of resources. At the same time, the site served as a way to thank farmers for the hard work they did, with a new video featuring an NMPF board member showing how dairy has remained resilient in hard times.

The Coronavirus Dairy Toolbox, planned as a biweekly update, launched April 22 with links to recent NMPF podcasts and new documents to aid the dairy community in digest form for easy-to-access member information. NMPF also launched a new drive for subscriptions to publications, including this newsletter, its monthly Dairy Market Report, its Dairy Defined thought leadership series, its quarterly Regulatory Register, and other offerings, with an online signup for anyone who would like to subscribe to NMPF publications.

Highlighting outreach in April was NMPF’s publication of a video featuring board member Nic Schoenberger thanking dairy farmers for the work every day they are doing to serve consumers and their country during the coronavirus crisis. The video was seen more than 100,000 times and shared more than 2,000 times in its first day, providing perspective on dairy’s inspiring response to the crisis.

As America’s dairy farmers struggle in these unprecedented times, the Cooperatives Working Together (CWT) export assistance program is helping maintain and develop markets for U.S. milk. Member cooperatives have captured sales contracts that will move overseas the equivalent of 445.7 million pounds of milk in 2020.

In April, CWT members secured 116 contracts to sell 7.2 million pounds of American-type cheese, 3.2 million pounds of butter, 2 million pounds of anhydrous milkfat (AMF), 8.7 million pounds of whole milk powder (WMP), and 599,657 pounds of cream cheese. These products are going to customers in Asia, Central and South America, Europe, the Middle East, North Africa, and Oceania. They will be shipped April through October 2019.

These sales bring the total 2020 CWT-assisted dairy product exports to 16.1 million pounds of cheese, 4.3 million pounds of butter, 2 million pounds of anhydrous milkfat, 17.7 million pounds of whole milk powder, and 2.4 million pounds of cream cheese.

2020 is a challenging year for dairy farmers and their cooperatives. Doing whatever is necessary to strengthen milk prices is a must. Dairy exports will be key for both dairy farmers and dairy cooperatives in the year ahead.  CWT provides a means to move domestic dairy products to overseas markets by helping to overcome certain disadvantages such as the domestic/global price gap, shipping costs and tariffs.

The amounts of dairy products and related milk volumes reflect current contracts for delivery, not completed export volumes. CWT will pay export assistance to the bidders only when export and delivery of the product is verified by the submission of the required documentation.

All cooperatives and dairy farmers are encouraged to add their support to this important program. Membership forms are available at http://www.cwt.coop/membership.

The FARM Team has worked throughout the coronavirus outbreak to assist NMPF in its response to COVID-19, stepping up its virtual outreach to show customers and consumers that the dairy industry is taking the very best care of cows and the environment, producing safe, wholesome milk and adhering to the highest standards of workforce development.

April saw stepped-up outreach, with FARM working with industry partners to provide e-learning opportunities to FARM Program stakeholders.  Some of the outreach that we have done includes:

• Podcast: Emily Yeiser-Stepp discusses how dairy-farm stewardship is adapting to coronavirus
• Podcast: Jamie Jonker discusses safety of U.S. milk and details dairy precautions
• Podcast: Zoetis and FARM on Bovine Coronavirus and COVID19
• FARM Webinars with: FARM Program Participants (100+ attendees), Alltech (60+ attendees), Dairy Welfare Council (300+ attendees), American Association of Bovine Practitioners (AABP) (75+ attendees being noted as one of the highest attended webinars to date), Dairy Calf and Heifer Association Virtual Conference (170+ attendees)
• FARM Workforce Development Task Force meeting to review Labor Survey results
  • Public report and communications pieces will be forthcoming by the end of Q2
• Calf and Heifer Working Group meeting that identified key components allowing staff to move forward with program development
• Pursuit of ISO re-certification and PAACO certification
• Ongoing dialogue with brands and retailers

These efforts will continue for the foreseeable future and we will provide you with updates on new opportunities as they become available.

FARM also has completed its FARM ES Version 2.0 User Guide, treatment record templates, and is nearing completion of the designed Animal Care Manual and an Animal Care Participant Handbook.

Dairy producers were aided in  their rush to participate in two Small Business Administration (SBA) loan programs by NMPF resources that helped guide them through an intense crunch for signups.

With additional funding, the Paycheck Protection Program (PPP) and  Coronavirus-specific Economic Injury Disaster Loans (EIDL) both reopened early the week of April 27. NMPF provided an updated coronavirus webpage tailored to meet producers’ questions and needs, assisting them in gaining necessary government relief at a time of unprecedented demand.

Most agricultural producers, including dairy farmers, had not been able to access SBA loans before the pandemic. When passing the CARES Act on March 27, Congress created PPP and expanded eligibility for EIDLs specific to COVID-19, allowing access to both PPP and COVID-19 EIDLs for agriculture and other types of businesses and organizations typically excluded from SBA programs.

Participation in the first round of assistance, which was exhausted in early April, posed immense challenges for dairy producers and American agriculture due to how the programs were rolled out. The Small Business Administration did not interpret the CARES Act to allow farmers to access EIDLs, and producers across the U.S. were put at a deep disadvantage when trying to apply for PPP loans because of how SBA implemented the program.

NMPF joined other key stakeholder organizations in leading the charge to get farmers equitable access to the small business support, working with members of Congress from both parties and Administration officials to bring the reality of PPP and EIDLs in-line with congressional intent in the CARES Act.

Due to this determined collaborative work, a second bill signed April 23 provided additional funding for PPP and COVID-19 EIDLs and changed how the programs are administered moving forward. Congress explicitly stated in the measure that agricultural producers with 500 or fewer employees can access EIDLs and set aside $60 billion of the newly allocated PPP funds for smaller lending institutions, including community banks and credit unions.

“NMPF is extremely pleased that Congress makes it clear in this bill that farmers with 500 or fewer employees should be able to access COVID-19 EIDLs, removing a significant obstacle that has prevented small business support from reaching America’s farmers,” NMPF president and CEO Jim Mulhern said. “On the PPP side, we are hopeful that the measure’s provisions aimed at ensuring small lenders – including community banks and credit unions – have adequate access to PPP funds will make it easier for dairy producers and others in rural areas to apply for support.”

Mulhern thanked NMPF’s champions in Congress and their staff for their work securing these changes to the SBA programs in the legislation, but noted some obstacles still remain, including challenges family farms and other sole proprietors face in SBA’s application process. “NMPF will continue efforts to address remaining problems so farmers are better enabled to fulfill their critical role in helping our nation throughout this pandemic.”