Tag: dairy industry

Price and Margin Outlook Challenge Farmers

Posted on by Alan Bjerga

By Peter Vitaliano, Chief Economist, NMPF

The price and margin outlook continues to challenge the nation’s dairy farmers, with little sign of immediate relief.

CME futures markets, which I use to project prices, indicate a 2023 calendar year U.S. average All-Milk price within a penny or two of $20.45 per hundredweight (cwt.); combined with an annual average Dairy Margin Coverage (DMC) feed cost of $14.20 per cwt., prices and costs at these levels would result in an annual average DMC margin of $6.25.

The USDA’s DMC Decision Tool has a different take on the CME futures, but it too shows roughly the same three average numbers for this year. Meanwhile, USDA’s World Agricultural Supply and Demand Estimates (WASDE) report from June 8 was even more dour, with a $19.95 per cwt. milk price forecast for this year.

The worst of the trough

And those are just the averages — the worst of the trough may be happening right now. Both the CME futures markets and the USDA tool indicate DMC margins well below $5 per cwt. for the three months during the May to August period, which for the first time would trigger Tier 2 payments. Tier 2 coverage at that level costs only a half cent a hundredweight, the same as equivalent Tier 1 coverage. Neither forecast expects the margin to top $9.50 per cwt. before the year is out.

Milk production isn’t usually cited as the root cause of this gloom – but it deserves a closer look. Production growth has been experiencing an unusually short and mild expansion cycle following its extended period last year below year-earlier levels. Production growth maxed out this year at 1.4% in January and was headed down since, hitting just 0.4% over a year ago in April, but annual growth ticked back up to 0.6% in May and has averaged 0.8% for the first five months of 2023.

But assessing the role of milk production with respect to milk prices can’t be done only with reference to historic patterns but rather with respect to current available demand. USDA reports of plentiful supplies for manufacturing, milk selling well below class prices, and busy production schedules suggests that milk production is definitely part of the problem. And production itself needs to be understood, because milk solids production is a more reliable indicator of the aggregate supply of dairy products available in the markets. And that’s up by 1.1% during the first third of the year.

A top-level look at the supply-demand situation for key products and total milk use during the first third of 2023 provides further insights. American cheese production has been an important outlet for recent additional milk production, which isn’t surprising given the recent expansion of U.S. cheese production capacity. Production has grown by 2.6% during the first four months of this year while total commercial use, domestic consumption, and exports are up by 1.6%. Even with these increases, stocks are still below last year’s peak levels.

Total commercial use of other than American-type cheese is up by just 0.8%, as food service use is weak following more than a year of retail price inflation that has forced consumers to tighten up on spending. But production of this type of cheese is down by half a percent. Total fluid milk sales are 2.7% lower than last year, which is in line with long-term trends that were broken in recent years only during the first pandemic year when fluid sales experienced modest growth. Butter consumption suffered last year from its extreme price inflation but has showed improved consumption in recent months. Total exports are on par with last year’s record levels so far in 2023 but have recently slowed in pace. During March and April last year, exports sent 18.4% of domestic milk solids production overseas. This year, this was just 17%.

The current weak price and margin situation isn’t attributable to one single factor; rather, it’s an accumulation of many small weaknesses in many areas, with some further deterioration in just the last couple of months. The futures markets’ projected improvement during the second half of the year will need to be driven by consumers returning to bolder spending behavior as inflation continues to ebb, and for the current low prices to perform their proverbial supply-side function of curing themselves.

This column originally appeared in Hoard’s Dairyman Intel on June 26, 2023.

NMPF’s Larson on Whole Milk in Schools

Posted on by Alan Bjerga

 

NMPF Senior Director of Government Relations Claudia Larson discusses the Whole Milk for Healthy Kids Act, which has bipartisan support in the House and Senate. The legislation would return whole milk to schools, encouraging better nutrition and reducing food waste. Larson speaks on the Rural Radio Network.

NMPF’s Bjerga on the Whole Milk for Healthy Kids Act

Posted on by Alan Bjerga

NMPF Senior Vice President of Communications Alan Bjerga discusses the Whole Milk for Healthy Kids Act and the importance of bringing back whole milk as an option in school meal programs. The Whole Milk for Healthy Kids Act was introduced in the House of Representatives on Tuesday, and is another step acknowledging the increased understanding of the benefits of whole milk in diet. Bjerga speaks on RFD-TV.

NMPF Board of Directors Approves Comprehensive Farm Bill Recommendations

Posted on by Alan Bjerga

NMPF’s Board of Directors approved June 7 a suite of farm bill policy priorities covering the commodities, conservation, trade, and nutrition titles, working to enhance federal support for producers and expand access to nutritious dairy products for consumers at home and abroad.

With the current farm bill set to expire Sept. 30, Congress is working to enact a new bipartisan five-year farm bill.  NMPF’s recommendations will aid in enacting an on-time farm bill that provides dairy producers the certainty they need as they manage their risks and resources while seeking market opportunities at home and abroad.

“The farm bill is crucial both to dairy farmers seeking to effectively manage their risk and to the consumers who benefit from the nutritious products dairy farmers work every to provide,” said Randy Mooney, chairman of NMPF’s board and a dairy farmer outside Rogersville, MO. “We stand ready to work with lawmakers as they craft this complex, extremely important legislation that touches everyone.”

In the Commodities title:

NMPF seeks to build on its successes in the last farm bill to strengthen the dairy safety net and provide producers with access to a range of risk management tools.  NMPF’s board voted to support continuing the Dairy Margin Coverage safety net while updating the program’s production history calculation.  The board also voted to prioritize improving the Livestock Gross Margin-Dairy and Dairy-Revenue Protection programs should new funding become available.

The board also voted to seek farm bill language to direct USDA to conduct mandatory plant cost studies every two years to provide better data to inform future make allowance reviews. This would complement the near-term make allowance update NMPF is pursuing through its Federal Milk Marketing Order initiative via the USDA hearing process announced last week. Similarly, the board also voted to pursue restoring the previous “higher of” Class I mover in the most expeditious manner possible, either administratively via the FMMO process or legislatively through the farm bill, in which the mover was last changed in 2018.

In the Conservation title:

NMPF is advocating for policies that better position the dairy industry to meet its voluntary, producer-led goal of becoming greenhouse gas neutral or better by 2050. NMPF’s board voted to support maintaining robust funding for voluntary conservation programs, such as the Environmental Quality Incentives Program that supports dairy farmers in their ongoing land and water resource management efforts, with additional emphasis on feed and manure management both of which are major areas of opportunity in sustainability. The board also voted to seek relief from program payment limitations that prevent the family farmers that produce most of the nation’s milk supply from fully using these programs.

In the Trade title:

NMPF will support policies recognizing the growing importance of trade for U.S. dairy, with exports accounting for one-sixth milk of all U.S. milk production, a share expected to grow. NMPF’s board voted to support enhancing funding for trade promotion programs like the Market Access Program and the Foreign Market Development program, which promote American-made dairy and agriculture products that compete with heavily subsidized foreign products and return well over $20 in export revenue for every dollar invested.

The NMPF board also voted to seek language to protect common food names, as embodied in the bipartisan, bicameral SAVE Act that would establish an official list of common food and beverage names and direct USDA and the U.S. Trade Representative to prioritize this issue in international trade negotiations.

In the Nutrition title:

NMPF will support policies that reflect dairy’s role as an excellent source of 13 essential nutrients, some of which are under-consumed, according to the most recent Dietary Guidelines for Americans. The Supplemental Nutrition Assistance Program is vital to linking the food we produce as farmers to families across the country facing difficult circumstances.  NMPF’s board voted to support the enhancement of federal nutrition programs to provide nutritious dairy products to beneficiaries.  NMPF also supports the bipartisan Dairy Nutrition Incentives Program introduced in the Senate to encourage SNAP participants to choose healthful dairy products at the grocery store.

 

FARM provides insights on labor laws

Posted on by Alan Bjerga

Keeping up with changes to state and federal labor laws can be daunting. However, given the tight labor markets, dairy farms must redouble efforts to attract and retain employees.

The National Dairy Farmers Assuring Responsible Management (FARM) Workforce Development program offers free resources. These include state and federal legal fact sheets as well as human resource (HR) and safety templates to help dairy owners and managers increase worker engagement, reduce employee turnover, and manage safety hazards associated with dairy farming.

As part of its programming, FARM Workforce Development hosts quarterly educational webinars for program evaluators — the individuals who conduct on-farm assessments and support farmers with continuous improvement. For this year’s first webinar, Dan Deacon of Conn Maciel Carey LLP highlighted recent and potential upcoming changes to federal labor laws, including independent contractor definitions, overtime and wage rules, and Occupational Safety and Health Administration (OSHA) regulations. While FARM’s on-farm assessment tool does not evaluate legal compliance, understanding the legal and regulatory context is essential for advancing adoption of HR and safety best practices.

The Wage and Hour Division of the Department of Labor issued a proposed update to the Employee vs. Independent Contractor classification in October — restoring the “totality of the circumstances” analysis to determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act. A final rule would limit when a worker may be properly classified as an independent contractor and may be subject to legal action. The Wage and Hour Division is currently reviewing feedback from their public comment period and will provide next steps in the coming months.

The Wage and Hour Division has also held industry stakeholder listening sessions regarding overtime regulations and indicated it will issue a proposed rule to update the salary exemption threshold this year. It is not clear at this time whether the division is also exploring further updates to overtime regulations.

In January 2023, OSHA issued enforcement memos to field offices and state plans that significantly expand the potential for higher fines issued to employers for safety and health violations. One memo expands the circumstances for instance-by-instance citations, while the other reiterates OSHA’s discretion to limit the grouping of citations. OSHA also initiated a rulemaking in January 2023 for the Worker Walkaround Representative Designation Process, which would allow union representatives to participate in OSHA inspections at non-union workplaces, at the request of employees, and be more involved in the OSHA process. Prior to those actions, in March 2022, OSHA also issued a proposed rule to expand the e-recordkeeping requirements planned to be implemented this year, which would require certain high hazard employers to submit OSHA 300, 301, and 300A data to OSHA on an annual basis.

FARM Workforce Development supports dairy farmers in identifying and implementing HR and safety best practices to enhance safe and thriving work environments. Dairy cooperatives and processors representing 60% of the U.S. milk supply participate in the initiative. More than 400 assessments have been completed across 23 states. Visit FARM’s website for FARM Workforce Development resources, including federal and state legal fact sheets.

NMPF’s Bjerga on Growing Momentum for FMMO Modernization

Posted on by Alan Bjerga

 

NMPF Senior Vice President of Communications Alan Bjerga discusses how the support of the American Farm Bureau Federation is a powerful statement of farmer consensus for NMPF’s Federal Milk Marketing Order modernization plan currently before USDA. Bjerga also talks about the industry’s active discussions on fighting misinformation about dairy, in an interview with RFD-TV’s Christina Loren.

A Critical Moment Arrives on the FMMO Scene

Posted on by Alan Bjerga

By Jim Mulhern, President and CEO, NMPF

Jim Mulhern, NMPF President and CEO

The march to milk-pricing modernization reached another milestone this month, as the National Milk Producers Federation (NMPF) submitted to USDA our comprehensive proposal for Federal Milk Marketing Order (FMMO) reform.

After more than 150 meetings over nearly two years, a strong consensus has emerged among producers and our allies for changes that hold benefits for farmers of all sizes, in all regions, and for the broader industry that, together with producers, serves wholesome, nutritious products to consumers 24 hours a day, seven days a week.

A lot of work has gone into this effort. We have examined the program in great detail and came up with a plan that modernizes and updates Federal Milk Marketing Orders so they can work better for today’s dairy industry.

Some key highlights:

  • Returning to the “higher of” Class I mover.
  • Discontinuing the use of barrel cheese in the protein component price formula.
  • Updating milk component factors for protein, other solids, and nonfat solids in the Class III and Class IV skim milk price formulas.
  • Updating the Class I differential price system to reflect changes in the cost of delivering bulk milk to fluid processing plants.
  • Updating dairy product manufacturing allowances contained in the USDA milk price formulas.
  • Developing a process to ensure make-allowances are reviewed more frequently through legislation directing USDA to conduct mandatory plant-cost studies every two years.
  • Extending the current 30-day reporting limit to 45 days on forward-priced sales on nonfat dry milk and dry whey to capture more export sales in the USDA product price reporting.

The first five of these are part of our proposal before USDA. We’re seeking the make-allowance review via the farm bill and the forward-pricing plan through separate federal rulemaking.

The components work together

It’s important to note how much the elements of our proposal rely on one another to succeed. Take the make-allowance, for example. It hasn’t had a meaningful update in 15 years. It’s a key priority of our hearing request, and it’s of intense interest to some. But it still needs to be addressed in a way that benefits all. Handling that issue in isolation would have the effect of reducing milk prices to farmers, a non-starter in a program that’s ultimately supported by a vote from producers.

That’s why we have the make allowance issue in our proposal, but one that’s included along with other necessary updates to milk pricing help economically offset our proposed make allowance adjustment, by bringing pricing formulas up-to-date and minimizing disruption to markets.

Modernizing the Federal Milk Marketing Order system has been due for some time; the pandemic experience, which exposed fault lines in the system, underscored just how necessary this effort has been and created the impetus for change. We’ve been deliberate in our approach because we wanted to make sure that we addressed the concern that Agriculture Secretary Vilsack stated well over a year ago when he said it was important to have consensus within the producer community.

We have achieved that consensus, and we believe we have sent USDA a strong signal — both in the thoroughness of our proposal and our depth of support among producers — that our comprehensive proposal is the proper basis for FMMO hearings and a path toward modernization.

And we’ll need to maintain that consensus throughout the process. As we move forward toward a hearing, we’ll continue listening to any concerns and providing any information that’s helpful for progress. Please don’t hesitate to write to the special address we’re using so that staff can respond to your questions. Thank you for your help and support.

This column originally appeared in Hoard’s Dairyman Intel on May 11, 2023.

New FMMO Will Work Better for Farmers, Mulhern Says

Posted on by Alan Bjerga

 

NMPF President and CEO Jim Mulhern says the industry need a modernized Federal Milk Marketing Order that works better for dairy farmers, in an interview with the National Association of Farm Broadcasters. “We’re really excited that is a plan that will point a way toward a much brighter future for us dairy industry,” Mulhern said.

NMPF’s Mulhern Explains FMMO Modernization

Posted on by Alan Bjerga

NMPF President and CEO Jim Mulhern explains the importance of modernization to the Federal Milk Marketing Order system and the benefits it hold from farmers to consumers in an interview with AgriTalk, a daily national conversation about the latest issues impacting agriculture and rural America. NMPF’s proposal to update the system, which governs milk pricing, is currently before USDA.

 

Record Exports Drive U.S. Dairy Demand

Posted on by Theresa Sweeney

By William Loux, Vice President, Global Economic Affairs, NMPF and U.S. Dairy Export Council.

U.S. dairy exports excelled again in 2022, with record shipments further cementing its role as the key demand driver for U.S. milk.

For the third consecutive year, the U.S. dairy industry set a record for the volume of dairy products exported on a milk solids equivalent basis, with the current record now surpassing 2.4 million metric tons — the equivalent of over 40 billion pounds of raw milk, or 18% of the U.S. milk supply.

Perhaps even more impressive, for the fifth time in the last six years, U.S. exports grew by more than domestic consumption. Of that six-year window, 2019 was the only time in that span when exports grew by less than domestic sales. That’s the year the U.S. faced prohibitive retaliatory tariffs on dairy products destined for China. In addition, African Swine Fever was cratering China’s demand for whey products. At the same time, U.S. skim milk powder exporters were facing headwinds from EU intervention storage stocks that began hitting the market at below-market prices in 2019. All this noted, with 2019 being a particularly unique exception, the international market has been the driver of U.S. dairy demand growth for the past six years.

Success can’t be taken for granted

European milk production came on strong at the tail end of 2022 as favorable weather and margins boosted output. Conversely, demand within the European Union bloc has reportedly weakened as consumers feel the squeeze on their wallets, which is causing European wholesale prices to dip. With more supply, weaker internal demand, and low prices, we can expect significantly more competition from Europe in the international market than we did in 2022 when their exports dropped 10% during the first 11 months of the year.

Additionally, the international demand picture remains uncertain. Despite the clear success of U.S. dairy, the world’s collective dairy trade actually dropped 4% in 2022 — primarily on account of China. The world’s largest dairy product-importing nation contracted dairy imports by 21% as the country drew down inventories built in 2021, witnessed a surge in domestic milk supplies, and instituted movement restrictions, all of which damaged dairy consumption and imports.

China’s return to the market in 2023 remains uncertain. The lockdowns have been lifted, but milk production in the country is still growing, and inventories of milk powder reportedly remain heavy. Optimistically, consumption in the country will rebound and stockpiles will be reduced, setting the stage for China’s return as a global buyer in the middle part of the year. But until they do, New Zealand, which exported over 40% of its production to China at its peak, will have plenty of products available for customers elsewhere, meaning increased competition with the United States.

Outside of China, the demand picture will likely be mixed depending on local conditions, but broadly, slower economic growth and inflation are expected to challenge lower-income consumers and push buyers to look for bargains.

Overall, I am forecasting international demand in 2023 to return to growth, but not at a spectacular rate, and with more suppliers competing for business.

Given the expected headwinds this year, industry investment in international markets will be critical to success. To set another record in 2023, the U.S. must continue the work being done to build demand for U.S. dairy products overseas and expand market access in key markets, all while maintaining reliability with international customers by being engaged and responsive.

This column originally appeared in Hoard’s Dairyman Intel on Feb. 21, 2023.