NMPF Senior Vice President of Communications Alan Bjerga discusses where USDA’s hearing on Federal Milk Marketing Orders stands and outlines the road ahead once the process is complete. Bjerga was interviewed on RFD-TV.
Tag: milk prices
Restrained Supply, Expanding Demand Offer Some Hope for Improved Milk Prices
NMPF’s Cain on USDA’s FMMO Hearing
USDA’s Federal Milk Marketing Order modernization hearing begins Wednesday and dairy farmers are eager to be part of the process. National Milk Producers Federation Director of Economic Research and Analysis, Stephen Cain, says there is a lot of ground to cover. “We’ve developed a big package that we think is going to help the U.S. dairy farmer,” Cain told the National Association of Farm Broadcasters.
DMC Margin Drops Below $4 for First Time Ever
The June Dairy Margin Coverage (DMC) margin dropped by $1.18/cwt from a month earlier to $3.65/cwt, the first time it’s been below $4/cwt since margin protection became the basic federal safety net mechanism for dairy in 2014. It will generate a lot of $0.35/cwt payments for Tier 2 coverage at the free $4/cwt coverage level, as well as payments of $5.85/cwt for coverage at the maximum $9.50/cwt Tier 1 coverage level. The June all-milk price was $1.40/cwt lower than in May, the same as the April to May drop a month earlier, while the DMC June feed cost was only $0.22/cwt of milk lower than May’s, due relatively evenly to slight drops in the prices of all three feed formula components.
Available forecasts indicate the margin will improve slightly in July from the June level, then increase rapidly from August through October and approach $9.50/cwt by December.
Butter Buoys Milk Prices as Inflation Ebbs
NMPF’s Galen on Farm Bill Progress
NMPF Senior Vice President Chris Galen discusses the state of play in the upcoming farm bill on Dairy Radio Now. Current spending debates are slowing progress on the five-year reauthorization of USDA programs, which include nutrition assistance and commodity payments. The current law expires Sept. 30 — because many commodity programs, including dairy, run on a calendar-year basis, any threat of near-term disruption is limited, Galen said.
Farmer Milk-Price Outlook Challenging
Price and Margin Outlook Challenge Farmers
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.
Dairy Will Seize Generational FMMO Opportunity
USDA has moved forward on our request by announcing an “action plan,” and we at NMPF are pleased that the formal process of modernizing Federal Milk Marketing Orders is now officially underway. The department’s plan announced last Thursday moves us toward the national federal order hearing we’re seeking, giving dairy a generational chance to update this important program to better reflect today’s market conditions and dairy producer needs.
We’re gratified that USDA recognizes the comprehensive nature of our proposal and are looking forward to it being considered in full, because the whole of our plan adds up to more than the sum of its individual parts. That’s a testament to the careful work put into this effort over two years and more than 150 meetings. But it also means that the next steps will require the same level of dedication and preparation, if not even more.
Once USDA conducts some preliminary steps (providing opportunity for additional proposals; holding a pre-hearing workshop) and sends out its hearing notice – likely late July – the stage is set for the hearing, which could begin as early as August and take 6-8 weeks. Once all the testimony is considered, USDA would be on track to put forward a final plan for a producer vote in 2024. Assuming that’s successful, implementation would begin late next year.
That’s assuming everything goes smoothly, which, in this broad and varied industry, is always a big assumption. But as dairy producers have proven throughout this process, with unity and careful attention to each other’s needs, impressive things can be done.
To work through this next stage as smoothly as possible, we plan to stick with the formula for success that’s served us well since the beginning. The principles we’ve followed include:
- An approach grounded in thorough research and deliberation. Our meticulous, consensus-driven efforts allowed us to craft a proposal that comprehensively addresses today’s milk-pricing needs. As we prepare for a USDA hearing, that same commitment to substantive research over mere posturing will be critical. Fortunately, we’ve been working with many of the industry’s top economists and analysts to guide our approach. Their work will be key in the hearings to addressing complex issues such as Class I differential pricing, the make allowance or the return to the “higher-of.”
- A devotion to consensus. We’ve focused on measures that unite the nation’s producers, and we will continue to advocate for solutions tailored to broad benefit rather than narrow, specialized self-interests. When disagreements have arisen, we’ve invariably worked toward, and achieved, consensus among producers. During our many meetings, if a proposal couldn’t attract a strong majority of support, we dropped it and moved on, always making sure that our members were lined up behind anything that moved forward. While this meant no one likely got exactly what they wanted, in the long run our proposal is stronger because it reflects the collective consensus of dairy producers serving markets nationwide.
- An understanding that failure – or a focus on one single aspect of the program— is not an option. The need to comprehensively update a system built for the dairy industry of 23 years ago has always been obvious. Now that we’re moving toward a hearing, giving anything less than maximum attention and support is not an option either; nor is arriving at a final decision that producers won’t approve, a case we will make clearly and cogently in the hearing process. At this point the need for program modernization isn’t only established: a comprehensive approach to meeting it has been unanimously adopted by representatives of two-thirds of the nation’s milk supply and the added support of numerous other state, regional and national organizations with dairy producer members. This effort can’t, and won’t, be thrown into reverse. It needs to be brought to a successful conclusion, with the same spirit of consensus that brought us here.
With these principles in mind, we are about to embark on the next phase. This has been a heavy lift, and it’s far from complete. But we’re excited for the formal hearing process to begin. Deep thanks and appreciation to everyone who has contributed to and supported this journey so far. Additional opportunities to advance this effort and successfully see it through will be plentiful in the months ahead.
Jim Mulhern
President & CEO, NMPF
Milk Prices Under Pressure
NMPF’s Bjerga on Growing Momentum for FMMO Modernization
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
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.
