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March 2011 Archive for Dairy Talk

RSS By: Jim Dickrell, Dairy Today

Jim Dickrell is the editor of Dairy Today and is based in Monticello, Minn.

National Milk’s Attempt at Order Reform

Mar 28, 2011

Plenty of questions come with Federal Milk Order Reform, the final part of National Milk’s Foundation for the Future reform package. Will it be more or less complex? And what will it achieve?


A couple of weeks ago, the National Milk Producer Federation (NMPF) issued a press release trumpeting its Federal Milk Order Reform package. It’s the fourth and final part of NMPF’s Foundation For The Future plan to revise U.S. dairy policy.

Like a lot of other folks who read the release, I came away with more questions than answers. So, last week, I did a 20-minute interview with Jim Tillison, NMPF’s Senior VP of Marketing and Economic Research and Chris Galen, NMPF’s Senior VP of Communications. Here’s what I learned:
 
Tillison and Galen say this is an attempt at simplifying the system into two classes: Fluid milk and manufactured dairy products. Gone are price minimums for Class II, III and IV. Gone are make allowances for cheese. Gone are negative Producer Price Differentials (PPDs). And gone is explicit reliance on the Chicago Mercantile Exchange.
 
“Some people wanted us to go all the way from the current system to a two-class system based on competitive prices, going from A to Z all at one time,” says Tillison.
 
But after 10 meetings over 14 months with dairy co-op leaders, it was clear such radical reform was not possible. “Our plan takes us from A to M. It gets us half way there,” Tillison says.
 
Complexity will remain, however, because the proposed system retains the ghosts of the current four classes.

Current Class I price differentials remain, as does “the higher of” Class III and IV prices to set the Class I price mover. Class II will have a 30¢ per cwt. differential—down from the current 70¢ per cwt.
 
Though there will be no Class III minimum prices, USDA will conduct regional surveys of proprietary cheese plants outside of California to determine the prices these plants paid for milk that goes into the cheese vat. (California prices will not be included because they are still set by formula rather than competitive pay prices.)
 
These surveyed prices will be used to determine a cheese price average each month for calculating the Class I mover. Proprietary plants (meaning non-co-op plants) that process more than 250,000 lb. of milk per day will be surveyed. NMPF estimates the survey will cover more than 70% of the daily cheese production.
 
Class IV prices will be calculated using the current Class IV formula, which uses National Agricultural Statistics Service butter and nonfat powder prices.The higher of the competitive cheese milk price and the Class IV formula price will be used to determine the Class I mover.
 
Handlers of Class IV milk will still pay into their Federal Order pool if the Class IV formula price exceeds the cheese milk price. They will draw from the pool if the Class IV formula price is below the region’s competitive cheese milk price. But that Class IV handler draw cannot exceed the available pool balance. Thus, the PPD can never be negative.
 
Though NMPF says the plan is not designed to enhance prices, average PPDs would rise on average 25¢ per cwt. across the system compared to PPDs over the last five years. The lowest increase, due to its low Class I utilization, would be  11¢ in the Upper Midwest. The largest increase, 47¢, could come in the Southwest.
 
One can argue, and many will, whether this new and improved Federal Order system is more or less complex. And what will it achieve?
 
Will it reduce volatility? Perhaps. If cheese and powder plants only pay what the market will bear, it’s rational to assume pay prices will go up and come down more gradually than the limit-up and limit-down volatility of the Chicago Merc. But don’t kid yourself: Cheese plants still look to the Merc for spot price guidance. They will not pay more for milk than the value of the cheese they sell.
 
Will it eliminate make allowances? It certainly will eliminate formulaic cheese make allowances; butter/power makes remain. But no cheese plant can exist very long without some margin to cover manufacturing costs. So cheese make allowances will now be reflected in the price cheese makers can bid for milk.
 
Will it eliminate negative PPDs? Yes, by definition. But if butter/powder plants can’t draw more from the pool than is in the pool (which in the past allowed them to tap into the PPD), they’ll have fewer dollars to bid for milk.
 
How quickly could all this be implemented? No one knows. The Federal Order folks I’ve talked with suggest the changes will require a national hearing. Far more detail will have to be hammered out in those hearings to implement the changes.
 
Even if Foundation for the Future passes sometime this year, implementation of the Federal Order changes will be months and months and months after that. Think 2012, maybe 2013.For more on the Reform package, click here and here.

 

Proposals for 400,000 SCC Standard Wildly Different

Mar 14, 2011

Politics are likely to come into play when the National Conference on Interstate Milk Shipments meets next month to discuss proposals from National Milk and NMC.

 
At the end of April, the National Conference on Interstate Milk Shipments will meet in Baltimore to lower the U.S. standard for somatic cell counts to 400,000 cells/ml.
 
There are currently two proposals—one by the National Milk Producers Federation (NPMF) and the other by NMC, formerly known as the National Mastitis Council. Both get to the same level of 400,000 by Jan. 1, 2014. But the path to that end point is slightly different—and how quickly violation levels are triggered also differs.
 
The NMPF proposal is far more restrictive and conservative, and triggers more violations much more quickly. The irony in all this lies in the fact that NMPF has dragged its feet in bringing U.S. standards up to par with the rest of the world for more than a decade. It has only been since the European Union (EU) has threatened to cut off U.S. exports that NMPF stepped up to plate.
 
To its unbeknownst credit, NMPF’s proposal will propel U.S. milk standards to becoming a global leader. And that’s a good thing—for cows, dairy producers and consumers, both domestic and foreign. 
               
USDA’s Animal Improvement Programs Laboratory (AILP) recently analyzed SCC test day records from nearly 15,000 DHI herds with roughly 4 million cows.
 
This huge DHI data set allows USDA researchers to calculate more closely how many herds and how much milk would exceed federal standards as SCC levels are reduced.
 
The USDA analysis shows 14.1% of DHI herds (and 5.8% of milk) would not be in compliance if the SCC limit is reduced to 400,000 cells/ml under the NMPF proposal. Under the NMC proposal, which mirrors the EU methodology, 7.8% of herds (and 3.1% of milk) would not be in compliance.
 
The reasons for these huge differences are twofold:
 
• First, the EU requires calculating averages geometrically, not arithmetically. The rolling geometric mean would be calculated based on the SCC values from the three most recent months. For the math-impaired, we all learned how to do these calculations in middle school, and then promptly forgot how to do them in high school.
 
(A refresher: The geometric mean is calculated by converting the SCC values to Log base 10 (Log10), summing the 3 Log10 values, dividing the sum by 3 and converting the value to the arithmetic number by finding the antilog. It sounds complicated, but thankfully, all calculations are easily done on hand-held calculators or desk top computers.) 
 
Mastitis researchers say using the geometric mean is both biologically and statistically the correct method for calculating cell count averages.
 
It has the added benefit of actually producing a lower average than arithmetic averages. “The use of the rolling geometric mean really helps decrease the number of non-compliance herds,” says Duane Norman, the AIPL supervisory research geneticist who conducted the analysis.
 
• Second, the EU does not suspend producers until their rolling three-month geometric mean exceeds 400,000 cells/ml. USDA’s Norman interpreted this to mean once the three-month geometric mean reaches 400,000, the producer is then warned and has another three months in which to bring the cell count below 400,000. This is the practice in Germany (though the EU directive 94/46/EEC is actually based on three tests).
 
NMPF, on the other hand, proposes maintaining the current system to suspend a license if a producer exceeds the standard three out of the most current five months. “Using three of five tests is tougher on producers, no question,” says Norman.
 
Who is most at risk? It’s long been known that smaller herds and herds in the South struggle to meet the 400,000 SCC level. “The Southeast is definitely running high, and some of the mid-plains states—Arkansas, Kansas, Missouri, Nebraska, Oklahoma—are marginal as well,” says Norman. Click here to see Norman’s analysis; click to Slide 13 for regional comparisons.
 
How all this sorts out at NCIMS remains to be seen. Despite the claim that NCIMS is a milk safety organization, politics will inevitably come into play. It always does. Stay tuned.
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