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January 2014 Archive for Dairy Talk

RSS By: Jim Dickrell, Dairy Today

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

The Death of Supply Management

Jan 24, 2014

The National Milk Producer Federation’s announcement that supply management was dead was a stunning concession.

It was one of those watershed moments that will remain in your memory—like the discovery of the BSE cow in Washington 10 years ago and the FDA announcement that BST was approved 20 years ago.

On Jan. 16, the National Milk Producers Federation (NMPF) issued a statement conceding that supply management was dead. Yesterday, the Senate/House Conference Committee reported out its farm bill compromise, and market stabilization was nowhere to be found.

After four years of meetings and resolutions and all-out lobbying, one of the cornerstones of NMPF’s "Foundation for the Future" plan was dead on arrival in the U.S. House of Representatives. NMPF conceded:

"Despite the long-standing opposition to this plan from House Speaker John Boehner, we were confident we had the votes in the conference committee to defeat any amendment to strike the market stabilization program," Jim Mulhern, the new president and CEO of National Milk said in his statement.

"Unfortunately, the Speaker’s threat that he would not allow a vote on a farm bill containing the market stabilization program has effectively served to kill our proposal within the committee."
Boehner’s opposition to supply management, or as National Milk dubbed its plan, market stabilization, is well known. The Speaker of the House likened it to Soviet-style economic planning.

Boehner's opposition resulted in a 2:1 vote against the provision when the farm bill was debated in the House last summer. That alone signaled that a House-Senate conference committee report containing dairy supply management would have tough sledding once it reached the House floor for a final vote.

After yesterday's Conference Committee report, Mulhern believes new provisions that establish a production base for each farm (the highest annual production of 2011, 2012 or 2013) cannot be used as an incentive to expand production. "Importantly, the program doesn't discriminate against farms of differing sizes, or preferentially treat those in differing regions," he says. 

 

Margin insurance is the cornerstone of the new dairy policy, but it will have to tweaked to make sure farmers use it as a risk management tool as it’s intended. You can read a summary of the new dairy provisions here

 

That will mean sign-up deadlines sufficiently far out so that farmers won’t know with a lot of certainty milk and feed markets. Premium payments also should be strutured so that they could be paid from indemnities or profits at the end of the insurance year rather than at the beginning.

This farm bill process, the longest in history, has been one heck of a ride. Let’s hope implementation will go a whole lot smoother. 

U.S. Dairy Exports Shatter Records

Jan 10, 2014

U.S. dairy export numbers through November were released last week, and the news couldn’t be better. For the first 11 months of the year, the U.S. sent $6.1 billion worth of dairy products to customers outside our borders.

That’s 17% more than last year. And if sales continue on this torrid pace, the U.S. is likely to be up 30% for the year when the December numbers are released next month. Through November, the U.S. was exporting 15.6% of all of its milk solids to foreign customers. That’s an astounding feat, since just 10 years ago, we were exporting just 3% and importing a like amount. Today, exports exceed imports by a factor of four.

"While favorable pricing and supply shortages in New Zealand may have accelerated growth in 2013, overall U.S. performance was not surprising given long-term trends," says Tom Suber, president of the U.S. Dairy Export Council (USDEC). "This year marked the fourth consecutive year of record U.S. dairy export volume and the ninth record year in the past 10."

Prospects for 2014 are also bright. "Long-term demand from a growing middle class in emerging markets and an inability of traditional supply sources to keep pace continue to fuel international dairy trade," says Suber.

But it also should come with some tempering. U.S. milk production in 2013, expected to come in at 201.2 billion pounds, was up only 0.5% over 2012. European milk production was up just 0.3%, and New Zealand production was down 4.3%.

Global milk supplies are expected to rebound in 2014, says Jerry Dryer, editor of the Dairy and Food Market Analyst newsletter and author of Dairy Today’s Market Watch Diary column. He expects U.S. milk production to climb 1.7%, Europe’s to grow 2% and New Zealand’s to climb 4.5%. If those increases materialize, that will add another 12 billion pounds of milk to global markets.

This supply, says Dryer, will "barely keep pace with anticipated demand growth." But there are always hiccups. "The lapse of unemployment insurance and cuts to the Supplemental Nutrition Assistance Program (food stamps) will be a drag in the U.S. domestic market," he says.

And then there’s the unknown. It was 10 years ago last month that a Washington state dairy cow was discovered to be infected with bovine spongiform encephalopathy, commonly known as "mad cow" disease. The chart below shows it took the U.S. beef industry almost 10 years to recover its export market.

Dairy Talk chart 1 10 14

And the scary part is, the U.S. is really not much closer to a national identification program to trace, track and locate infected animals than it was in 2004. Yes, we’ve tightened feed regulations. And USDA now requires some form of identification of animals 18 months of age or older before they can move across state lines. But it’s been left up to the states to trace animals within their borders. But metal ear tags and paper ID for interstate travel is at best 19th Century technology coping with 21st Century globalized trade.

My point is not to scare you. (Well, maybe it is.) But U.S. dairy exports, as powerful a market driver as they’ve been, are only as strong as our next animal health crisis. Increasing levels of exports make us ever more vulnerable to market crashes.

Yes, let’s celebrate these gains. But the industry needs to be even more vigilant for health and milk quality events. It must continue to fight for rational, national animal identification. And it can never assume ever growing exports are now our birthright. Past performance does not guarantee future prosperity.

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