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November 2013 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 Farm Bill Game

Nov 18, 2013

If costs go too high, it might be our last farm bill dairy program.

Believe it or not, we might, just might, get a farm bill.

Sources tell me congressional staffers are quietly meeting to hammer out differences in the Senate and House versions.

In anticipation of final passage, we asked Marin Bozic, a dairy economist with the University of Minnesota, to lay out some of the things dairy farmers should consider. He presented those thoughts at our Elite Producer Business Conference in Las Vegas last week. 

The devil, of course, will be in the details. If the Senate/House Conference Committee accepts the Senate version, the dairy program would include a market stabilization program, which would require participants to reduce milk production (or forfeit a portion of their milk check) if margins fall below certain thresholds. If the House version prevails, there would be no market stabilization program.

Another critical factor will be deadlines for annual sign-up. Note: If you sign up to participate in the Senate version, you’ll need to participate for five years. But the program would allow you to change the level of margin protection you want each year. The House version allows you to participate on annual basis.

When you’ll be required to make that decision each year is critical. Under the House language, you’ll be required to pay margin insurance premiums by Jan. 15 of the calendar year of participation. This would allow farmers to know market conditions, especially for the first half of the year, and give them a pretty good idea if indemnities are likely.

But if the program is patterned after crop insurance, deadlines might be set at March 15 for the federal fiscal year starting Sept. 30. That way, farmers won’t know what crop growing conditions are and will be far less able to predict margins.

Dairy Today polled EPBC attendees last week on their preferences. Keep in mind that attendees to our conference average well over 2,500 cows per herd. This peer group represents fully one-third of U.S. milk production. And their participation (or non-participation) will go a long way in the dairy program’s success or failure.

Not surprisingly, of those responding to our poll, more preferred the Jan. 15 deadline. Twenty-eight percent said they’d participate if the deadline under the Senate version was Jan. 15 versus 17% for the March 15 deadline. The trend was similar for the House version, with 34% preferring Jan. 15 versus 25% preferring March 15.

"The big drop from Jan. 15 to March 15 indicates that some producers do not need the risk management program, and won’t use this unless it’s an investment vehicle," says Bozic.

Interestingly, 44% were leaning against participation in either program if the sign-up deadline was March 15. Non-participation ranged from 33% even with the Jan. 15 sign-up under the Senate version versus 22% under the House version.

In other words, these large farms would love a program that gives them a greater chance of a return on their insurance "investment." That’s human nature, I guess.

But, in my opinion, it really doesn’t drive the industry toward a risk management mindset. It’s more of a reversion to a "farm the government" mindset.

Ohio State University analysis shows the new dairy program could cost substantially more than the (now expired) Milk Income Loss Contract (MILC) program. Without market stabilization, the analysis shows costs could be 3X MILC. Even with effective market stabilization, costs could double.

USDA rule writers have a dilemma on their hands. Go with a March 15 sign-up, and participation could suffer. Go with the Jan. 15 sign-up, and costs could soar.

But here’s the thing: If the price tag to taxpayers gets too high, it might be our last farm bill. 

Dairy Exports on Torrid Pace

Nov 04, 2013

The numbers for our overseas shipments this year are incredible. Can we sustain these levels?

USDA’s August report on dairy exports is almost unbelievable. Compared to August 2012, the United States exported 45% more dairy products on a value basis.

China was the big buyer, up a whopping 170% over a year ago. The Middle East and North Africa were up 108%, and Southeast Asia was up 55%.

On a milk solids basis, that means 17.5% of total U.S. milk production was exported in August. And with imports hovering at 2.8%, that means we had net outbound sales approaching 15%. Incredible.

Year-to-date, the numbers are nearly as impressive. On a value basis, the U.S. is up 23% in exports sales and up 26% in volume. Again, incredible. You can read more here

Not to be a downer, but this torrid rate of sales raises the question: Can we sustain such a pace? For the last couple of months, we’ve been exporting more than 17% of our milk solids. It’s unreasonable to expect this pace to continue each and every month, says Alan Levitt, U.S. Dairy Export Council director of communications and market analysis.

There will be months, perhaps quarters, where world market conditions aren’t as conducive to such a sizzling pace. But Levitt is hopeful this rate is sustainable long term.

In some sense, it has to be. Even a few percent loss of sales means that powder and cheese and whey and lactose will sit in U.S. warehouses, threatening domestic prices big time. Remember 2009?

The critical issue is whether U.S. exporters, now benefitting from the boom, will be willing and able to defend their market share if demand softens or New Zealand or Europe really crank up production.

The other issue is U.S. domestic consumption. Most worrisome is fluid milk’s decline. In 1975, per-capita consumption of fluid milk and cream was 260 lb. Today, it’s about 195 lb. and still declining. That’s a 25% loss in 35 or so years. That, too, is stunning.

And whatever milk doesn’t get consumed as fluid and cream must go into the vat, the churn or the dryer—and made into cheese, yogurt or other dairy ingredients. In other words, it goes from our highest value, Class I product to some of our lowest. And this ups the ante on exports.

Two weeks ago, I reported negotiators are finishing up talks on the Trans Pacific Partnership. We won’t know the details of those negotiations for some time. And it will take years for governments to approve the deal, and even more to phase in the agreement. But we’re still in a better position to have the deal nearly done.

As I reported in my previous column, inking the TPP could be as important to American dairy’s place in the world as the NAFTA agreement was decades ago. NAFTA showed us what was possible. TPP could cement our place in world markets for decades to come.

We need to be there. The alternative, watching exports levels month to month and hoping for the best, is just too spooky. 

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