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June 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.

Better Than MILC?

Jun 17, 2011

The first question producers rightly ask: Would I be better off under current dairy policy or under the Foundation for the Future plan?

 

Here in the Midwest, elimination of Milk Income Loss Contract (MILC) payments has been perhaps the biggest obstacle to acceptance of the National Milk Producer Federation’s “Foundation for the Future” (FFTF) plan.

In MILC’s place, FFTF would establish margin protection insurance for catastrophic losses when income over feed costs drop below $4/cwt. The program would also allow producers to buy additional government-subsidized insurance (with the subsidy decreasing as protection levels increase).  

The first question producers rightly ask: Would I be better off under current dairy policy or under FFTF?

Economic modeling, done by economists at the University of Wisconsin and Cal Poly, suggests FFTF would be the slightly better option. Under the model, mid-sized dairy operations with 183 cows would net $5,490 more per year under FFTF. This is despite the fact that the farm would receive no MILC payments.  

Part of the reason for increased income: “For the period of 2013-2018, the average All-Milk price would be increased 17¢/cwt. under FFTF,” says Mark Stephenson, director of the Center for Dairy Policy at the University of Wisconsin. (The other reason for increased income is that milk per cow is assumed to continue to grow 2% annually, diluting out maintenance feed costs.)  

Over the decade, that’s $55,000 more income over feed costs (IOFC). It’s not a huge amount, given that this same dairy will have $4 million in IOFC for the decade. But it is positive, and it is better than the current program. 

Midwest producers would fare slightly better because Class III cheese prices would be higher under FFTF. The reason is that during those times when IOFC fell below $6/cwt. for two consecutive months, FFTF’s Dairy Market Stabilization Program would be activated. Money collected from production penalties would be used to buy cheese off the market, thus increasing cheese prices.  

Most producers who compare the current MILC program and FFTF compare MILC to the margin insurance protection component. On its face, that is a reasonable comparison because even National Milk says FFTF uses margin insurance to replace MILC. But in reality, you have to look at the program in its entirety to get to the bottom line. That’s not easy—it takes sophisticated multi-variant economic modeling to do it. The back of an envelope won’t do it, or even partial budgeting that compares MILC to margin insurance.  

The other problem is that once in place, the benefits of FFTF might be difficult to document. A 17¢/cwt. All-Milk price bump is going to be very difficult to pick up in the milk check.  

Think about the 15¢/cwt. dairy checkoff. Year in and year out, economic models show a huge return on investment benefit. For example, in 2008, USDA estimated that for every $1 invested in generic marketing, dairy farmers received a net of $5.49 to $7.07.  Some producers, however, are absolutely convinced the dairy checkoff does them no good. 

In the end, dairy producers will have to decide if FFTF provides a better way forward than status quo. The first step in making that decision is to understand what’s in the program. Our June/July issue devotes about 80% of the magazine to FFTF—what it is, what it can and cannot do, what economists and producers think of it, who’s supporting it and who isn’t. Click here for our June/July digital edition.     

‘Well Managed, But Poorly Led’

Jun 06, 2011

With Foundation For The Future, National Milk Producers Federation is trying to move our insulated, domestic dairy industry to a more profitable, consistent supplier to world markets. Will dairy producers let NMPF lead?

 
At the end of a recent two-day dairy conference where everything from trade policy to labor management to drug residues were discussed, there was a palpable sense of frustration about the challenges the industry faces and the lack of clear progress. A producer in the back of the large ballroom stood up and made the comment: “Our industry is well managed but poorly led.”
 
I think the producer got it half right. Yes, U.S. dairies are well managed. You can’t have a national average of 21,149 lb. of milk per cow—65 lb. of milk per cow per day—and not be well managed.
 
Where I take issue with the “well managed, poorly led” statement is the “poorly led” part. USDA says there were about 53,000 licensed dairy operations at the start of the year. Some days it feels like there are also 53,000 separate, distinct opinions on what direction U.S. dairy policy should take. In this environment, it’s extremely difficult to provide leadership. Have you ever tried to herd cats?
 
Andy Novakovic, a Cornell University dairy economist and the recent chairman of USDA’s Dairy Industry Advisory Committee, puts it like this: “When I talk to industry members about policy choices, I always go back to basics. What problem are you trying to fix?  What does fixed look like?  Is the problem that the designer of the proposal is trying to fix the same problem that you identify?”
 
The good professor is right: The biggest problem is that dairy producers themselves can’t agree on what the problem is. Is it milk price? Market volatility? Income over feed costs? Pricing transparency? Federal Orders? Access to global markets? Imports?
 
The National Milk Producer Federation’s plan, “Foundation for the Future,” attempts to solve several of these. It tries to make U.S. dairy policy more conducive to consistently selling dairy products on the world market. It tries to protect income over feed costs while at the same time tamping down milk price volatility. Finally, it somewhat simplifies Federal Milk Market Orders.
 
It’s a complex plan, to say the least. That’s why we decided to devote 80% of the June/July issue of Dairy Today to Foundation for the Future. The digital version is now available at www.dairytoday.com. The printed magazine will arrive in your mailbox later this week.
 
Our coverage provides plan details, commonly asked questions, opinions as to how effective it would be, producer reactions from our Dollars and Sense columnists, and a score card of who is supporting the plan, who isn’t, why or why not. Unquestionably, our June/July issue is the most detailed examination of Foundation for the Future offered thus far by any publication.
 
Take the time to read it. Then go to the web and click on our Bonus Content features, which will provide even more information, more opinions, more analysis from the Food and Agricultural Policy Research Institute, the University of Wisconsin and Cal Poly. After doing all that, you will understand what Foundation for the Future is all about. Only then can you make up your mind as to it merits. 
 
The U.S. dairy industry is a well-managed industry, providing consumers with fresh, safe, reasonably-priced dairy products every day of the year. NMPF is trying to provide leadership that will move the industry from an insulated, domestic focus to a more profitable, consistent supplier to world markets. The question is: Will 53,000 dairy producers—all with their own sacredly held beliefs and opinions—let NMPF lead?
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