Based upon what he is hearing in terms of efforts to reduce federal expenditures, Chairman Peterson plans to hold Farm Bill hearings this spring and summer and start to write the next Farm Bill early in 2011. 

At a DPAC meeting for farmers in Lebanon, PA on Feb. 18, House Ag Committee vice-chair Tim Holden (D-PA) said the first national Farm Bill hearing will be at the Farm Show Complex in Harrisburg sometime in April. DPAC is preparing testimony.

Even though USDA did not report MPC production throughout 2009, the department pegs last year’s total domestic production of MPC at 92.9 million pounds.

MPC imports for 2009 ended the year down 13% on the HTS 0404 category. Combined with casein and other dairy proteins, the totals were at five year lows in 2009. Some contributing factors include: U.S. production of MPC, strength of New Zealand currency relative to the U.S., a lower U.S. powder price compared with the world price, consumers trading down from expensive sports drinks, and New Zealand’s milk production being less than anticipated with reports of periodic idling of casein production last year.

According to USDA’s January dairy products report released Tuesday, March 2, cheese output remained heavy in the first month of the new year, but this was prompted by strong demand for mozzarella and a very large increase in production of fresh cream cheese. While the burst in production of these fresh cheeses---up 6.4% for mozzarella and up 25.6% for cream/neufchatel---has pushed total cheese production higher, the flip side is that other cheese production was down 2%, including cheddar cheese production down 2.7% from January a year ago.

USDA Dairy Market News reports that cheese plants in the East and Midwest are still easing back on production according to the current demand, but, according to the Milk Producers Council (California) Friday Market Update... "Plants in the West continue to keep producing, to maintain 'efficiencies.' It’s beginning to look like the answer to how low cheese prices will go may come from the company that has been selling most of the cheese on the CME."

The Milk Producers Council market update for March 5 also reports that, "In the past several weeks about 90% of all CME-traded cheese was sold by a single plant. The plant is large and efficient, is located in an unregulated area, and is part of a national firm that has two other plants located in federal order areas."

Butter is now selling a full 14 cents per pound above block cheddar on the CME ($1.44/lb) with production reportedly down 7.2% below year ago.

The U.S. milk powder market continues to move opposite to international pricing trends. According to USDA Dairy Market News, international milk powder prices are reported higher for the first time since late November, with Oceania skim milk powder (SMP) selling between $1.13 and $1.44. U.S. prices, on the other hand, continue to fall despite the fact that U.S. powder production and inventories are shrinking. January milk powder production in the U.S. was 13.9% below year ago and inventories were reported by USDA at levels that are one-third lower than a year ago.

According to USDA Dairy Market News, western nonfat dry milk is selling mostly at $1 to $1.07/lb. This is the lowest since last October when the temporary higher price support expired. USDA also reported this week that 23 million pounds of old powder were sold from CCC stockpiles at a price of 75 cents per pound for animal use.  

The board and its action groups have also been working on other long term policy positions. The milk pricing action group has planned a workshop for the DPAC board next week in conjunction with the board's regular business meeting. There will be two panel discussions and input from dairymen representing other regions of the country (Northeast, Southeast, Midwest and West).

Responses from the DPAC dairy producer survey will also be reported at the board meeting. (Deadline for taking the survey available here at the website is extended to March 8 for inclusion in this report to the DPAC board).

The purpose of the board's workshop on milk pricing is to come out of the meeting with items that have total agreement, items that have consensus but not total agreement, and areas of policy the board is unsure of and/or wants more information about.

The workshop portion of the DPAC board meeting next week will also serve to launch the coalition's supply management action group named last month.

If you haven't already taken the DPAC dairy producer survey, please do before you leave our website today!

To type in your responses to the survey online, click here

Or you can Download a printable PDF of this survey and mail it in.

By SHERRY BUNTING - Farmshine Feb. 26, 2010

LEBANON, Pa.—Even as key aspects of the 2007 Farm Bill have not yet been implemented, U.S. House Agriculture Committee members took talk of future dairy policy outside the beltway over break. Last Thursday (Feb. 18), vice-chair Tim Holden was no exception. He met with 40 dairy farmers from multiple counties in his home district at the Midway Church of the Brethren near here.

“For the long run, Congress seeks a national milk policy agenda, with no more regional warfare,” said the 18-year veteran member of the House Ag Committee.

The good news? Congress is listening and looking for things they can do under the present authority of the 2007 Farm Bill.

The bad news? There will be no significant change to federal dairy policy until the 2012 Farm Bill.

As far away as 2012 may sound, the official start of farm bill discussions—from a policy development standpoint—is already underway. Holden said national hearings across the country will kick off this spring, with the first on an undisclosed date in April at the Pennsylvania Farm Show complex, Harrisburg.

Before the current congressional break, House ag leadership met and “instructed members to get out and talk to their dairy people to find out what they think needs to be part of the solution,” said Holden. “The door is wide open. We want your input.”

Thursday’s meeting here was a sequel to a September 2009 meeting at Holden’s Lebanon office, where about a dozen dairy producers brought the congressman a “short list” of short term and long term recommendations they had put together with 60 of their peers a day earlier.

Zach Meck, Womelsdorf; Nelson Troutman, Richland; and Daniel Brandt, Annville—who are part of the 20-member charter board for the nationally-focused Dairy Policy Action Coalition (DPAC) formed last November—were instrumental in initiating those September meetings, and they organized last week’s meeting with Rep. Holden as well. Bernie Morrissey of Morrissey Insurance provided lunch and moderated the event.

Before lunch, the farmers heard about DPAC’s purpose and progress from members of the coalition board. They also heard from Dennis Wolff, former state secretary of agriculture who is now a government relations consultant with DPAC as one of his clients.

After lunch, Rep. Holden joined the discussion, along with his senior legislative assistant Jake Kuhns. “We have some ideas Jake will run by you, so we can take your suggestions back to Washington with us,” said the congressman.

In the short term, Holden confirmed that he is committed to seeing implementation of electronic price reporting, which was authorized by Congress in the dairy title of the 2007 Farm Bill, but has not yet been implemented by USDA.

“This was never funded, and it’s something we can do—now—without any additional authority,” said Holden, explaining how Congress works by authorizing committees and appropriating committees. Electronic reporting has already been authorized, but the funds have not yet been appropriated.

Wolff noted that Sen. Arlen Specter’s office is working with USDA to “get their arms around what it would cost to implement electronic price reporting.” Sen. Specter is a member of the Senate Committee on Appropriations.

Implementation of electronic reporting is an immediate action priority of DPAC because it would help to improve dairy price discovery and moderate the volatile and at times irrational influence of the thinly traded spot market for cheese, butter and powder on the Chicago Mercantile Exchange (CME). The electronic reporting provision of the 2007 Farm Bill also lays the groundwork for more frequent reporting as well as future inclusion of more dairy products in the prices that are reported.

During Thursday’s discussion, it was mentioned that when USDA was recently asked to provide a budget cost to implement electronic reporting, the request was met with a surprisingly ho-hum response. A department economist suggested electronic reporting is unnecessary because the CME is doing the job just fine.

“I can find 7600 dairymen in Pennsylvania, alone, who will disagree with that,” said Wolff. “One thing dairy producers (and others in the industry) agree on is the price discovery system is broken. Electronic reporting is a key first step to improving it.”

Market transparency was definitely top-of-mind for dairy farmers at the meeting Thursday. “Anything you can do to bring price discovery to light will help take the ‘shell game’ out of the equation,” Troutman said.

Several other dairy farmers voiced similar concerns, citing the ever-widening spread—over the past ten years of industry consolidation—between what consumers pay and what farmers receive.

As one dairyman put it: “Consumers are paying enough for our product, but it’s not getting back to us."

With that, Rep. Holden had his legislative assistant Jake Kuhns run ideas past the attending dairy farmers for their feedback: 1) Reduce the number of milk classes to two—manufacturing and fluid; 2) Increase price stability by moving away from the influence of the CME as the driver; 3) Provide ‘margin insurance’ similar to LGM Dairy or something similar to a crop insurance model.

Holden also wanted the farmers’ thoughts on supply management. According to Kuhns, the CWT (Cooperatives Working Together) program and the Holstein USA Dairy Price Stabilization Program (DPSP) are “two plans we are looking at. What do you think?” he asked the farmers.

“Supply management will not work if it is not tied to imports and exports,” said a Berks County dairyman.

“To have a supply management program, we would have to figure out a way to account for the imports,” Rep. Holden acknowledged. “But the ag committee has no jurisdiction on trade.”

DPAC chairman Cliff Hawbaker, a Franklin County dairy producer, noted that the coalition's supply management action group is beginning to “look at all the supply management plans out there to see what farmers can agree on in that area.”

But, stressed Hawbaker: “Price transparency is the first step we are focused on. We need to get to the way milk is priced throughout the system. We see milk pricing as something that should be simple enough that I can explain it to you as a congressman, and you can explain it to me as a farmer.”

Rep. Holden agreed: “The system has to be simplified, but it has to be done within the big picture of the farm bill. There are other commodity groups that are also in trouble, even if dairy is in the worst shape.”

“The dairy industry—as we have known it—will not survive to 2012,” Hawbaker added.

“This gets us back to the electronic reporting and why it is so important,” Wolff stated. “It’s all about knowing supply and demand. Corn and soybean producers know their market. They can go to the computer and see what their price is doing over a three-hour period. For dairy, the NASS weekly product price survey tomorrow (Friday) is actually information they received yesterday (Wednesday) for the previous week’s sales. That information is two weeks old (or older) on the day it is released. It doesn’t ‘read’ the market. Implementing the electronic reporting we have in the 2007 Farm Bill is the first step.”

A farm consultant attending the meeting brought up the idea of pricing milk based on retail trends with each sector receiving a percentage of the retail price. “I talk to a lot of dairy farmers, and most of them tell me they hate the idea of taking MILC (Milk Income Loss Contract) payments, and they don’t like the federal dairy support program. They don’t like getting their income from the government,” he said.

Several dairy farmers said that while they appreciated the emergency payments Congress authorized in October and paid in December, the funds were a proverbial drop in the bucket, maybe enough to pay one bill.

“Government payments are not a solution, especially when the consumer is already paying enough in the store for our product,” one farmer explained.

Better price discovery, two classes of milk instead of four, and a consensus that dairy product price supports do more harm than good, were three key aspects of long term policy that had wide appeal among the dairy farmers and a good reception from Congressman Holden. But everyone agreed, true reform means digging deeper.

“We also need to push on with the immediate needs, the things in the 2007 Farm Bill that are good things we can do right now," Wolff added. "These are specific issues to improve the complex price discovery system."

“I like what I heard today and what DPAC is doing,” said a Lebanon area dairy farmer as the meeting drew to a close. “We have to address the corruption, and then let the free enterprise system work.”

The Class I base price has declined for two consecutive months. The March Class I base price is calculated on the following NASS Survey product price averages for the first two weeks of February: Cheese $1.51/lb; Butter $1.37/lb; Nonfat dry milk $1.14/lb; Dry Whey $0.39/lb 

CME spot trades last week saw cheese prices fall to $1.41/lb on blocks and $1.37/lb on barrels. Butter lost 2 cents, falling to $1.36/lb, and nonfat dry milk was unchanged at $1.12. With the NASS Survey lag time, these prices will hit future Federal Order announcements. On Friday's close, Class III milk futures traded at $13.37 for March, $13.04 for April and $13.17 for May. Far away contracts for Jan. 2011 have been closing daily on either side of the $15 mark.

But... here's the kicker. 2009 total production was 0.3% below 2008. Ohio State University dairy economist Cameron Thraen notes that the last time the annualized U.S. milk output grew this slowly was the first quarter of 2004. Remember what happened then? The Class III price soared to $20.58.

Of course, he also notes that continued strong culling to get the national herd below 9 million cows is needed to get prices back to profitable levels.

Compared with January 2009: Milk production during January 2010 in California and southwestern states fell 2.4 to 10.4%. In northwestern states production was 1.1 to 5.0% higher. In the midwestern states, production also increased, with Wisconsin leading the way having 5,000 more cows, more output per cow, and total production up 4.7%. (Minnesota gained 2,000 cows and 3.6% production; Michigan lost 1,000 cows but gained in output per cow to net a 2.4% production increase over year ago). In the northeast and mideast -- Pennsylvania's January 2010 production fell 1.7% from year ago based on 9,000 fewer cows and output per cow being equal to a year ago. New York's production was 1.3% below year earlier with 14,000 fewer cows making more milk per cow. Vermont's production was down 1.4%. The green mountain state lost 3,000 cows, but gained in milk output per cow. Ohio lost 5,000 cows, but increased production per cow to net total production up 1.2% over a year ago. 

The annual milk production summary shows the average number of milk cows on farms in 2009 was 9.2 million head, which is 1.2% below the average number for 2008. However, milk production for the year was only 0.3% below 2008. The USDA milk production summary also revealed that milk output per cow has increased 13% during the decade from 2000 to 2009.

The proposed formula change, if approved, would simply require those plants to pay the full over order premium (collected from consumers) either on the pounds of milk purchased from in-state farms or the pounds of milk sold to in-state retailers -- whichever quantity is smaller.

This formula change was proposed by the PMMB staff and is supported by the PA Dept. of Agriculture and the Governor's office. It is aimed at closing the current loophole whereby in-state bottlers can use out-of-state milk to dilute their over order premium obligation to their in-state shippers and thereby pocket the difference.

The PMMB staff testified that this change would recover an estimated $392,000 per month (nearly $5 million per year) in over order premiums for Pennsylvania dairy farms. This is a fraction of the 'stranded' premiums that are paid by consumers at a current rate of 25 cents per gallon, and are intended specifically for farmers, but are disappearing in the system.

The Pennsylvania 'for-farmers' over order premium is in addition to the processor costs and 3.4% margin and it is in addition to the retailer costs and 2.5% margin, which are separately built into the minimum consumer price buildup for milk sold at retail in the state. And yet, the PA milk dealers who testified Tuesday contend that the formula change would take "money out of their pockets" and make them less competitive.

Representatives for York, PA-based Rutters Farm Stores and Dean Food Co.-Sharpsville, PA both testified they would source more out of state milk if the formula change is approved. Rutters also testified they would look into the viability of an out-of-state milk distribution center to divert PA milk before resale. "This could possibly negate my entire PA over order premium completely,' Todd Rutter testified. He added that the state should look at other ways to “figure out how to get more money to Pennsylvania’s farmers.” He suggested having the state make payments directly to farmers or to “create some special tax plan for them.”

The dealers also tried to show they are currently overpaying premiums to PA producers, but their figures were based on all dealers -- not just the dealers that would be affected by the formula change. Their numbers also included all classes of premiums, not just the premiums pertaining to Class I fluid milk.

PMMB chief enforcement officer David DeSantis used audited figures in his testimony and he used only the figures for dealers who would be affected by the proposed change. “It’s not proper to look at gross overpayment and say it is related to the payment of the over order Class I premium in Pennsylvania,” said DeSantis as he was cross-examined by the attorney for the dealers during surrebuttal testimony.

Furthermore, DeSantis confirmed that quality premiums “are absolutely included on Class I (in the over price premium). We want (the dealers) to buy quality milk and we want to reimburse them for that in the wholesale price.”

Last on the witness list, the milk cooperatives tried to testify to the need for a separate hearing to consider this formula change along with "partial pooling" of the state's over order premium. PMMB Chair Richard Kriebel said this hearing would not entertain any idea for pooling and he said the co-ops were trying to bring it in the back door. In effect, the chairman shut down any line of questioning that did not directly relate to the specific formula proposal at hand.

The PMMB will accept post-hearing briefs and replies through the month of March with a decision expected in April.

The Farm Service Agency (FSA) is urging all dairy farmers to make sure they have signed and mailed their information consent forms (CCC-927’s and CCC-928’s) to the Internal Revenue Service (IRS). These forms give the IRS permission to let FSA know if a farm's income exceeds the limit prescribed by the 2008 Farm Bill for all FSA payments, including MILC and last December's DELAP payments. 

The limits set in the 2008 Farm Bill are $500,000 nonfarm average Adjusted Gross Income (AGI) for commodity and disaster programs; $750,000 farm average AGI for direct payments (like MILC and DELAP); and $1 million nonfarm average AGI for conservation programs.

The information between IRS and FSA would be exchanged electronically and would simply verify a farm's compliance with the AGI provisions. Producers who signed a CCC-926 certifying AGI compliance will need to now complete CCC-927 and/or CCC-928 and submit it to the IRS by June 15, 2010.  

Participants who choose not to submit a completed CCC-927, or CCC-928, as applicable, will be determined noncompliant with AGI limitations for 2009 and 2010 and will have to refund all 2009 payments, including MILC and DELAP. Copies of the CCC-927, CCC-928 forms are available at local FSA offices.

"Our dairy farmers are already suffering from unregulated imported milk protein concentrates (MPCs) entering our country," the letter states. "We are concerned about reopening negotiations with Australia, Chile, Peru and Singapore, where tariffs and tariff rate quotas are already in place. We are especially concerned about a free trade agreement that would expand U.S. dairy trade with New Zealand..."

Read letter

Read the testimony.