Southeast surplus? Producers asking questions about transportation credits.
(By Sherry Bunting, Reprinted from Milk Market Moos - June 16, 2010 in Farmshine)
After reporting on June 4, 2010 that volumes of milk shipped out of the Southeast had climbed 23% above year ago in April and May to an average of 235 loads or 11.2 million pounds a week, Alan Levitt in his CME Daily Dairy Report Wednesday, June 16, noted these shipments have increased further to an average of 314 loads or 15 million pounds per week over the past five weeks. That’s up 45% over year ago.
The shipments of milk out of the Southeast and Florida have reportedly gone for processing in the Midwest, Southwest and Northeast.
Federal Order 7 (Southeast area) and Federal Order 5 (Appalachian states) both collect, pool and disburse transportation credits to attract milk for the Class I fluid markets to ensure adequate fluid milk for consumers.
According to the Market Administrator’s office for Order 7, these transportation credits are collected on all Class I milk that is qualified in Federal Orders 5 and 7 (but not 6, which is Florida). The amount paid into the two separate transportation credit pools is 15 cents per hundredweight in Order 5 and 30 cents per hundredweight in Order 7.
Milk handlers and cooperatives then submit requests to receive credits for transporting milk from other Orders into the Southeast (more than 85 miles) where the Class I differential is high and the area is milk-deficit for part of the year. The money is then disbursed by the Market Administrator from July through February, based on eligible requests by handlers and cooperatives.
The regs state July as the beginning of the disbursement period for transportation credits, but last year it began in June in Federal Order 7. This year, disbursement of transportation credits may begin in June again, even though reports indicate that the surplus shipments from the Southeast and Florida are not expected to stop until August
... But, Friday's milk production report (June 18) showed May's production in Florida was already down 2.5% below year ago....
As the heat and humidity begins to suppress milk production in the summer months, these surplus "spot" shipments out of the Southeast and Florida are expected to decline by mid-August, writes Levitt, noting that the Southeast typically becomes a milk-deficit region from mid-August to late-October, when milk dealers and handlers typically import 200-400 loads per week from other regions of the U.S. to offset their local shortages.
In May, a petition was granted by the Market Administrator to pay transportation credits in June for hauling supplemental milk into the region. Payments from the transportation credit pool to milk handlers bringing supplemental milk into the area are based on the availability of funds and the eligibility of the request and follow a formula that considers the distance the milk traveled and the difference between the Class I differentials in the Order of origin versus destination.
One day’s production from a producer in another Order can qualify all of that producer’s milk for pooling on these Orders each month, but there are some diversion and "touch base" limits on the outside milk.
For the first two months of 2010, the Transportation Credit Balancing Fund for Federal Order 7 brought in $2.3 million in transportation credit assessments on Class I sales and paid out roughly the same amount in eligible requests. However, the dollars claimed were more than twice this amount at $5.1 million based on 278.1 million pounds of supplemental milk. The pounds versus dollars paid averaged 83 cents per hundredweight in transportation premium. The pounds versus dollars claimed averaged $1.83 per hundredweight.
No funds were disbursed in March, April and May of 2009 or 2010; however January and February 2010 disbursements were roughly equal to January and February of 2009. But the pounds of milk claimed in 2010, at 278.1 million pounds, was up 15% over the first two months of 2009 when 240.8 million pounds of milk were claimed.
There is more to this story, and it is food for thought as the Southeastern U.S. figures prominently in any discussion of dairy policy and federal milk pricing today.
Wherever assessments and premiums are regulated in a marketing area, whether by a Federal Order or by a State Board, it can be difficult to separate the positives from the pitfalls of such policies in order to figure out the net impact on dairy producers.
To read more on this subject, check out Kentucky Dairy Development Council's "Milk Matters" newsletter.