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Views and opinions: Old Margin Protection refund part of new farm bill’s holdup
 

Safety nets have been a part of dairy’s financial landscape for many years, but the net has changed since the old Price Support program – and keeps changing. Hoard’s Dairyman Managing Editor Corey Geiger talked about the current Dairy Margin Coverage (DMC) in the April 22 Dairy Radio Now broadcast and quoted House Agriculture Committee Chair Colin Peterson (D-Minn.).

“When it comes to the new Dairy Margin Coverage program, I want to make sure dairy farmers and their lenders know what the point of the program is. It isn’t to get a bunch of money out of the federal government every year; it’s to make sure that dairy farmers have an adequate safety net when they need it,” Peterson said.

Geiger quickly added, “This is a time when they need it,” and he reported that House and Senate members have called on Agriculture Secretary Sonny Purdue to get the program rolled out “right now.”

The farm bill was signed into law in December but one of the holdups is at the Farm Service Agency (FSA) offices because the farm bill included a refund of premium payments under the old Margin Protection. “Believe it or not,” said Geiger, “they were done on paper and not electronically, so it all needs to be entered into the electronic format before proceeding.”

Farmers who sign up for the program will see a January Tier 1 premium, which is for the first 5 million pounds of milk, of $1.51 per cwt., according to Geiger, and that January DMC payment will basically pay for the premiums for the entire year of 2019. He added that February’s projected payment is $1.28 and said farmers will be able to sign up at their local FSA office by June 17.

He also reported that the Office of the Chief Economist is working with the University of Wisconsin’s Dr. Mark Stevenson to develop a “decision tool” to assist dairy farmers and said it should be ready by May 1.

Geiger said Peterson stated, “One of my biggest priorities as chairman is to grow demand for U.S. dairy products so that dairy farmers can get all their income directly from the marketplace, but until that is the case, the DMC will be there so dairy farmers have a chance to keep going when times are tough.”

In politics, the National Milk Producers Federation (NMPF) has endorsed the EPA’s proposed changes to the Waters of the U.S. rule, a proposal, NMPF said, “is meant to provide clarity and certainty about the waterways subject to regulation under the federal Clean Water Act.”

The International Dairy Foods Assoc. (IDFA) hailed a new report by the U.S. International Trade Commission (ITC) that assesses the likely impact of the U.S.-Mexico-Canada Agreement (USMCA) on the U.S. economy and industry sectors.

“The ITC report estimates that USMCA would raise U.S. GDP by $68.2 billion, pumping an additional $2.2 billion, or 1.1 percent, into the U.S. economy through increases in agricultural and food exports,” according to the IDFA. “The ITC expects exports of U.S. dairy products to increase by more than $277 million overall, rising $227 million to Canada and $50.6 million to Mexico, respectively.”

Market details

The April 16 Global Dairy Trade auction (GDT) registered its 10th consecutive session of gain, inching 0.5 percent higher on the weighted average of products offered. That compares to the April 2 rise of 0.8 percent, 1.9 percent on March 19, and 3.3 percent on March 5. Sellers brought 16.2 million pounds of product to the market, down from 17.9 million on April 2.

The gains were led by anhydrous milkfat, up 4.2 percent, following a 3.7 percent rise April 2. Butter was right behind, up 3.5 percent, after it climbed 5.8 percent last time. Cheddar was up 1.4 percent, following a 3.2 percent boost, and skim milk powder was up 0.2 percent, after rising 1.8 percent in the last event.

The losses were led by lactose, down 3.4 percent, rennet casein down 2.4 percent, and whole milk powder was off 0.7 percent, after a 1.3 percent descent last time.

FCStone equates the GDT 80 percent butterfat butter price to $2.4533 per pound, up 7.5 cents from the last session. CME butter closed Thursday at $2.2825. GDT cheddar cheese equated to $1.9593 per pound, up 3.2 cents from the last event and comparing to Thursday’s CME block cheddar at $1.6675.

GDT skim milk powder averaged $1.1169 per pound, which compares to $1.1194 last time. Whole milk powder averaged $1.4829, down from $1.4910 last time. CME Grade A nonfat dry milk closed Thursday at $1 per pound.

Speaking of trade, the April 17 Daily Dairy Report (DDR) said: “U.S. dairy product exports in February were mixed, with cheese and butterfat exports higher and nonfat dry milk/skim milk powder (NDM/SMP) and whey lower. U.S. dairy exports to Canada and China have suffered since trade disputes began last summer, but exports of NDM and cheese to Mexico continue to grow.

“Despite retaliatory tariffs targeting cheese, U.S. exporters shipped 71.7 million pounds of cheese, up from 62.1 million pounds a year ago and the highest total for any February in the past decade.”

Cheese contacts continue to report bullish demand in the Midwest, according to Dairy Market News. Curd, mozzarella, and specialty cheese makers say there has been a seasonal push from buyers. Cheese inventories are generally in good balance, though long inventories remain a concern nationally. Midwest contacts report that more dairy farms are calling it quits and question what that means for upcoming milk availability.

Western cheese output remains active with plenty of milk going to the vats. Some processors are attempting to control massive growth in supplies through planned output reduction. With demand not as good as they want and more milk available, cheese production control seems one of the best ways to manage inventories from building too much. Cheese sales are reported as a bit mixed and the tenor of the western cheese market is “somewhat unsettled.”

Cash butter saw a Thursday finish at $2.2825 per pound, up 2-1/2 cents on the week but 3-1/4 cents below a year ago, with nine cars sold on the week. Butter makers are still receiving sufficient cream supplies at similar prices to the previous week. They do not expect this to last much longer, as cream has tightened recently and is expected to continue this path.

Western butter makers suggest pre-holiday orders that had been going strong have “evaporated,” while bulk butter demand is “generally steady.” Contacts relay that production levels are stable. They are getting offers of extra cream, but so far it has not been the flood of cream that is sometimes expected at this point in the year.

Interestingly, DDR reported that Japan has increased its tariff rate quotas for butter but reduced them for nonfat dry milk for the country’s current fiscal year (April 1, 2018–March 30, 2020): “Japan’s Ministry of Agriculture, Forestry, and Fisheries announced that Japan intends to import 20,000 metric tons of butter, up 7,000 from last year, due to lingering supply impacts from a September 2018 earthquake in southern Hokkaido and growing domestic demand for milkfat from the food processing industry.”

The DDR’s Sarina Sharp wrote in the April 12 Milk Producers Council (MPC) newsletter that “concern is growing among NDM buyers that milk powder prices could reach into the $1.15 range, if not higher later this year … The market sentiment now is that the longer prices remain in the high 90-cent range this spring, the higher prices could move up later this year.

“This year will be the first year in five years that market prices have not been weighed down by an overhang of EU (European Union) intervention skim milk powder stocks. If the higher nonfat dry milk price levels materialize, they could result in some of the highest Class IV milk prices in a long time for western dairy producers, which would be much needed good news.”

U.S. dairy margins were relatively flat over the first half of April with limited movement in the milk and feed markets, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC. The MW stated: “The milk market has shown a firmer tone of late with some features that may be positive for prices longer-term. First, poor margins throughout 2018 and early 2019 have accelerated the pace of dairy herd contraction, with the number of licensed dairy herds dropping to 37,468 last year from 40,199 in 2017, according to USDA.

“The 6.8 percent year-over-year contraction is the worst percentage decline since the data series began in 2003, with that pace likely increasing in early 2019 based on year-to-date dairy cow slaughter, which is up 8.4 percent in the Midwest region and 5.6 percent in eastern states.

“Meanwhile, although U.S. milk production on the whole has been increasingly slightly with more efficiency in the dairy herd, global milk production is on the decline. For the season which began in July 2018, Australia has experienced a 6.4 percent drop in milk collections. A persistent drought has decimated pastures and raised feed costs substantially. Production has also declined in Argentina due to poor economic conditions, while it has been flat in New Zealand.

“Along with the U.S., milk production could increase up to 2.5 percent in the EU without offsetting the combined milk production deficit from the other major dairy exporters, which has prevailed since November. This dynamic has been slowly whittling away at the global dairy product surplus.

“Meanwhile, USDA noted a 200 million-bushel increase to corn ending stocks in the April World Agricultural Supply and Demand Estimates report, following the surprisingly large March 1 stocks figure last month. Sentiment in the market would probably be even more bearish if not for the recent severe weather in the upper Midwest that will likely delay corn planting.”

Lastly, I read with interest a telling statistic in the April 14 Parade magazine. It talked of technology’s impact in the workplace every 100 years and showed the number of Americans who worked in agriculture in 2012 at just 1.5 percent, contrasted to 58 percent in 1850. It is no wonder most consumers know little about what goes on down on the farm.

 

The views and opinions expressed in this column are those of the author and not necessarily those of Farm World. Readers with questions or comments for Lee Mielke may write to him in care of this publication.

4/24/2019