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Weekly Digest: CFAP dairy payments top $895 million through June 22

Progressive Dairy Editor Dave Natzke Published on 23 June 2020

Digest Highlights

CFAP dairy payments top $895 million through June 22

U.S. dairy producers received more than $895 million in direct payments through the Coronavirus Food Assistance Program (CFAP) as of June 22. Dairy applications processed by USDA Farm Service Agency (FSA) offices stood at 15,222.

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The FSA began taking applications May 26. In the first four weeks of the application period, the top states for CFAP dairy payments were:

1. Wisconsin: $202 million – 3,804 applicants
2. California: $108.4 million – 673 applicants
3. New York: $101 million – 1,843 applicants
4. Pennsylvania: $$49.8 million – 1,525 applicants
5. Minnesota: $46.5 million – 1,349 applicants
6. Michigan: $45.1 million – 618 applicants
7. Idaho: $39.5 million – 244 applicants
8. Washington: $28.5 million – 215 applicants
9. Iowa: $26.9 million – 604 applicants
10. Ohio: $25.4 million – 590 applicants
11. Texas: $23.1 million – 183 applicants

Find the complete list here.

Overall, the USDA FSA had approved about $4 billion in payments to more than 252,489 agricultural producers who applied for assistance through the CFAP as of June 22.

In addition to dairy, payments totaled $1.98 billion to livestock producers, $1.04 billion to producers of non-specialty crops and $84.3 million to producers of specialty crops.

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Applications will be accepted through Aug. 28, 2020, with application numbers and program payments announced each Monday on the CFAP website.

Read last week’s article for a list of sources and webinars regarding program details and applications.

The Dairy Signal: Risk management, government payments helped sustain dairy cash flow

Dairy producers who enrolled in the Dairy Margin Coverage (DMC) program at the top Tier I coverage level and applied for direct payments under CFAP will see a positive impact of about $2.20 per hundredweight (cwt) across all milk production in 2020, according to Mark Stephenson, University of Wisconsin – Madison director of dairy policy analysis.

Speaking in a recent Professional Dairy Producers of Wisconsin (PDPW) The Dairy Signal podcast, Stephenson said dairy producers who took advantage of at least two of three potential programs – the Dairy Revenue Protection (Dairy-RP) program, DMC and CFAP will see substantial benefits to their cash flow this year. “It’s all about cash flow, and government payments will play a much bigger role in 2020,” he said.

For those insured at the $9.50 level, net DMC payments averaged 39 cents per cwt on all milk marketed in 2019. In 2020, the net DMC payment at that coverage level will be closer to 66 cents per cwt, with CFAP payments adding about $1.55 per cwt across annual milk marketings.

The recent surge in milk prices has now pushed June and July Class III milk futures prices near $21 per cwt. Stephenson warned that dairy’s 2020 roller coaster still has time descend, pressured by a recession in the general economy, growing inventories of dairy products in cold storage and a lingering threat of a second wave of COVID-19.

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Stephenson was joined by Jim Mulhern, president and CEO of the National Milk Producers Federation (NMPF), who said the previous 100 days “had been a tumultuous ride with the recovery nothing short of phenomenal.”

Prior to the COVID-19 outbreak, U.S. dairy cow numbers had been building, Mulhern noted. When the coronavirus shut down the food service industry, co-op base plans implemented across the country in March helped limit milk production by hitting the “pause” button on herd buildup, capping milk production growth.

Secondly, the federal government stepping in with direct payments and dairy product purchases was critical to digging out of the COVID-19 hole. Putting those factors together created the V-shaped recovery for dairy, creating a much better milk price outlook.

“While the future isn’t predictable, it looks like what could have been a catastrophe may be limited to a two-month period of extremely low milk prices,” Mulhern said. “2020 might even become the kind of year we were looking for when the year started.”

Increased heifer demand and higher western U.S. dairy replacement heifer prices provide evidence there might be a jump in milk production coming. Both Stephenson and Mulhern warned dairy producers should not move to increase production in light of better prices.

”The last thing we should start to do is add milk production,” said Mulhern, who urged discipline on the supply side to cap milk production growth at 1% or less for the rest of the year.

The industry must also work to replace “artificial demand” created by government purchases, including finding ways to innovate in dairy offerings and packaging to maintain higher levels of dairy product sales at retail grocery stores.

Both Stephenson and Mulhern also stressed the importance of risk management.

“One of the lessons is the importance of risk management, using tools in combination,” Mulhern said.

“This volatility can destroy our business and we have to address/deal with it,” Stephenson added.

Episodes of PDPW’s The Dairy Signal air live each Tuesday, Wednesday and Thursday, noon-1 p.m. (Central time) and are archived here.

Each live session offers viewers the opportunity to engage in open Q&A and interact with the speakers entering event code #myPDPW.

EU intervention stocks harmed U.S. dairy

An economic analysis shows the European Union’s (EU) Skim Milk Powder (SMP) Intervention Program had a severe negative financial impact on the U.S. dairy industry and farmgate milk prices. Leaders of U.S. dairy organizations want to make sure that doesn’t happen again.

The economic impact analysis, “Impact of the European Union’s SMP Intervention Program on the United States: 2016-2019,” was written by Kenneth Bailey and Megan Mao from Darigold, a wholly owned subsidiary of the Northwest Dairy Association based in Seattle, Washington. They conclude that the U.S. was “economically harmed by the EU’s Intervention program for SMP” in three ways:

  • The EU program depressed the global price of SMP, which lowered U.S. milk prices in 2018 and 2019, contributing to a $2.2 billion loss of U.S. dairy farm income those years.

  • The EU program also artificially inflated its global export market share, resulting in drastically lower market share for U.S. dairy exporters and other SMP exporters, and U.S. dairy export losses of $168 million from 2018-19.

  • When the EU unleashed its stockpile of “intervention SMP” onto the global marketplace, the disposal of the product had harmful effects on the competitiveness of the U.S. in historically important export markets, including Southeast Asia.

In a letter to U.S. Trade Representative Robert Lighthizer and Agriculture Secretary Sonny Perdue, heads of the International Dairy Foods Association (IDFA), NMPF and the U.S. Dairy Export Council (USDEC) urged the U.S. government to prevent the EU from using future intervention practices to effectively dispose of publicly stockpiled EU dairy products at discounted prices in the international markets.

According to the report, the EU tripled the annual ceiling of SMP intervention purchases in 2016 from 109,000 metric tons (MT) at the beginning of the year to 350,000 MT by June 24, 2016. The EU accumulated the equivalent of 16% of the global market in government storage.

As global SMP demand began to improve in 2018, the EU released its stockpile of SMP onto the commercial market, with no restrictions to prevent the product from entering the global market. During the 18-month period (January 2018 to June 2019), the EU sold, via a tendering process, 379,453 MT of intervention product, depressing global prices for SMP below what they otherwise would have been, according to the report.

NMPF Dairy Defined: Swift action from farmers, government spurred dairy recovery

Dairy prices have rebounded dramatically because farmers quickly adjusted their milk production and consumers boosted retail demand as government purchases kicked in to help offset lost food service sales, said Peter Vitaliano, chief economist for the NMPF.

“That has resulted in a very, very rapid change in the market price outlook,” Vitaliano said in an NMPF podcast. “The markets currently are looking like there’s going to be a very strong rebound, and prices will get to a more normal level in the second half of this year.”

Direct dairy producer payments through CFAP for market losses in April and May will be sufficient enough to move the milk price back to or slightly above average.

Vitaliano, who writes NMPF’s monthly Dairy Market Report, said the continued spread of the coronavirus and whether farmers quickly increase milk production remain significant questions that will affect dairy’s further recovery.

Private-sector supply management, primarily through the reduction in milk production per cow, was effective due to the clear message the market was sending nationwide, Vitaliano said. Going forward, the ability of individual co-ops to impose such restrictions when other co-ops or milk buyers do not, is less likely.

To listen to the full discussion, click here.

EPA appoints new members to agricultural committee

EPA Administrator Andrew Wheeler announced the appointment of 33 members to the agency’s Farm, Ranch and Rural Communities Committee (FRRCC).

The FRRCC provides independent policy advice, information and recommendations to the EPA administrator on a range of environmental issues and policies that are of importance to agriculture and rural communities.

Although established in 2008, the FRRCC committee had no current members. More than 150 people were nominated for appointments last November and December.

The appointees include producers and representatives from allied industries, academia, state, local and tribal governments, and nongovernmental organizations. Each will serve two- or three-year terms which began June 15, 2020. The committee expects to meet approximately twice a year.

Based on an internet search, appointees with ties to the dairy industry include: David Graybill – Red Sunset Farm and Pennsylvania Farm Bureau, Mifflintown, Pennsylvania, and Matthew Freund – Freund’s Farm and CowPots LLC, East Canaan, Connecticut.

For a complete list of appointees and other information, visit the FRRCC website.

USDA solicits bids for mozzarella cheese

The USDA announced a bidding period for delivery of dairy products for federal food and nutrition assistance programs. Solicitations included 8.8 million pounds of part-skim shredded mozzarella, to be delivered to multiple locations in September through November. Bids close June 30.

Progressive Dairy COVID-19 resources

Progressive Dairy frequently provides updates on COVID-19 news and resources on a special webpage.

Updates for June 23 will include an announcement regarding the cancellation of the 2020 All-American Dairy Show in Harrisburg, Pennsylvania; Minnesota’s requirements for farms to have a COVID-19 preparedness plan; the reopening of the Small Business Administration’s Economic Injury Disaster Loan (EIDL); and more.

There’s also information on event changes and cancellations; a list of recent dairy organization podcasts related to COVID-19; a comprehensive list of other state, regional and national resources; and helpful articles previously appearing on the Progressive Dairy website.

Dave Natzke
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