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Weekly Digest: June 2020 Class I base dips below $11.45 per cwt

Progressive Dairy Editor Dave Natzke Published on 20 May 2020

Digest Highlights

June 2020 Class I base dips below $11.45 per cwt

At $11.42 per hundredweight (cwt), the June Federal Milk Marketing Order (FMMO) Class I base price has now fallen more than 40% from the latest peak in December 2019. The June Class I base price declined $1.53 from May and $5.65 from June 2019. It's the lowest since September 2009.

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Dairy leaders urge U.S. dairy product aid to other nations

Major dairy organization leaders urged U.S. Agriculture Secretary Sonny Perdue to make abundant U.S. supplies of dairy products available around the world.

In a letter, the heads of the National Milk Producers Federation (NMPF), U.S. Dairy Export Council (USDEC) and the International Dairy Foods Association (IDFA) jointly urged Perdue to use all tools at his disposal to “ensure high-quality, nutritious U.S. dairy products are made available to our international neighbors in need.”

“As a nation, we are blessed to have an abundance of dairy available, even during this difficult time. Taking steps to share that abundance with the world will provide a lifeline for regions where food is needed, while supplying an additional outlet for American farmers to share their abundance of dairy products,” wrote NMPF’s Jim Mulhern, USDEC’s Tom Vilsack and IDFA’s Michael Dykes. “We encourage a focus in particular on countries that have indicated a food or nutrition deficit in their country during these times and that lack the infrastructure or resources to reliably deliver dairy supplies through robust commercial channels.”

Dairy farmers are facing some of the steepest losses of all major U.S. agricultural producers – potentially $8.2 billion based on a comparison of current USDA projections with pre-crisis estimates. U.S. dairy supplies available for international distribution remain ample, making targeted food aid shipped worldwide a promising avenue for helping populations struggling with localized hunger and the coronavirus crisis.

Global Dairy Trade index rises

There was some good news: The index of Global Dairy Trade (GDT) dairy product prices rose 1% in the latest auction held May 19, with an increase in the price of skim milk powder offsetting small declines in other products. A price summary of individual product categories follows:

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  • Skim milk powder was up 6.7% to $2,454 per metric ton (MT).
  • Butter was down 1.9% to $3,803 per MT.
  • Whole milk powder was down 0.5% to $2,677 per MT.
  • Cheddar cheese was down 6% to $3,864 per MT.

The next GDT auction is June 2.

Dairy margins improved in first half of May

The outlook for dairy farmer income margins improved significantly over the first half of May following a strong recovery in milk prices, according to Commodity & Ingredient Hedging LLC. Much of the optimism stems from government intervention to aid the dairy sector, including purchases of dairy products for distribution in federal food assistance programs.

The government purchases, combined with painful production cuts producers have had to make following widespread milk dumping due to COVID-19-related market disruptions, is beginning to fuel optimism further out on the futures curve as many states begin to relax social distancing measures and slowly reopen their local economies.

Despite this, the USDA offered a dismal price forecast in their May World Ag Supply and Demand Estimates report, pegging the U.S. average 2020 all-milk price at $14.55 per cwt and 2021 to only increase to about $15 per cwt.

Wisconsin temporarily lifts checkoff on dumped milk

The Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP) and checkoff-funded Dairy Farmers of Wisconsin (DFW) announced that the state milk assessment will be lifted for disposed milk during the COVID-19 public health emergency.

The temporary assessment covers only milk dumped beginning May 14 and remains in effect until President Donald Trump ends the federal disaster declaration. The state order is not retroactive, so it does not apply to milk that had been dumped prior to May 14.

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Wisconsin’s portion of the dairy checkoff is 10 cents per cwt. The funding generated by the state assessment is used for advertising and promotion, market research and development, industrial research, educational programs and administrative costs.

U.S. patent office guide helps protect generic cheese, meat names

The U.S. Patent and Trademark Office (USPTO) published a new examination guide designed to ensure generic names of some cheeses and processed meats are given adequate consideration and protection.

The guide outlines examination procedures to be used by USPTO attorneys when reviewing trademark applications. According to U.S. dairy and meat organization leaders, the revision significantly clarifies and improves review procedures, creating a more consistent process that will protect the interests of manufacturers, farmers and consumers of common food terms such as parmesan and bologna.

The guide earned praise from the Consortium for Common Food Names (CCFN), USDEC, NMPF, North American Meat Institute (NAMI), National Association of State Departments of Agriculture (NASDA) and American Farm Bureau Federation (AFBF).

“The U.S. remains the pre-eminent leader on intellectual property (IP) rights and, given the critical importance of safeguarding the rights of consumers and other stakeholders in a balanced IP system, sets a global example for a system that fairly protects truly distinctive products and common name goods alike. This recent step further deepens U.S. leadership in this arena,” said CCFN Director Jaime Castaneda.

HEROES Act approved in House but Senate action uncertain

Another COVID-19 relief bill, this one proposed by Democrats and approved in the House on a 208-100 vote, May 15, contains several provisions directly impacting the nation’s dairy producers, processors and marketers. The bill, known as the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, contains about $3 trillion in spending.

While the House passed the bill on May 15, the timetable and content of additional COVID-19 financial assistance is far less certain in the Senate.

NMPF has been advocating for several provisions contained in the bill.

The proposal includes another $16.5 billion in direct payments to agricultural producers, with dairy producers again receiving a portion of the payments. Under the HEROES Act, eligible dairy producers can receive a payment covering 85% of the losses for the first month designated under the program. For each subsequent 30-day period, the payment rate will decline by 10% of the value of the losses. There would be no limit on the payment level under this second round of direct payments. The adjusted gross income limitation of $900,000 would be waived if 75% of a producer’s activity is engaged in operating a farm or ranch.

The proposal allocates $500 million for a direct dairy donation program. This is in addition to the $120 million already allocated to dairy donations. In part to avoid milk dumping, it would reimburse dairy cooperatives and other businesses at Class I FMMO prices multiplied by the needed volume to make the donated product to reimburse some expenses of milk processed and donated to non-profit entities. Already donated beverage milk products would be eligible for a retroactive payment equal to the Class IV milk price plus 5% of the Class I milk price – a substantial expansion of the 2018 Farm Bill’s authority that reimbursed only the difference between the Class I value and the Class IV price.

Under the bill, small- and medium-sized dairy farmers currently participating in the Dairy Margin Coverage (DMC) program could increase their production history up to 5 million pounds per year if they have grown since the original program was enacted. The DMC program would not be reopened to producers who did not sign up for it in 2020. However, all producers could sign up for 2021, and producers enrolling for the remainder of the program (through 2023) could receive a 15% discount on their annual DMC premiums.

The proposal would create a $500 million recourse loan program, administered by the USDA, for dairy processors, packagers, merchants, marketers, wholesalers and distributors. Dairy cooperatives would be eligible. The program would make working capital loans to companies forced to carry heavier inventories and cope with growing accounts receivable burdens as customers defer deliveries and payments due to the demand destruction caused by the coronavirus.

LMA eyes livestock dealer trust fund

Officials with the Livestock Marketing Association (LMA) said they support the creation of the Dealer Statutory Trust to improve recovery in payment defaults and additional funds for producer payments to compensate cattle price losses. The proposal is part of the HEROES Act, approved in the House on May 15.

According to proponents, the Dealer Statutory Trust would improve recovery when a producer or livestock auction market is not paid for livestock sold to a dealer. When these defaults occur, a Dealer Statutory Trust would give unpaid sellers (markets and livestock producers) first priority to get livestock back. If the defaulting dealer resells the livestock, priority in the proceeds and/or receivables for livestock would belong to the unpaid seller.

The Dealer Trust was previously introduced in the Securing All Livestock Equitably (SALE) Act in both the House and Senate (H.R. 6067 / S. 3419) in 2017-18, but was not included in the final 2018 Farm Bill. Instead, Congress directed the USDA to conduct a feasibility study of establishing the program.

Foremost Farms to close Wisconsin cheese plant

Foremost Farms USA plans to close a cheese manufacturing facility in Chilton, Wisconsin, in July. In announcing the closure, Foremost President and CEO Greg Schlafer said the facility was the victim of age and changing consumer buying patterns related to the COVID-19 pandemic.

Built in the 1940s, the plant makes Italian cheeses including provolone, which is sold into the food service market for sandwiches.

“Closing the facility is difficult for us,” Schlafer said. “But in looking at our operations holistically, we don’t think making long-term investments in the plant make strategic sense for our network. We have other plants with upgraded technology and optimized logistics that will drive significant cost efficiencies.”

Declines in food service cheese order volumes have created excess product to meet demand. “We don’t see an immediate bounce back in cheese orders from food service clients serviced by the location,” said Schlafer.

Progressive Dairy COVID-19 resources

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

Updates for May 20 include information of Paycheck Protection Program loan forgiveness, additional analysis of the USDA’s Coronavirus Food Assistance Program (CFAP) direct payments, details on strong retail sales in grocery stores 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.  end mark

Dave Natzke
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