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Weekly Digest: Reimbursement for ‘Class I mover’ losses urged

Progressive Dairy Editor Dave Natzke Published on 14 July 2021

Digest Highlights

Lawmakers urge reimbursement for Class I mover-related losses

Led by U.S. Representative Antonio Delgado (D-New York), a group of about 25 lawmakers urged the Biden administration to reimburse dairy farmers for reduced income related to changes in how the Class I (fluid) milk price is calculated within the Federal Milk Marketing Order system. Industry and congressional members estimate the losses at about $725 million.

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The so-called “Class I mover” price formula was changed in the 2018 Farm Bill, using the “average of” versus the previous “higher of” monthly Class III and Class IV milk prices as the starting point. Due to a run-up in cheese and Class III milk prices during the COVID-19 pandemic, using Class III-Class IV price averages resulted in substantially lower Class I prices.

The losses prompted the board of the National Milk Producers Federation (NMPF) to recommend a FMMO hearing on the Class I formula in late April. No formal hearing request has been submitted to USDA, however.

“The current Class I mover was intended to be revenue-neutral compared to the formula it replaced, but that has not been the case,” said Jim Mulhern, National Milk Producers Federation (NMPF) president and CEO. “The significant gaps between Class III and IV prices that developed during the COVID-19 pandemic exposed dairy farmers to significant and imbalanced losses, exceeding $725 million nationwide.”

In the letter to President Biden, the lawmakers estimated the Class I skim milk prices averaged $3.56 per cwt less during the second half of 2020 than they would have under the previous formula.

Dairy producers in the Southeast U.S., with higher Class I milk utilization rates, estimated losses topped $750 million in 2020. Losses in the three FMMOs covering the region – Appalachian, Florida and Southeast – lost about $155 million (21%) of the $750 million total, even though the percentage of milk produced in the three marketing areas represents just 5.5% of FMMO total milk marketings. That $155 million equated to a reduction in the 2020 blend price of about $1.25 per cwt, they said.

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A paper authored by dairy economists Marin Bozic, the University of Minnesota, and Christopher Wolf, Cornell University, not only led to lower Class I milk prices but also were one of six factors contributing to reductions in producer price differentials (PPDs) within individual FMMOs.

Any reimbursement for losses could be complex, as individual FMMOs and individual producers within those orders were impacted differently.

Bills would ban CAFOs

Companion bills banning concentrated animal feeding operations (CAFOs) have been reintroduced in the House and Senate. 

U.S. Senator Corey Booker (D-New Jersey) reintroduced S.2332. Original cosponsors include Sens. Bernie Sanders (I-Vermont) and Elizabeth Warren (D-Massachusetts). The bill has been referred to the Senate Ag Committee, of which Booker is a member.

Booker previously introduced a similar bill in early 2020 when the Senate was under control of Republicans and the bill did not make it out of the ag committee.

Likewise, U.S. Rep. Ro Khanna (D-California) reintroduced the companion bill in the House, similar to a bill he introduced last May in the previous Congress. It, too, did not make it out of a House subcommittee. Khanna serves on the House Ago Committee. Original cosponsors in the House include Reps. Jamie Raskin (D-Maryland), Cori Bush (D-Missouri), Mondaire Jones and Carolyn Maloney (both D-New York), Mark Pocan (D-Wisconsin), and Rashida Tlaib and Andy Levin (both D-Michigan) in the House.  

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The bills would prohibit the construction of new large CAFOs and the expansion of those currently operating and require all large CAFOs to cease operating by 2040. Under the proposal, a “large CAFO” dairy is defined as an operation with 700 mature dairy cows. 

To transition out of CAFO operation, the bills establish a voluntary debt forgiveness and transition assistance program that provides CAFO owners with grants to pay off their operation’s debts and transition to raising pasture-based livestock, growing specialty crops, or organic commodity production.

Additionally, this legislation would restore mandatory country-of-origin labeling, barring beef, pork and dairy produced from animals imported or raised in a foreign country from being labeled “Product of U.S.A.,” transfer liability for air and water pollution to corporate “integrators” rather than contract farmers, and make various amendments to the Packers and Stockyards Act. 

June 2021 retail dairy sales: ‘Normalizing’ and strong

Consumer food buying patterns continue returning to pre-coronavirus “normal,” according to a monthly update from the International Dairy Deli Bakery Association (IDDBA). Those patterns include fewer trips to the grocery store and more frequent outings to restaurants, both affecting how dairy products are purchased.

Retail dairy sales at grocery stores are benefitting from strong demand when compared to the pre-pandemic 2019 baseline. Information Resources Inc. (IRI) U.S. grocery store sales data shows dairy generated $29.6 billion during the first six months of 2021. Any other year that would be a significant increase but compared to the massive sales peaks of 2020 due to the pandemic, it constituted a 4.8% decline. However, when compared to the 2019 pre-pandemic normal, dairy sales were up 10.9% during the first half of 2021, according to Eric Richard, IDDBA industry relations coordinator.

As expected, year-over-year sales of dairy in terms of dollars, units and total volume sales trended below 2020 levels for virtually all dairy categories. Milk and yogurt managed dollar increase, but also declined in units and total volume. When compared to pre-pandemic sales, second-quarter deli cheese sales were still up 19% in dollars and 11.5% in pounds.

Americans are still cooking an average of about 80% of meals at home, which explains the continued high demand for foods and beverages when compared to the pre-pandemic normal of 2019, said Jonna Parker, IRI team lead.

One area of growing concern among consumers is food inflation. In June, food prices overall were up 2.2% year over year, according to the Bureau of Labor Statistics (BLS). June saw bigger price increases at restaurants (+4%) than at retail (+0.7%). BLS is forecasting continued inflation of between 1.5% and 2.5% in 2021.

January-May 2021 DMC payments top $550 million

The USDA’s Farm Service Agency (FSA) distributed another $104 million to dairy farmer participants in the Dairy Margin Coverage (DMC) program in early July, covering indemnity payments on May milk marketings. Through July 12, DMC indemnity payments for the first five months of 2021 have now topped $550.6 million.

The May DMC milk income over feed cost margin was $6.89 per hundredweight (cwt), triggering indemnity payments on Tier I and Tier II milk insured at $7 per cwt and above. (Read: DMC margin below $7 for fourth straight month)

Through July 12, dairy producers in Wisconsin led all states in total payments, receiving $123.6 million. Rounding out the top five states for January-May indemnity payments were: California ($52.2 million), New York ($51.6 million), Minnesota ($47.4 million) and Pennsylvania ($40.1 million). All 2021 DMC indemnity payments are subject to a 5.7% sequestration deduction.

Things you might have missed

The U.S. Food and Drug Administration’s final rule regarding standards of identity for yogurt – met with fanfare when it was released about 20 years after the initial dairy industry petition – is now being opposed by the International Dairy Foods Association (IDFA). IDFA filed a formal objection to the rule on July 12. Read: Two decades in the making: FDA publishes final rule on yogurt standard of identity

Cincinnati, Ohio was declared the per-capita cheese consumption leader of the Midwest, by Crystal Farms Dairy. Consumption is based on Nielsen sales data for the total cheese category in all outlets between June 5, 2020 and June 5, 2021. The ranking accompanied an announcement that the company would work with Associated Milk Producers Inc. (AMPI) to source 100% of its milk from Midwest dairy farmers. Other Midwest cities named in the top 10 for per-capita cheese consumption, in order, were: 2) Dayton, Ohio; 3) St. Louis, Missouri; 4) Kansas City, Missouri; 5) Indianapolis, Indiana; 6) Grand Rapids, Michigan; 7) Milwaukee, Wisconsin; 8) Minneapolis/St. Paul, Minnesota; 9) Detroit, Michigan; and 10) Cleveland, Ohio.

Farmer-owned Hiland Dairy took over operations of two more distribution centers – in Paris, Texas and Shreveport, Louisiana – expanding the company’s marketing capacity in those two states. Based in Springfield, Missouri, Hiland operates 16 plants and more than 50 distribution centers in 10 states, producing and marketing ice cream, milk, butter, cheese and eggnog.

• The USDA’s Risk Management Agency (RMA) is working with crop insurance companies to streamline and accelerate emergency procedures to make adjustment of losses and issuance of indemnity payments to policyholders in areas impacted by drought. Visit RMA’s Crop Insurance and Drought Damaged Crop webpage.

• Dairy producers who also raise swine or poultry may be eligible for additional financial assistance. Those producers who suffered losses during the COVID-19 pandemic due to insufficient access to meat processing can apply for assistance for those losses and the cost of depopulation and disposal of the animals. Applications for Pandemic Livestock Indemnity Program (PLIP) assistance will be accepted at local USDA Farm Service Agency (FSA) offices, July 20-Sept. 17, 2021. Producers are eligible for payments on livestock depopulated between March 1-Dec. 26, 2020 due to insufficient processing access as a result of the pandemic. PLIP payments will be based on 80% of the fair market value of the livestock and for the cost of depopulation and disposal of the animal. end mark

Dave Natzke
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