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What happened? What’s next? - CFAP 2, October PPDs and the end of a DFA Northeast lawsuit

Progressive Dairy Editor Dave Natzke Published on 19 October 2020

You’re busy milking cows, emptying manure pits and eagerly awaiting the final presidential debate. With that in mind, Progressive Dairy looks at issues in the news impacting you and your dairy business.

In recognition of your time, we’ll attempt to summarize recent events or actions making dairy headlines and reported in our weekly digital newsletter. Then we’ll try to put that news into perspective and briefly describe how it might affect you.

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CFAP 2

What happened?

Details of a second Coronavirus Food Assistance Program (CFAP 2) were announced. For dairy producers, direct payments will equal $1.20 per hundredweight (cwt) on milk production over the last nine months of 2020.

For dairy beef, producers are eligible for payments on bull calves and dairy steers, but not cull cows. Payments will be based on the maximum owned inventory of eligible livestock on a date selected by the producer, between April 16 and Aug. 31, 2020. The payment is equal to $55 per head.

Alfalfa is eligible for a payment under CFAP 2, but hay and crops intended for grazing are not.

Dairy goat milk producers are also eligible for payments.

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What’s next?

The sign-up period will be open until Dec. 11, 2020, at USDA Farm Service Agency (FSA) county offices. CFAP 2 is considered a separate program and requires a separate sign-up, even if the producer signed up for and received payment under CFAP 1. Producers who did not sign up for CFAP 1 are eligible to sign up for CFAP 2.

Unlike CFAP 1, 100% of the payment will be made shortly after a farm’s eligibility is determined.

Bottom line

Dairy payments will be equal to $1.20 per cwt on:

  • A producer’s total actual milk production from April 1 to Aug. 31, 2020

  • Plus an FSA estimation of a producer’s milk production from Sept. 1 to Dec. 31, 2020 (based on the daily average production from April 1 to Aug. 31, multiplied by 122 days).

Dairy operations applying for CFAP 2 must be in the business of producing and commercially marketing milk at the time of application. Dairy operations that dissolve or have dissolved on or after Sept. 1, 2020, are eligible for a prorated payment for the number of days the dairy operation commercially markets milk from Sept. 1 to Dec. 31, 2020. Dairy operations that dissolved before Sept. 1, 2020, are ineligible.

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As in CFAP 1, payment limitations apply. However, since CFAP 2 is a separate program, payments made under CFAP 1 do not count toward CFAP 2 payment limits.

Significantly, this round’s payment limitation provision has been expanded to include trusts and estates for both rounds, meaning those who were disadvantaged by restrictive trust-related payment interpretations in the CFAP 1 will have their situation resolved for that round, as well as in CFAP 2.

THEY’RE BACK: NEGATIVE PPDs

What happened?

Just when you thought it was safe to get back in the water, a September run-up in block cheddar cheese prices is creating the potential for depooling and negative producer price differentials (PPDs) on October milk marketings.

What’s next?

September FMMO milk class prices returned to a somewhat normal relationship, with a Class I base ($18.44 per cwt) about $2 higher than the Class III price ($16.43 per cwt), and the Class III-Class IV price gap shrinking to $3.68 per cwt, sharply diminishing the incentive for depooling and reducing the depth of negative PPDs in September. Uniform prices and PPDs will be announced about the time you receive this magazine in your mailbox.

October is another story. After sitting below $2 per pound for much of August, cheddar block prices found new life after the USDA announced the third round of the Farmers to Families Food Box Program contracts. CME cheddar block prices peaked at $2.6475 per pound on Sept. 21, averaging about $2.58 per pound for the final week of the month.

The October Class I base price has already been announced at $15.20 per cwt. October’s FMMO Class III and IV prices won’t be announced until Nov. 4. However, as of Sept. 30, October Chicago Mercantile Exchange (CME) Class III milk futures closed at $19.53 per cwt, about $4.33 per cwt higher than the announced Class I base price. And the expected gap between Class III and Class IV futures prices will widen in October: As of Sept. 30, the CME October Class IV futures price closed at $13.86 per cwt, $5.67 per cwt under the Class III price.

Bottom line

After an extreme inversion in Class I base and Class III prices in June and July, leading to widespread depooling and extremely negative PPDs, FMMO milk class pricing returned to a somewhat normal position in August and September. With higher Class III prices coming in October, the incentive for depooling and resulting negative PPDs returns.

DFA NORTHEAST LAWSUIT

What happened?

A settlement agreement was reached in a lawsuit involving Dairy Farmers of America (DFA) and about 115 dairy farmers marketing milk in the Northeast U.S. The agreement came one day before a jury trial, postponed from July due to the COVID-19 pandemic, was scheduled to begin, Sept. 30. Details of the settlement were not made available at Progressive Dairy’s deadline.

What’s next?

In settling the lawsuit, DFA admitted no wrongdoing, and the lawsuit has been dismissed.

Bottom line

In the lawsuit (Sitts v. Dairy Farmers of America), filed in the U.S. District Court/District of Vermont, plaintiffs alleged DFA and others conspired to monopsonize milk marketing within Federal Milk Marketing Order No. 1, which covers Vermont, New Hampshire, New York, Massachusetts, Rhode Island, Connecticut, New Jersey, Delaware, Maryland and Virginia. (A monopoly is defined as a situation where there is a single supplier of a good or service; a monopsony is defined as a situation where there is a single buyer.)

The farmers in this lawsuit had opted out of a previous settlement agreement with DFA. That class-action lawsuit (Allen v. Dairy Farmers of America) was initially filed in 2009 against Dean Foods and DFA. Dean Foods subsequently agreed to a separate $30-million settlement in 2011, and DFA reached a final $50-million settlement agreement in June 2016.

Prior to the settlement agreement, attorneys with the U.S. Department of Justice (DOJ) filed an amicus brief July 27, arguing that based on the allegations involved, the Capper-Volstead Act did not serve as a legal shield in DFA’s defense.

“Given the current environment with the COVID-19 pandemic, continuing to defend ourselves in this litigation became a logistical challenge,” according to a statement released by DFA. “These challenges, coupled with the cost of settlement versus the continued cost of litigation, caused us to determine that it was in the best interest of our member-owners to put this matter behind us.”  end mark

Dave Natzke
  • Dave Natzke

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