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Dairy group wants emergency hearing on milk pricing formulas
Dairyline
By Lee Mielke

National Milk has requested that the USDA conduct an emergency hearing on a proposal to adjust Federal order Class I and II milk pricing formulas. At issue is a proposal that would establish a direct relationship between dairy product prices and the Class I and II prices.

Current price formulas give some allowances to manufacturers for their costs, according to National Milk’s Roger Cryan in Thursday’s broadcast, and “At least the Class I and Class II formulas they also give some allow-ances to producers and their co-ops for some of their costs.”

Following a hearing held earlier this year, the USDA agreed to increase manufacturing allowances but doing so will result in lower producer milk prices, according to Cryan, so NMPF argued that producer and co-op costs have risen as well as manufacturer’s costs and that should be considered as well but the Federation was told to request an additional hearing to have this considered.

“We’re asking USDA to add at least 73 cents per hundredweight to the Class I price and a little less to the Class II price to update the allowances for producer costs supplying those Class I and II markets,” Cryan said. Those costs include maintaining Grade A status, shipping milk over longer distances, give up charges, and administrative costs which have gone up as well, he said.

NMPF is also asking the USDA to make Class I and II formulas to be distinct from the Class III and IV formulas. Currently, Class III and IV formulas are part of the calculation of the Class I and II prices, he said.

NMPF’s proposal is almost identical to current formulas, he said, and would move up and down from month to month with product prices like they do today but, with separate formulas. Changes to Class I and II prices would have to be on their own merits, he said, and wouldn’t be effected by changes in Class III and IV make allowances unless they were considered separately.

“Bottom line, NMPF’s proposal would mean that dairy producers would recover some of the revenue they might lose through make allowance increases and in the future, that kind of loss wouldn’t happen just by accident,” he concluded.

The International Dairy Foods Assoc.’s Chip Kunde discussed an issue that may be addressed in the new farm bill in DairyLine’s monthly “Processor’s Perspective” program on Wednesday. The current farm bill expires next September and some groups have called on Congress to simply extend it.

On the surface, an extension may seem appealing, Kunde said, but “It’s the wrong move for American dairy producers and processors.” He reasons that a simple extension would not allow Congress to address some of the issues confronting modern dairy since the last farm bill was written in 2002. He said there would be no opportunity to expand and improve conservation programs, address pressing environmental concerns, or get help with real, on-farm issues like waste management or animal health.

One item at the top of processor’s list is streamlining the process USDA uses to examine and make changes to Federal market orders. Kunde called the process “slow, cumbersome and bureaucratic” and charged that it takes an average of two years for USDA to conclude a hearing.

He cited as an example, the time it took to reach decisions on distant pooling provisions and he said the producer-hander rules took even longer. And, he said, the “emergency” hearing to update make allowances is nine months and counting. “Hardly the kind of response time we need or deserve.”

“Whether you are running a dairy farm or a cheese plant, you have to meet deadlines,” Kunde argued. “Federal orders seem to be insulated from this simple reality but they shouldn’t be.” He admitted that the USDA has made strides to improve the process, but said it’s not enough. Hard and fast deadlines are what are needed to make this system work more efficiently, according to Kunde.

“Every government program deserves a good, hard look every once in a while, Kunde concluded. “Certainly, our dairy programs could stand to have a thorough once over. The reward exceeds the risk if improving them means more opportunities to produce and sell dairy products here and overseas.”

A special task force is echoing some of those sentiments, warning that U.S. agricultural policies are not sufficient to address the challenges facing farmers and the nation. Dairy Profit Weekly’s Dave Natzke reported in Friday’s DairyLine that the Agriculture Task Force of the Chicago Council on Global Affairs, made up of agricultural economists and former USDA officials, notes that American agricultural productivity grew at about 2 percent annually the past 50 years.

At the same time, the percent of personal income spent on food by U.S. households dropped by nearly one-half, to just 10 percent. And, their report notes that, about 12 percent of all American jobs and gross national product are related to food production.

But, while federal farm programs have helped lead to that remarkable record, the task force said those programs are not serving U.S. farmers as well as in the past, and have unintended consequences, including consolidation and concentration of food production and higher farmland prices, making it especially hard for young people to enter farming.

The task force was especially critical of what it called “trade-distorting income and support programs,” and said current policies are to blame for the recent failure in World Trade Organization negotiations. The task force concluded that U.S. agriculture can prosper only through a dramatic change in policy and recommend ending price support programs, diverting some of that money toward rural public infrastructure and ag research.

Additionally, they recommended establishing farmer income insurance, under which farmers would purchase coverage at subsidized rates to protect against losses from drops in price and production.

Conservation rewards would pay producers based on the kind and amount of environmental goods and services they provide; and farmer savings accounts, similar to tax-deferred 401(k) accounts, would also be made available to farmers, with the government matching contributions to the fund.

Cash dairy prices were mixed in the Columbus Day week. Block cheese closed Friday at $1.2025 per pound, down a penny on the week, after losing a nickel the previous week, and is 25.5 cents below that week a year ago. Barrel closed at $1.2225, down 2.25 cents from the previous week, and 15.75 cents below a year ago. Twelve cars of block traded on the week and four of barrel. The NASS-surveyed U.S. average block price slipped to $1.2605, down 2.6 cents. Barrel averaged $1.2981, up 0.9 cent.

Butter closed at $1.36, up 2.75 cents on the week, but 28.75 cents below a year ago. Twenty-three cars were sold. NASS butter averaged $1.2760, down 0.9 cent. Cash Grade A nonfat dry milk held all week at $1.24 and Extra Grade held at $1.05. The NASS-surveyed powder price averaged 88.45 cents, up a half-cent.

Downes-O’Neill dairy economist Bill Brooks reported that the cheese price inversion was a result of good demand on the barrel side due to a lot of fast food promotions.

This farm news was published in the Oct. 18, 2006 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.

10/18/2006