Government dictate or market dictate is the question the dairy industry continues to struggle with and the International Dairy Foods Assoc.’s Bob Yonkers challenged DairyLine listeners in Tuesday’s broadcast to better prepare themselves for the coming ups and downs in milk prices.

He pointed out that as 2009 came to a close, world dairy markets had rebounded to levels not seen prior to 2007’s record highs, except for a few months in 2004. He warned that “The dairy markets of the past three years are likely the first of many periods to come where prices zoom to high, even record levels, only to fall dramatically to very low levels.”

That has resulted in calls by some for the government to predict and regulate how much farm milk may be produced and marketed, farmer by farmer, he said, but others see enormous opportunities for growth, both domestically and into expanding export markets, so they oppose expanded government intervention and are “willing to accept the lows in order to benefit from the highs.”

Recognizing that price swings are an expected part of their business, producers and processors of other agriculture commodities have long used forward contracts and futures and options to manage risk Yonkers said, “However the dairy industry has been slow to adopt those practices.”

He said it was fortunate that the 2008 Farm Bill renewed what had been a pilot program between 2000 and 2004 to allow the use of forward contracts for farm milk under federal order regulation.

“The past year is a great example of why such tools should be part of a marketing plan for every dairy farm and processor,” Yonkers said. “Any dairy business whose economic survival was in question during the past year’s low milk prices and higher-than-average feed and fuel costs needs to prepare for such a period to occur in the future.”

Business management tools are now available to the dairy industry,” he concluded, “And the number of futures and options contracts traded for dairy continues to grow as many make greater use of these risk management tools. If you haven’t seriously considered their use, make this New Year the time to start.”

Many of the issues that the dairy industry struggles with today were with us even 10 years ago, according to National Milk’s Chris Galen. Galen pointed out in Thursday’s program that it’s “ironic that, 10 years ago when the 21st century started, we were talking about many of the same things that I think we’re going to be talking a lot about in 2010.”

Federal orders top the list, he said, even though the market order system was revamped and changes implemented in January 2000.
“There have been tweaks and adjustments and changes in pooling requirements and various other things over the past 10 years,” he said. “But the net result of all that is a general sense of dissatisfaction with the status quo and the feeling that the glass is half empty.”

National Milk looks to “amend, not end some of the features of the Federal order system that were not dealt with when the changes were implemented 10 years ago,” he said.

NMPF questions safety net
Another issue from 10 years ago was the dairy price support program, which was extended in the last two farm bills, and still exists today, but one of the questions National Milk is asking is; “Is this type of safety net really the best investment of government resources? Is it really the best protection of dairy farm income, or are there some other methods, perhaps using an insurance program to protect margins, as a more effective form of government support?”

He concluded saying that “It was kind of funny that we still have to learn from history. It’s often a good teacher and some of the things we were dealing with 10 years ago are things that we have to address in the upcoming year.”

You’ll be pleased and relieved to know that U.S. Agriculture Secretary Tom Vilsack has appointed a “committee” to address dairy policy issues. Vilsack named 17 members to a national Dairy Industry Advisory Committee.

Dairy Profit Weekly Editor Dave Natzke reported Friday that the committee is scheduled to start meeting early this year and includes nine dairy producers, four processing representatives and four individuals representing government, academia, retail and consumer interests.

Members will serve two-year terms and are challenged with looking at milk price volatility and dairy farmer profitability and consolidation and to offer suggestions on how USDA can best address the needs of a struggling dairy industry.

USDA actually had two options, Natzke said. In addition to the newly formed Advisory Committee, the 2008 Farm Bill called for the creation of federal milk marketing order commission. However, because Congress failed to approve the necessary funding for that commission, USDA said it would not create it.

Vilsack also announced that USDA and the IRS have agreed to an electronic exchange of information to ensure farmers receiving federal farm payments comply with adjusted gross income provisions established in the 2008 Farm Bill. The process will allow USDA’s Farm Service Agency and Natural Resources Conservation Service to review data from tax returns and compare statements to adjusted gross income limits established in the Farm Bill.
No actual tax data will be transmitted, according to USDA, and written consent is required from each producer for this process. No mention was made what, if anything will be done to those who do not provide consent. Vilsack said the plan will enhance USDA program integrity by reducing fraud in farm programs.
Dairy hopes to reduce emission

Dairy Management Incorporated’s David Pelzer, was back in Monday’s “DMI Update” to continue his discussion on the partnership between USDA and the Innovation Center for U.S. Dairy to reduce dairy’s greenhouse gas emissions by 25 percent in the next decade.

He said it doesn’t matter if you believe in human-induced climate change or not. The issue is “getting dairy producers and the dairy industry ahead of the game,” so if regulations are instigated in the future, dairy producers will be in front of it.

This goal is voluntary, he said, and was set by farmers and others in the industry “in a very economically viable way to reduce greenhouse gas emissions and have it be cost effective to dairy farmers and the rest of the dairy industry.”

Consumers today care more about health and the environmental impact of the products they buy, according to Pelzer, “so they will wonder about the carbon footprint of a gallon of soda versus milk and we’re going to be able to conclusively show that dairy products, in this case, fluid milk, is not only healthier than soda and more nutritious, but also has less of a carbon footprint.

The issue needs to be addressed with facts and not emotion or fiction and Pelzer points out that, following the life cycle assessment analysis in 2009 on 50 dairy processing plants and over 500 dairy farms, “we will be able to show in a peer reviewed scientific journal, data that shows that the carbon footprint for the dairy industry is something like 2 percent of all greenhouse gas emissions, a far cry from the claims by some activist groups of 18-25 percent.