Dairy committees meet to discuss future of industry

By CARYL VELISEK
Staff Writer

FREDERICK, Md. — "Volatility is so severe, so bad, we don't know any elements (in the current Farm Bill) that make us want to do things the same way we're doing them.
"Somebody's going to write a new Farm Bill, and if the industry doesn't do it, Congress will — and they don't know a thing about it."
So said Jay Bryant, CEO and Treasurer of Maryland & Virginia Milk Producers Cooperative, at a special meeting of the Maryland Dairy Industry Oversight and Advisory Committee and the Maryland Dairy Industry Association, held Aug. 10.
According to Bryant, the USDA Dairy Industry Advisory Committee has had two meetings so far this year. There are 17 members of the committee including large and small producers, a wide variety of individual processors, and academics from Cornell University, that basically believe fundamental price discovery needs to be addressed, the current four classes need to be collapsed into two, and there must be more consistent participation in the world market.
"Also, current risk management tools available are not user friendly," Bryant said.
"Milk pricing is confusing and there has been a lot of discussion on supply management.
"Most advisory committees are not in favor of a true Canadian system of supply management."
The USDA committee meetings in April and June were all about education.
“They were three days long and it was an interesting process,” Bryant said.
Next meetings of the USDA Advisory Committee are scheduled for Aug. 23 and 24, Sept. 23 and 24, and Oct. 12 and 13 of 2010. They will provide an opportunity to look at the NMPF (National Milk Producers Federation) plan in greater detail.
"The Secretary is looking to take a new bill to Congress in March 2011 but he recently moved that up to December (of 2010)," Bryant said.
"I feel we have good groups that look at the industry as a whole, not just at their segment. The Secretary is pushing for fast and furious work this fall."
Goals for the future include five key features:
1) Revise federal safety net programs; 2) Dairy producer margin protection program; 3) Federal Milk Market Order reform; 4) Dairy market stabilization program; 5) Voluntary sales assistant program.
Revising the federal safety net program includes elimination of the Dairy Product Price Support Program (DPSP), elimination of the Milk Income Loss Contract Program (MILC), and redirecting funding to a program focused on dairy farm operating margin, not just milk price.
The Dairy Producer Margin Protection Program would call for the farmer being able to insure a portion of the margin between average feed costs and "all milk price". Insurance covers 90 percent of a farmer's base and base equals the highest of the farm's last three-year production history, updated every five years.
This will be a voluntary program. This program would be offered at no cost to the farmer and covered by DPSP/MILC funds, with supplemental coverage available for purchase. It includes feed cost calculation including cost of feeding all animals on a farm related to milk production and that includes milking, dry, hospital cows and replacement heifers. Feed cost includes corn, corn silage, soybean meal and alfalfa hay.
A farm's base stays with the farmer or the farm and base is otherwise not transferable. The program is to be run by USDA Farm Service Agency (FSA).
There have been tentative changes to the Federal Milk Market Order Reform including a new Class 1 price, which equals the national weighted average Class III price plus current differentials, a new Class II price that equals the Class III plus 30 cents. A Class III competitive price based on regional surveys of proprietary cheese plants with over 500,000 pounds of milk per day for all cheese. A Class IV price equaling the current formula plus energy cost index (new).
Pool draw base is the lowest regional Class III.
This reform would eliminate make allowances, eliminate "higher of" as a Class 1 mover, and fund balancing pools from Class I processors.
The Dairy Market Stabilization Program uses the same margin calculation as the insurance plan. Base here is producer choice of a rolling three-month average, or same month a year earlier.
The program, implemented after two months of margins follows: less than $6. Producer receives payment for 98 percent of base with maximum reduction of 6 percent; less than $5, producer receives payment for 97 percent of base with maximum reduction of 7 percent; and less than $4, producer receives payment for 96 percent of milk with maximum reduction of 8 percent.
Implementation exceptions are if program is implemented after one month of margin below $4. Unless margin is below $4, the program will not be implemented if domestic skim milk powder price or cheddar cheese prices are 20 to 30 percent above world prices.
These stipulations apply to all milk in all markets with no exceptions. Funds not paid to producers go to producer-directed program to stimulate demand both domestically and internationally.
The Voluntary Sales Assistance Program expands the current CWT Export Assistance Program and the herd retirement program ends. Cooperatives and producers contributing will govern the program. There will be no government involvement.
During a question and answer session following Bryant's presentation, it was asked if the Federal Milk Order reform does depend on the vote of the farmers.
Bryant said if enough interested parties request a hearing of an order, a hearing will be scheduled and everyone can state their opinion and/or give testimony.
"Adopting a proposal takes time which leaves a lot of time for comment," Bryant said. ""This is a long way from finished," he added. "It takes a lot of maneuvering and tweaking. This creates a window of opportunity."