Good news, bad news for dairy farmers

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Joseph Gresser

MONTPELIER — Farmers could see the Boston blended milk price rise to between $19 and $20 a hundredweight by fall.  That was the good news delivered to the Vermont Milk Commission Monday morning by Agri-Mark economist Catherine Deronde.

If the predictions prove accurate, October’s prices would be up more than $2 above the $17.19 a hundredweight price milk fetched in October 2018.

Ms. Deronde spoke to members of the commission at the headquarters of the Agency of Agriculture, Food, and Markets.  

“I’m pretty darn excited to see $19,” she told members of the commission, a nine-person group established to help set dairy policy and make recommendations to federal lawmakers.

Dairy producers will not be surprised to hear, though, that there was also bad news in the form of looming increases in grain prices.  Corn planting is far behind schedule in many parts of the Midwest due to record floods across the country’s grain basket.

According to Joe Tisbet of the Vermont Farm Bureau, price rises may be delayed because current corn stocks are high, but will show up by next spring.

The dark clouds might be lightened a bit by a new federal insurance program that is designed to avoid some of the pitfalls that many farmers encountered with the Margin Protection Program.

Diane Bothfeld, the Vermont Agriculture Agency’s resident dairy expert, gave a mixed report about her efforts to support prices through supply management.

Ms. Deronde said that, nationally, farmers are making less milk, after years of increased production.

Last year production increased by 2 percent, she said.  “It has gradually slowed and this year, for the first time it is in negative territory,” Ms. Deronde said.  “It’s not a good story to tell, but in terms of prices it is.”

April production was up around three-tenths of a percent, Ms. Deronde said, but that is a small rise compared to what is seen most years.

The decline in production is not spread evenly across the country.  Farmers in California, New York, and Vermont have made about 2 percent more milk this year than last.  That’s more than made up for by declines elsewhere.

Ms. Deronde said grain prices will be a problem and suggested more farmers may stop milking.

A decline in the size of the butter stockpile might help prices rise more if the pile of cheese weren’t rising, she said.

The amount of butter in cold storage has fallen by 5.4 percent to the same level as 2014, Ms. Deronde said.

At the same time, surplus cheese stocks are up by 4 percent.

“Those stocks are weighing on cheese prices,” she said.

Ordinarily the weight of cheese in storage is more or less equally divided between cheese made and sold in 40-pound blocks and that sold by the 500-pound barrel, Ms. Deronde said.  At present, there is about 20 percent more barrel cheese than block cheese in storage.

“Something is not quite right,” she said.  Farmers are paid based on the weighted average of the price of block and barrel cheese.

Ordinarily the gap between those amounts is relatively small, but at present barrel cheese is fetching $1.20 a pound and block cheese $1.50.

“The farmer doesn’t like to see that gap,” Ms. Deronde said.

Another cloud on the horizon is a fall in exports tied to recent tariffs.  At present, about 14 percent of the country’s dairy production is going into the international market.  Before the U.S. began engaging in trade wars with China and Mexico, that percentage was around 19 percent, Ms. Deronde said.

Despite the decline, 14 percent is actually a pretty good percentage, she said.  Ms. Deronde said she expects proximity to Mexico to help regain some of the lost business.  

China may be different.  The Chinese are importing record amounts of dairy products, but not from the U.S., Ms. Deronde said.

Although the Trump administration says it will offer farmers payouts to help make up for the damage from trade sanctions put on American products in retaliation for our tariffs, Ms. Deronde said most of that money will go to soy producers.  Much less will end up in the pockets of dairy farmers.

“We’re trying our darndest to get more,” she said.

Whey sales to Asia are taking a hit, not so much because of tariffs, but because of Asian swine fever, a disease that has caused Korea, China, and Vietnam, among other countries, to drastically reduce their swine populations, she said.

“Vietnam culled two million swine,” Ms. Deronde said.

Ms. Deronde said there is a new revenue source for Agri-Mark.  As cheese is sliced for packaging, pieces crumble off, and they will soon be sold for inclusion in dog food.

Wendy Wilton, state director of the U.S. Department of Farm Services Agency, gave a presentation about the Margin Coverage Program established as part of the 2018 Farm Bill.

The program is designed to allow dairy farmers to buy affordable insurance to protect them should the price of milk drop below the cost of feed.

Ms. Wilton said farmers can sign up for the program between June 19 and September 20 this year.  The program cannot accommodate latecomers, she said.

The Margin Coverage Program differs from the old Margin Protection Program in more than name, Ms. Wilton said.  The new program has lower premiums and farmers can expect higher payments. Those are expected to run around $1-billion a year.

Farmers can insure up to five million pounds.  The actual amount is based on a farm’s history of production.  They can buy coverage ranging from a $4.50 margin in 50-cent increments up to a new top amount $9.50.

Ms. Deronde said Agri-Mark has advised its farmers to go in at the $9.50 level.

According to Ms. Wilton, a farmer can also get $4 coverage for no more than a $100 administration fee.

Premiums range from 25 cents per hundredweight at the $4.50 level to 15 cents a hundredweight for the $9.50 coverage.

Unlike the earlier Margin Protection Program, the Margin Coverage Program does not require farmers to participate for the life of the program.  A producer can join up or drop out of the program based on his assessment of conditions each year.

The exception is for farmers who decide to take advantage of the 25 percent discount offered to those who lock in coverage for all five years of the program.

State Senator Bobby Starr of North Troy, who sits on the commission, said locking coverage is a big gamble.

The insurance is not designed to protect farmers from drops in their actual milk check or increases in local feed prices.  As with the former program, payouts are based on the national all-milk price and the national average feed cost for soy, corn, and alfalfa.

Laura Ginsburg, who works at the Agency of Agriculture, asked the commission to endorse a request for an innovation grant from the U.S. Department of Agriculture.  The grant would provide $500,000 in its first year, but would make the recipient states eligible for $9-million to $28-million in grants down the line.

Ms. Ginsburg said Vermont plans to cooperate with other New England states in the projects financed with any federal money.  She said she reached out to New York State but found Cornell University is also applying and New York had no interest in working with Vermont.

Pennsylvania was also unreceptive to Vermont’s attempts to team up.

Members of the commission were disappointed.

“We are players with New York and Pennsylvania, not with Massachusetts,” said commission member Jane Clifford.

Ms. Ginsburg said the plan is to continue work formerly done by the Artisan Cheese Center at the University of Vermont, especially with goat and sheep milk.

Vermont has the highest amount of artisan cheese makers of any state on a per capita basis, Ms. Ginsburg said.

Despite the competition from New York, Ms. Bothfeld was bullish on Vermont’s chances and not only on the strength of the state’s congressional delegation.

“Vermont is going to succeed, but if we don’t the program has to benefit the region,” she said.  “But we will prevail.”

Representatives from the state Farm Bureau took their seats at the table to talk about their efforts to change national policy.

Mary White, of the Vermont Farm Burea, said state bureaus spend the summer putting together policy proposals to send to the American Farm Bureau in the fall for the national board’s consideration.

Ms. White said farmers seem enthusiastic about proposals for supply management, a policy idea that has been talked about for quite some time.  

Vermont officials have renamed the idea of supporting milk prices by holding down production to an amount demanded by the market, and now refer to it as growth management.

Ms. White said she approached people in Wisconsin and found they were favorably inclined toward the idea of supply management.

“They were very impressed with the work we have been doing, especially since they don’t think Vermont is a dairy state,” Ms. White said.

The state Farm Bureau plans to send a letter to their counterparts in other states seeking support, but southern states and California are not at all interested in the idea of growth management.

Ms. White said the dairy cooperative board seems unenthusiastic as well.

Mr. Starr said he is always surprised that the state’s three cooperatives are not jumping on the bandwagon, although he noted St. Albans Cooperative is on the verge of selling itself to Dairy Farmers of America (DFA).

“They can’t keep doing the same old thing without having the same old results,” he said.  “If DFA is going to come in and do the same old, same old, we might have to keep St. Albans going.”

Ms. Bothfeld said she had a cordial discussion with the St. Albans board, but said, “based on the faces at the table 25 percent were for growth management and 75 percent were not so sure.

“The days of making all the milk you want and finding a home for it are gone,” Ms. Bothfeld added.

Speaking of the cooperatives’ dual role as representative for members and manufacturer of dairy products, Mr. Starr said, “If I was a salesman, I’d want to get milk as cheap as possible.  If I was working for you, I’d try to get you $25 a hundredweight, I wouldn’t settle for $15.”

Ms. Clifford said she is a satisfied member of DFA, but “the leadership of the cooperatives tends not to change, ever.  They like the way things are. They like the way things are working.”

Ms. Bothfeld said she will keep working to persuade people to take a close look at growth management, but warned it would be a long-term project.

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