Friday, March 11, 2022
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Study evaluates dairy processing costs
By CAROL RYAN DUMAS
Capital Press
There is a lot of discussion in the
dairy industry about reforming the
Federal Milk Marketing Order sys-
tem, including updating “make
allowances,” which address the cost
of processing milk into dairy prod-
ucts, such as cheese.
To inform a potential change
to make allowances, USDA in
mid-February released a study com-
missioned through the University of
Wisconsin on the cost of processing
cheese, whey, butter and nonfat dry
milk. The study was based on sur-
veys of 61 processing plants across
the U.S.
Daniel Munch, associate econ-
omist with American Farm Bureau
Federation, broke down USDA’s
study and its possible implications in
a recent report.
Make allowances are intended
to be large enough to encourage
the construction and maintenance
of processing capacity and are
deducted from dairy farmers’ milk
checks. They haven’t been modified
since 2007, he said.
“In general, any increase in
make allowances would increase
Sierra Dawn McClain/Capital Press
USDA is studying the make allowance charged against farmers’ milk
income.
the deduction to cover processors’
cost, decreasing dairy farmers’ take-
home pay in the short-run. A decrease
in make allowances would have the
opposite effect on dairy farmers’
pay,” he said.
Based on total milk-class utiliza-
tion volumes and make allowances
for each class of milk, total make
allowances — based on 3.5% butter-
fat content — would have increased
nearly 33% under the values in the
updated cost study in 2021, he said.
“This equates to a single-year
$1.45 billion FMMO-wide increase
in milk formula deductions to cover
estimated increases in processor
costs,” he said.
Cumulative make allowances
under the current system for 2017
through 2021 totaled $20.93 billion.
Under the updated values, they would
have totaled $27.56 billion, according
to Munch’s calculations.
“Across these five years, the
adjusted values would have increased
total make allowances by $6.6 billion,
reducing the regulated revenue dairy
farmers would have received for their
milk by the same magnitude, all else
held equal,” he said.
USDA’s study suggests process-
ing costs have increased for cheese,
nonfat dry milk and whey from both
a 2006 survey by Cornell University
and currently enforced make allow-
ances, he said.
“This was an expected result given
lingering supply-chain disruptions
that have heightened input and labor
costs across the broader economy,”
he said.
Values in the study are not the sole
determinant in any future updates or
changes to make allowances but sim-
ilar studies have been used as a base
reference point for FMMO hearing in
the past, he said.
“Any increase in make allowances
can lower the price of milk dairy
farmers receive — reducing already
shrunken margins — but must be bal-
anced against the need to maintain
sufficient plant capacity to process
milk,” he said.
Careful consideration of a wide-
spread impact on dairy farmers’ bot-
tom lines is essential to any effort to
change make allowances, he said.
U.S. dairy slams Canada’s empty proposal on market access
By CAROL RYAN DUMAS
Capital Press
The National Milk Produc-
ers Federation and the U.S. Dairy
Export Council are denouncing Can-
ada’s proposal aimed at rectifying
its breach of a commitment to mar-
ket access for U.S. dairy under the
U.S.-Mexico-Canada Agreement.
Issued last week by Global Affairs
Canada, the proposal outlines changes
to Canada’s current scheme for allo-
cating dairy tariff rate quotas, known
as TRQs, negotiated in USMCA.
But NMPF and USDEC say it
does nothing to improve market
access and will continue to restrict
dairy imports from the U.S.
In January, the U.S. Trade Rep-
resentative’s office announced it had
won USMCA’s first-ever dispute set-
tlement panel by prevailing in its case
against Canada that its dairy TRQ allo-
cation process vio-
lated the agreement.
A TRQ applies a
preferential rate to a
predetermined quan-
tity of imports. Any
imports above that
quantity are sub-
Jim
ject to significantly
Mulhern
higher tariffs.
U.S. dairy has argued that Canada
reserves the bulk of TRQ access for
Canadian processors, who have little
incentive to import competing U.S.
product. Canada’s allocation scheme
leaves only a small amount of TRQ
access for distributors and gives no
TRQ access for retailers — two seg-
ments with the strongest incentive to
purchase U.S. dairy product.
Canada’s proposal removes the
specific earmarks for a certain per-
centage to go to processors, said
Shawna Morris, vice president for
trade with the U.S. Dairy Export
Council and NMPF.
“However, the way that allocations
are calculated will result in landing
who gets most of the TRQs in essen-
tially the same spot. Given this, the
same concern remains about the TRQs
being dominated by our companies’
competitors in Canada,” she said.
The proposal largely preserves the
same problems with the present sys-
tem. Retailers and foodservice com-
panies remain intentionally excluded
despite their clear involvement in the
Canadian food and agriculture sector
and interest in the TRQs, she said.
The proposal preserves the same
narrow approach to primarily award-
ing the TRQs to Canadian processors
that make the same product as U.S.
processors wanting access to Cana-
dian markets, she said.
“For instance, we expect the
result of the process to award the
bulk of the butter TRQ to Canadian
butter manufacturers, the bulk of
the cheese TRQ to Canadian cheese
manufacturers, etc.,” she said.
“They’ve tinkered around the
edges a bit to be able to claim
they’ve made a change, but this will
land us in the same spot since it pre-
serves the same flaws with the cur-
rent TRQ process,” she said.
Jim Mulhern, president and CEO
of NMPF, said U.S. dairy produc-
ers are sick and tired of Canada’s
game-playing on dairy market access.
“All that American dairy farmers
want is fair and good-faith implemen-
tation of USMCA’s dairy provisions,”
he said in a press release on Thursday.
“We urge the administration to
demand that Canada go back to the
drawing board until it can genu-
inely deliver on providing the U.S.
dairy industry the full benefit of
USMCA,” he said.
DAIRY
MARKETS
Lee
Mielke
Class IV
price a
record
high $24
By LEE MIELKE
For the Capital Press
V
olatility is the word
of the day, the week
and the hour as
the Russian war against
Ukraine rages on, raising
havoc in every market, not
to speak of the devastation
of innocent human life.
Meanwhile, the Agricul-
ture Department announced
the February Federal order
Class III milk price at
$20.91 per hundredweight,
up 53 cents from January,
$5.16 above February 2021,
and the highest Class III
price since November 2020.
Monday’s Class III
futures settlements portend
a March price at $22.61;
April, $23.97; and a peak of
$24.10 in May, 50 cents shy
of the all-time record set in
September 2014.
The February Class
IV price is a record high
$24.00 per cwt., up 91 cents
from January, $10.25 above
a year ago, and topped the
existing record of $23.89 in
August 2014.
You’ll recall prelimi-
nary USDA data reported
January milk production at
19.1 billion pounds, down
1.6% from January 2020.
The January Dairy Products
report shows which prod-
ucts got shorted.
Cheese output shot
higher, totaling 1.168 bil-
lion pounds, up 1.8% from
December and 2.8% above
January 2021.
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