In this column, Progressive Dairy summarizes issues in the news and attempts to describe how they might affect dairy farmers. Look for more extensive background, details and updates at Progressive Dairy.
Items in this column are compiled from Progressive Dairy staff news sources. Send news items to Dave Natzke.
SEPTEMBER CLASS I MILK
What happened?
September’s Federal Milk Marketing Order (FMMO) advanced Class I base price will hit a six-month low, while likely escalating producer irritation over the 2019 “Class I mover” formula change.
What’s ahead?
At $23.62 per hundredweight (cwt), the September 2022 Class I base is down $1.51 from August but still $7.03 above September 2021. The 2022 nine-month average is $23.84 per cwt, up $7.43 from the January-September 2021 average of $16.41 cwt and continues to be the highest average for that period on record.
Class I zone differentials are added to the base price at principle pricing points to determine the actual Class I price in each FMMO. With those additions, September 2022 Class I prices will average approximately $26.44 per cwt across all FMMOs, ranging from a high of $29.02 per cwt in the Florida FMMO 6 to a low of $25.42 per cwt in the Upper Midwest FMMO 30.
Bottom line
Turning attention to the Class I mover, the spread in the monthly advanced Class III skim milk pricing factor ($8.84 per cwt) and advanced Class IV skim milk pricing factor ($13.82 per cwt) is $4.98 per cwt, the widest since July 2020.
Based on Progressive Dairy calculations, the Class I mover calculated under the “higher of” formula would have resulted in a Class I base price of $25.31 per cwt, $1.69 more than the actual price determined using the “average of plus 74 cents” formula.
The economic impact on uniform milk prices within individual FMMOs depends on Class I milk utilization in each FMMO.
INTEREST RATES
What happened?
The Federal Reserve raised its benchmark short-term interest rates in late July. Based on quarterly reports and newsletters, average interest charges on variable-rate operating loans across Chicago, Dallas, Kansas City and Minneapolis Federal Reserve districts averaged 5.52% as of July 1, up from 4.88% during the previous quarter.
What’s ahead?
The Federal Reserve meets eight times per year (and more often if needed). The next meeting is scheduled for Sept. 20-21. Business analysts suggest another hike in interest rates is forthcoming.
Bottom line
Despite the recent increase, interest rates on farm loans remain low and below the five-year average preceding the COVID-19 pandemic. Here’s a summary of individual districts:
- In the Chicago district, nominal interest on variable loans surged to their highest level since the second half of 2019. The district’s average nominal interest rates on new operating, intermediate and farm real estate loans stood at 5.42%, 5.53% and 5.17%, respectively.
- In the Dallas district, interest rates on variable and fixed loans were the highest since the second quarter of 2020. Interest rates on variable operating, intermediate and real estate loans averaged 5.67%, 5.53% and 5.30%, respectively; rates on fixed loans averaged 6%, 5.81% and 5.45%, respectively.
- In the Kansas City district, average rates increased by about 60 to 70 basis points from the previous quarter. In most cases, interest rates were the highest since fourth quarter of 2019 and the first quarter of 2020. Interest rates on variable operating, intermediate and real estate loans averaged 5.55%, 5.47% and 5.18%, respectively; rates on fixed loans averaged 5.75%, 5.75% and 5.5%, respectively.
- In the Minneapolis district, interest rates were another spiking input cost for farmers, increasing substantially in the second quarter after a moderate increase in the previous quarter. Interest rates on variable operating, machinery and real estate loans averaged 5.45%, 5.3% and 5.1%, respectively; rates on fixed loans averaged 5.5%, 5.5% and 5.4%, respectively.
LIVESTOCK INDEMNITY PROGRAM
What happened?
The USDA’s Farm Service Agency (FSA) increased Livestock Indemnity Program (LIP) payments for young dairy and beef cattle, retroactive to the beginning of the year.
What’s ahead?
The updated LIP payment rates are effective immediately and will be applied retroactively starting Jan. 1, 2022, for all eligible causes of loss including excessive heat, tornado, winter storms and other qualifying natural disasters. Producers who have already received LIP payments for 2022 will receive an additional payment, if applicable, commensurate with these updated rates.
Owners or contract growers may apply to receive LIP benefits through local FSA offices.
Bottom line
The higher payments are for non-adult animals in the beef, beefalo, buffalo/bison and dairy categories. Payments for dairy cattle under 250 pounds increased from $45.32 to $255.47 per head; payments for beef cattle under 250 pounds increased from $175.27 to $474.38 per head.
Authorized in the 2018 Farm Bill, the LIP provides benefits to eligible livestock owners or contract growers for livestock deaths in excess of normal mortality caused by eligible loss conditions, including eligible adverse weather, eligible disease and attacks by animals reintroduced into the wild by the federal government or protected by federal law, including wolves and avian predators. In addition, LIP provides assistance to eligible livestock owners who must sell livestock at a reduced price because of an injury from an eligible loss condition. LIP payments are equivalent to 75% of the market value of the applicable livestock.
FEDERAL MILK MARKETING ORDERS
What happened?
Whether it’s the House Ag Committee, task force members of the NMPF and its member cooperatives or leaders of other dairy organizations, discussions regarding FMMO “reforms” continue. Visit www.progressivedairy.com for regular updates.
What’s ahead?
The next large forum will be hosted by the American Farm Bureau Federation (AFBF), Oct. 14-16, in Kansas City, Missouri. It will consist of four half-day segments, featuring expert panels and roundtable discussions covering: Class I pricing issues, origins and purposes of FMMOs, Class III-IV milk pricing issues and simplifying FMMOs. Discussion topics will include the Class I mover, make allowances, price reporting, milk check standardization and more.
The forum is open to all dairy industry participants. Registration for the 2022 AFBF FMMO Forum is open until Sept. 22. Visit the Forum website (Federal Milk Marketing Order Forum)
Bottom line
The NMPF task force panels plan to forward a final package of recommendations to the NMPF economic policy committee and board of directors this fall. If adopted by the board, NMPF would petition the USDA for a national FMMO hearing on the package in late 2022 or early 2023.
Separate from an FMMO hearing, House and Senate agricultural committees have also been holding hearings and listening sessions regarding dairy provisions of the 2023 Farm Bill.
