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 online.
Items in this column are compiled from Progressive Dairy staff news sources. Send news items to Progressive Dairy Editor Dave Natzke.
NMPF advances on FMMO proposal
What happened?
National Milk Producers Federation (NMPF) leadership unanimously endorsed a proposal to modernize the Federal Milk Marketing Order (FMMO) milk pricing system at its annual meeting in late October. NMPF’s proposal includes:
- Returns to the “higher of” Class I mover
- Discontinues including barrel cheese in the protein component price formula
- Extends the current 30-day reporting limit to 45 days on forward priced sales on nonfat dry milk and dry whey to capture more exports sales in the USDA product price reporting
- Updates milk component factors for protein, other solids and nonfat solids in the Class III and Class IV skim milk price formulas
- Develops a process to ensure make allowances are reviewed more frequently through legislation directing the USDA to conduct mandatory plant-cost studies every two years
- Updates dairy product manufacturing allowances contained in the USDA milk price formulas
What’s ahead?
NMPF continues work on the Class I milk price surface as it examines information on county-level Class I price differentials. That work is expected to be completed later this year.
Bottom line
NMPF will not petition the USDA for a FMMO hearing until a Class I price surface study is completed and the organization can review the final proposal.
Once the USDA receives a petition for a hearing, it will be a long process before farmers see any changes to the system. It could take two years or more before a producer referendum occurs and the results are announced.
SNAP dairy incentives
What happened?
The USDA announced a significant expansion of the Healthy Fluid Milk Incentives Projects (HFMIP), a pilot program that helps participants in the Supplemental Nutrition Assistance Program (SNAP) purchase healthy fluid milk options at qualifying food retail outlets.
What’s ahead?
The USDA awarded $3 million in new funding to Auburn University’s Hunger Solutions Institute (HSI) to bring the program to SNAP beneficiaries through six retailers and 116 retail outlets in Alabama, California, Georgia and South Dakota. All participating retailers currently serve SNAP households, some with more than 80% of their customers representing SNAP households.
Incentives range from an immediate percentage-off discount to a dollar-for-dollar match for a future milk purchase.
Bottom line
The HFMI program, created in the 2018 Farm Bill, uses incentives to encourage SNAP participants to buy and consume milk. According to the USDA’s Food and Nutrition Service (FNS), fluid milk qualifying for the incentive program includes all varieties of pasteurized cow’s milk that is without flavoring or sweeteners, is consistent with the most recent dietary recommendations, is packaged in liquid form and contains vitamins A and D at levels consistent with the FDA, state and local standards for fluid milk.
After a pilot run in Texas in 2020, the FNS expanded the HFMI program in 2021 to additional retailers in Texas and New Jersey. The Baylor Collaborative on Hunger and Poverty will continue to administer HFMI pilot programs in 42 stores in those two states.
‘Mailbox’ prices
What happened?
July 2022 “mailbox” prices averaged about 90 cents per hundredweight (cwt) less than announced average “all-milk” prices for the same month, based on a preliminary look at two USDA milk price announcements.
- During July, U.S. all-milk prices averaged $25.70 per cwt, down $1.40 from June 2022.
- The July 2022 mailbox prices for selected Federal Milk Marketing Orders (FMMOs) averaged $24.80 per cwt, down $1.13 per cwt from June.
The July spread between individual states or regions varied widely, with a difference of -$3.27 per cwt in Florida to a +17 cents per cwt in Illinois.
The USDA also revised its June mailbox price report, raising prices received by producers in New York, Pennsylvania and Vermont. As a result, the spread between the average all-milk price and mailbox price for June was 97 cents, down from $1.03 per cwt previously calculated by Progressive Dairy.
Through the first seven months of 2022, the mailbox price averaged about 94 cents less than the announced mailbox price.
What’s next?
As noted previously, impacts of higher processing costs could drive the spread between all-milk and mailbox prices wider this fall, as processors implement “market adjustment” milk check deductions.
Bottom line
All-milk prices are reported monthly by the USDA National Ag Statistics Service (NASS) and represent the estimated gross milk price received by dairy producers for all grades and qualities of milk sold to first buyers, before marketing costs and other deductions. Mailbox prices are reported monthly by the USDA’s Agricultural Marketing Service (AMS) and generally lag all-milk price announcements by a month or more. The mailbox price is the estimated net price received by producers for milk, including all payments received for milk sold and deducting costs associated with marketing.
The price announcements reflect similar – but not exactly the same – geographic areas.
Also, the difference in the two announced prices can affect dairy risk management, since indemnity payments under the Dairy Margin Coverage (DMC) are based on the all-milk price, while Dairy Revenue Protection (Dairy-RP) and Livestock Gross Margin for Dairy (LGM-Dairy) programs are based on FMMO class and component prices.
Diesel fuel prices
What happened?
According to the U.S. Energy Information Administration (EIA), on Oct. 31, the average U.S. on-highway price of diesel was $5.32 per gallon. This is 49 cents per gallon below peak on June 20 but $1.59 above October 2021.
Both supply and demand issues are driving prices. U.S. distillate imports are down and exports are up. U.S. refining capacity has declined in the last two years, and several plants that closed at the onset of the coronavirus pandemic are being converted to produce cleaner-burning renewable diesel, but those facilities are not yet online. Stocks of diesel fuel are currently down 17% relative to a year ago.
What’s ahead?
The diesel market is tight and will likely remain so throughout the end of 2022, notes Veronica Nigh, senior economist with the American Farm Bureau Federation. The underlying increase in demand shows no sign of letting up, while it’s anyone’s guess when Russia’s actions in Ukraine will come to an end.
The EIA projects national diesel prices to average $4.86 per gallon in fourth-quarter 2022 and $4.29 per gallon in 2023.
“We’re going to have to hurry to see prices reach these levels,” Nigh said in a recent AFBF Market Intel report.
Bottom line
Demand for diesel rises in the fall and winter with increased demand from trucking, farming and heating. The increased demand in trucking is the result of increased product placement in advance of holiday shopping. Increased demand from agriculture is prompted by harvest as farmers’ demand increases dramatically. Additionally, this year, drought conditions throughout much of the country have led to low water levels on major waterways, such as the Mississippi River, diminishing the capacity of the waterway system, forcing more product into trucks for longer distances and increasing demand for diesel ever further.
