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Weekly Digest: It’s hot, so watch for Class IV to skip the pool

Dave Natzke

July 1, 2022

Federal Milk Marketing Order (FMMO) Class III and Class IV milk prices flipflopped in June, likely opening the door for Class IV depooling.

  • At $24.33 per hundredweight (cwt), the June 2022 Class III milk price dropped 88 cents from May’s record high of $25.12 per cwt but remained $7.12 more than June 2021.

  • At $25.83 per cwt, the June 2022 Class IV milk price increased 84 cents from May and was $9.48 more than June 2021.

With diverging prices, the June Class III-IV price spread rose to $1.50 per cwt, adding substantial incentives for Class IV depooling. FMMO administrators are scheduled to announce June uniform prices, producer price differentials and pooling volumes by July 14.

Based on current Chicago Mercantile Exchange (CME) milk futures prices as of June 30, the Class III-IV milk price gap will grow even larger in July, to more than $3.15 per cwt, and remain at $2.41 in August and $1.90 in September, extending Class IV depooling incentives through the end of the year.

Contributing to the higher Class IV milk price, the value of butterfat jumped to about $3.33 per pound in June, up almost 23 cents from May and likely the highest on record. It’s the fifth straight month the butterfat value topped $3 per pound. Prior to 2022, the value of butterfat surpassed $3 per pound only three times in the past nine years, reaching $3.25 per pound in September 2014, $3.18 per pound in November 2015 and $3.01 per pound in August 2017.

The value of milk protein dipped more than 45 cents from May, to about $3.42 per pound. Despite the decline, the protein price is no slouch; the June value was above $3.40 per pound for a third straight month.

The value of nonfat solids rose 0.6 cent, to $1.63 per pound. The value of other solids decreased about 0.6 cent, to 43 cents per pound.

When individual FMMO uniform prices are announced in July, the prices will be supported by the previously announced Class I base price of $25.87 per cwt, up 42 cents from May 2022 and $7.58 more than June 2021. Adding zone differentials for each order's principle pricing point, June 2022 Class I prices averaged $28.69 per cwt, ranging from a high of $31.27 per cwt in the Florida FMMO No. 6 to a low of $27.67 per cwt in the Upper Midwest FMMO No. 30.

Based on Progressive Dairy estimates, the June Class I mover calculated under the “average of plus 74 cents” formula was 60 cents per cwt more than the average calculated using the “higher of” formula. That will change in July and for the foreseeable future, with averaging cutting into Class I prices.

At $26.65 per cwt, the June Class II milk price was up 78 cents from May and $9.99 more than June 2021.

Through the first six months of 2022, the Class III milk price averaged $22.95 per cwt, 27 cents more than the January-June average in 2014. The January-June 2022 Class IV average stands at $24.67 per cwt, $1.59 more than six-month average of $23.09 per cwt in 2014.

USDA raises corn, hay acreage estimates from March forecast

The USDA’s Acreage and Grain Stocks reports, both released June 30, provide an update on major dairy feedstuffs.

• Corn planted area for all purposes in 2022 was estimated at 89.9 million acres, down 4% or 3.44 million acres from last year but up 430,000 acres from the USDA’s Prospective Planting report, released March 31. The forecasted area harvested for grain, at 81.9 million acres, is down 4% from last year.

• Soybean planted area for 2022 is estimated at 88.3 million acres, up 1% from last year but about 2.6 million acres less than the Prospective Planting report estimate. Area for harvest, forecast at 87.5 million acres, is up 1% from 2021. If realized, this will be the third highest planted and harvested soybean acreage on record. Farmers responding to the June survey indicated that 15.8 million acres of the estimated soybean acreage remained to be planted at the time of the interview.

• Hay producers intend to harvest 51.5 million acres of all hay in 2022, up 2% from 2021 and nearly 1.2 million acres more than indicated in the Prospective Planting report. Compared to the March report, the USDA raised estimated all hay area by 500,000 acres in South Dakota, 320,000 acres in Oklahoma, 230,000 acres in New York and 215,000 acres in Pennsylvania. In contrast, the USDA reduced all hay area by a combined 970,000 acres in Colorado, Iowa, Nebraska and Missouri.

Looking specifically at alfalfa hay, the USDA estimated 2022 harvested acreage is expected to be 15.5 million acres, up 1% (219,000 acres) from 2021, led by a 300,000 acre increase in South Dakota and increases of 100,000 acres or more in North Dakota, Montana and Wyoming. Biggest declines are 290,000 acres in Iowa and 100,000 acres in Nebraska.

All other hay (excluding alfalfa) is expected to be up 2% (552,000 acres) from last year, at 36 million acres. Compared to a year ago, area of other hay is expected to be up 300,000 acres in South Dakota and up 100,000 acres or more in New York, Wisconsin, North Dakota, Minnesota, Montana, Oregon, Pennsylvania and Virginia. Texas acreage is expected to be down 650,000 acres from a year ago.

• Affecting potential cottonseed harvest, 2022 planted area for cotton is estimated at 12.5 million acres, up 11% from last year.

Due to planting delays, the USDA announced it will collect additional crop acreage information during July in Minnesota, South Dakota and North Dakota. Those estimates will be provided in the Crop Production report, to be released Aug. 12.

The USDA grains stocks estimates were based on surveys conducted in the first two weeks of June.

Corn stocks in all positions on June 1 totaled 4.35 billion bushels, up 6% from a year earlier. Of the total stocks, 2.12 billion bushels are stored on farms, up 22% from a year earlier. Off-farm stocks, at 2.23 billion bushels, are down 6% from a year ago.

Soybeans stored in all positions totaled 971 million bushels, up 26% from a year earlier. On-farm stocks totaled 331 million bushels, up 51% from a year ago. Off-farm stocks, at 640 million bushels, are up 17% from a year ago.

Read also: June acreage report puts corn back on top, from the American Farm Bureau Federation’s Shelby Myers.

Kroger adding aseptic milk line capacity in Ohio

The Kroger Co. announced a 35,000-square-foot expansion at Tamarack Farms Dairy to support the implementation of an aseptic milk line capable of manufacturing products such as half-and-half, heavy whipping cream, coffee creamers and the company’s ultrafiltered nonfat milk beverage, Carbmaster.

Tamarack Farms Dairy is a 20-acre fluid dairy product processing site in Newark, Ohio. The facility serves approximately 160 stores in Ohio and West Virginia and provides products for Kroger's e-commerce channel. Construction on the $70 million investment is expected to begin in March 2023.

Initial beverage plant capacity is expected to be about 90 million pounds of product annually, although not all of that will be dairy.

House Ag Committee farm bill listening session moving to California

The U.S. House Agriculture Committee will continue a series of listening sessions as it prepares for the 2023 Farm Bill, moving to California after the July 4 holiday.

The session will be held July 7, 11 a.m. (Pacific time zone) at California State University in Fresno, California. It will be hosted and chaired by House Agriculture Livestock and Foreign Agriculture subcommittee chair Jim Costa (D-California). The session will be streamed live online via YouTube here.

The first listening session in the series was held June 25, at Central Arizona College in Coolidge, Arizona. Among those testifying was James Boyle, owner of Casa Grande Dairy, a 3,500-cow Arizona dairy. Boyle said current government programs, including the Dairy Margin Coverage (DMC) program and Pandemic Market Volatility Assistance Program (PMVAP), contain annual milk production caps limiting federal financial coverage to about 220 cows. Due to the change in the Class I pricing formula, Arizona’s 50 dairy producers lost $21 million but received just $2 million in PMVAP assistance due to the cap, he said.

Boyle asked House Ag Committee members to consider raising USDA program caps for fiscal year 2023 and the 2023 Farm Bill. Boyle’s presentation can be seen via YouTube recording (beginning at about 1:20).

A hearing to review dairy provisions of the farm bill was held June 22. Find resources here. Read: DMC, FMMO reform highlight House Ag Committee dairy hearing

USDA Dairy Donation Program celebrated June Dairy Month

Since its establishment in 1937, June Dairy Month has been an opportunity to showcase many aspects of dairy: delicious products, nutrition and its important role in our diet. The contributions of the dairy industry are abundant, from the farmers who care responsibly for their land and their animals to the economic development and livelihoods in communities worldwide. The dairy industry works hard to feed the world and ensure nutritious dairy products are accessible to all.

To increase access to dairy products and reduce food waste, the USDA announced the $400 million Dairy Donation Program (DDP) in August 2021. Through the DDP, eligible dairy organizations partner with non-profit feeding organizations – such as food banks, missions and churches – that distribute food to individuals and families in need; these partnerships may apply for and receive reimbursements to cover some expenses related to eligible dairy product donations.

Dairy farmers, cooperatives and processors that purchase fresh milk or bulk dairy products to process into retail-packaged dairy products and meet other requirements are eligible to participate. Costs reimbursed through the program include the cost of milk used to make the donated eligible dairy product and some of the manufacturing and transportation costs. Reimbursement of these costs is designed to help offset some of the costs associated with processing and donating eligible dairy products.

Program details are available here or email the DDP team with any questions or to learn how to apply.

Dairy, hunger organizations meet to address food insecurity

Dairy industry leaders joined hunger relief organizations from across the Midwest to exchange ideas and discuss business models that will help get more dairy into the hands of people experiencing food insecurity.

The first Dairy Nourishes America Midwest Symposium was organized by Feeding America, Dairy Farmers of America (DFA) and the Innovation Center for U.S. Dairy. DFA hosted the meeting held June 22-24.

Members of 32 Feeding America network food banks from 15 states joined representatives of dairy processors, refrigeration companies, the National Milk Producers Federation, the USDA and others to address solutions to provide more dairy to people in need. Feeding America reports – on average – a person seeking assistance from food banks receives less than a gallon of milk a year, yet it remains among the most requested items among the 38 million Americans facing hunger.

Barb O’Brien, CEO and president of Dairy Management Inc. and the Innovation Center for U.S. Dairy, pointed to the steady growth of dairy products moving through Feeding America, a checkoff partner, over the years. Industry efforts, including from local and national checkoff teams, cooperatives, processors and the USDA, helped grow the amount of dairy distributed from 446 million pounds in 2019 to 664 million pounds in 2021, according to Feeding America data.

O’Brien said the Innovation Center’s food security taskforce, led by DFA executive Jackie Klippenstein and retired Kroger executive Erin Sharp, is working to rally the industry to distribute 1 billion pounds of dairy annually by 2025.

“It’s ambitious but achievable,” O’Brien said. “If we work together, we can address those gaps and opportunities like transportation, cold storage and other infrastructure challenges that we know exist.

“No child or individual within one of the most food-secure nations in the world should go hungry or lack access to the affordable, unmatched nutrition that dairy provides.”

Jerod Matthews, who serves as Feeding America’s senior director of dairy product resourcing, said increasing access to more dairy requires a new business model that doesn’t simply count on donations.

“Feeding America is looking for innovative ways to access food donations from across the supply chain,” Matthews said. “As companies increase efficiencies, less product remains available for donation. We need strong public/private partnerships in order to continue providing food assistance to the tens of millions of people turning to the charitable food sector for help.”

Secretary of Agriculture Tom Vilsack referenced USDA programs that have addressed hunger and made dairy available. He pointed to more than $39 million in grants through the agency’s Emergency Food Assistance Program to support low-income and underserved communities, including expanding warehouse and refrigeration capacity in food banks. Vilsack also spoke of the $400 million DDP where dairy organizations partner with food banks to facilitate donations and reduce food waste.

Klippenstein described a “culture of community” at DFA and said the co-op’s Farmers Feeding Families Fund has raised almost $950,000 from its farmer members, staff and allied partners to provide dairy for those in need. She presented food bank operators with a scenario of how more progress can be made collaboratively.

“Food banks have relied heavily on donated dairy products for their clients. Generally, dairy donations are provided inconsistently – often when there is excess product or when bringing attention to an event like World Milk Day or September Hunger Action Month,” she said. “The pandemic taught us how high in demand dairy is at food banks and how it can play a critical role in addressing food insecurity. By leveraging state and federal programs with industry donations and food bank purchases, the dairy industry can create meaningful, long-term relationships with food banks using sustainable business models to ensure milk is more consistently available to those who need it most.”

The meeting also featured Chris Cifelli, senior vice president of nutrition research for the National Dairy Council (NDC). Cifelli emphasized how dairy can help people meet their nutritional needs, saying an NDC-led study used a computerized analysis of the nutrition data of foods and examined what would happen if dairy was eliminated from the diet.

“We ran numerous simulations, and it turned out that dairy is extremely difficult to replace,” Cifelli said. “Yes, you can try to replace milk, but there are tradeoffs. You’re going to have to eat more food and consume more calories and you’re going to have to pay more, and that’s something consumers may not want to consider.”



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