Are you ready for production quotas and parity prices in ag?

Stu Ellis | Updated: December 26, 2012

Most of agriculture, and particularly dairy and livestock producers, consider the Congress to be the Christmas "Grinch" for its failure to approve a successor to the expired 2008 Farm Bill. It ceased to exist on Oct. 1, and three months later the Congress may be no closer than Feb. 27 in addressing itself to a renewal of farm policy.

While cash and futures markets are continuing to operate without problems, while wheat remains dormant, and while USDA employees continue to report for work, what could be the problem, if there is any problem? If the U.S. farmer and consumer can survive three months without a Farm Bill, why can't they survive three more months, or three more years? There are reasons.

The lack of a 2012 Farm Bill, which soon will be re-labeled a 2013 Farm Bill, may not have an impact at the grocery store today, or in the feedlot today, or in the machine shed today, but overtime a finely tuned food machine will begin to show wear and tear without the daily maintenance that is necessary.

Where we are now When Congress recessed for the election, the Senate had passed its Farm Bill proposal that cut $23 billion from the 10-year baseline for agricultural appropriations. The proposal included a stronger crop insurance program and nearly full funding of USDA's nutrition programs. In the House, only the Agriculture Committee has approved a proposal, which cuts $35 billion from the 10-year baseline spending, half of that in nutrition programs.

House leadership has not called the bill for a vote, contending there are insufficient votes to pass anything. Since the election recess and the lame-duck session, there has been no overt effort to approve farm legislation and the Chairman and ranking Democratic member of the House Agriculture Committee both say they cannot see the opportunity to address the issue before the end of February.

What is the impact of the delay? Any government support programs, such as direct payments, marketing loans, ACRE are in effect for a commodity until the end of the current marketing year. For example, that will be June 30, 2013 for wheat and August 31 for corn and soybeans. However, the dairy support program ended September 30, 2012 without any replacement. Under 1949 Permanent Law, parity prices become effective January 1, 2013 for any commodity for which the Permanent Law has not been suspended. (Typically, each new Farm Bill suspends the 1949 legislation, but that has not happened.) Subsequently, at the expiration of the current marketing year for a commodity, familiar commodities will have some unfamiliar prices that the USDA says producers shall be paid. USDA economists calculated those prices at the end of November to be: Corn $12.00 per bushel
Soybeans $28.90 per bushel
Wheat $18.30 per bushel
Beef cattle $292.00 per cwt.
Hogs $160.00 per cwt.
Milk $52.10 per cwt.

(Note: Dairy prices are to be set at 75 percent to 90 percent of parity, so a $52 parity price would be adjusted to $39 to $47.)

Parity prices for a multitude of other commodities are calculated monthly by USDA statisticians in the National Agricultural Statistics Service. The November 2012 report of commodity prices contains parity prices on pages 30 and 31.

Parity prices are part of an economic base for agriculture using the relationship between market prices and the cost of production between the years of 1910-1914. While this formula worked 100 years ago, there are few, if any, who believe it would work today. Nevertheless, that is where we are.

What does that mean for 2013? That is very interesting to contemplate. If we don't amend the permanent legislation, the 2013 crop will be covered by an ancient non-recourse loan program. A floor would be put under prices at between 50 and 90 percent of parity. Parity is based on a 1910-14 purchasing power index. That means we have a 100-year-old policy. "Parity prices for 2013 include wheat at $18, corn at $12, beans at $27, cotton at $2 a pound, milk at $52 a hundredweight. Secretary of Agriculture Tom Vilsack will be required to hold producer referenda by April on marketing quotas and production controls on wheat and cotton. "Who loves this? Our competitors. Our Canadian friends think it's great because we'll put a floor price down and they'll beat us on prices and our grain will be in government storage. I don't think agriculture has awoken to this. I don't think they know how inept this is."

One of more immediate issues is the impact of the lack of farm policy on the U.S. dairy program. Beginning January 1, 2013, the lack of a dairy program will force the USDA to begin implementing the 1949 Permanent Law for dairy producers. In brief, that will require the USDA to purchase milk, store it as cheese and powdered milk, and remove enough of it from the market to cause prices to rise from the current $18 per cwt to the adjusted parity price of $39 to $47 per cwt. Such a shortage of milk is expected to push consumer prices to $6 a gallon or more.

One of the more outspoken critics of the lack of farm policy inaction is U.S. Senator Patrick Leahy (D-Vt.) who addressed the Senate on Dec. 21. He said, "The Secretary of Agriculture and his staff have been -- quite literally -- dusting off old paper files and mimeographed notes from the 1940s and 50s to review the Agricultural Act of 1949….This archaic law will force the Federal Government to spend billions of dollars to buy and store dairy products to help raise the price of fluid milk for dairy farmers. The Secretary will have to keep spending until he is able to raise the price of fluid milk by 60 or 70 percent…..Never before has the Farm Bill expired like this. And now on January 1 we will implement market-distorting dairy policy so old that 49 current members of the Senate -- including the Chairwoman of the Senate Agriculture Committee -- were not even born when it was signed into law by then-President Harry Truman."

Summary: The Sept. 30 expiration of the 2008 Farm Bill without a replacement was not a crisis on Oct. 1. However, three months later, it is beginning to look like that. On Jan. 1, the U.S. dairy industry will see prices determined by parity, which is based on a 1949 law that uses economic formulas developed 100 years ago and will push milk prices to the $6-8 per gallon range. As commodity marketing years expire, the 1949 Permanent Law will take effect and raise prices as the government is forced to impose production quotas to keep enough of the commodity off the market that will allow prices to rise to established levels that are two to four times current market prices.

Source: FarmgateBlog.com

Just the Facts

There was an old T.V. show that I am sure most of you are not old enough to remember that was called Dragnet.

It was a detective show and one of the detectives had a saying"the facts, Mame, just the facts".

Dairy producers and all those who consume dairy products need to know a few facts:

1. U.S. dairy producer numbers have been reduced to a level that represents only 9% of all the producers that were in business just 40 years ago.

2. U.S. dairy producer numbers continue to decline at an ever increasing rate.

3. The dairy producer farm needs to get paid at least what it costs to make the milk if it is going to have a potential to be profitable and sustainable.

4. If the milk supply (both domestic and imported) exceeds profitable demand milk will not have value equal to what it costs to make.

5. Since the supply of milk (domestic and imported) has been exceeding profitable demand for some time now, the price dairy producers have been receiving for their milk (which is based on the dump market price for cheese on the CME) has been well below the cost of production.

6. If the dairy producer farm is not potentially profitable it does not have the potential for financing and will not survive.

7. In order for the dairy producer farm to be potentially profitable its feed costs should run about 50%of its total cost of producing milk, ie, one half of its income should be available to pay for non-feed costs such as cows, facilities, equipment, land, repairs, cow care, payroll etc.

8. The people who claim to represent the dairy producer farmer and their best interests and spend their check-off money have proposed a solution to the dairy producers financial problem. It is call the Dairy Security Act.

9. The Dairy Security Act provides that the price the dairy producer is to receive for milk is to be equal to the dairy producers feed costs ie, one-half of the dairy producers total cost of production, plus receive $4.00 per hundredweight (cwt) paid for by the general taxpayer for the first 4 million pounds of milk produced.

So if the dairy producers feed costs are $10/cwt, this being one-half of his total cost of producing that milk (and recognizing his total cost of producing that milk is $20/cwt), the dairy producer farmer will be losing $6/cwt for the first 4 million pounds of milk produced and losing $10/cwt for all milk produced thereafter.

The Dairy Security Act also provides that the dairy producer should have the right to buy additional income insurance for additional income up to $8/cwt but at an unknown cost but estimated not less than $1/cwt.

So the maximum possible benefit of the Dairy Security Act provides a $3/cwt LOSS for the dairy producer.

10. No financial institution sees a potential for profit for the dairy producer under the above noted facts. Therefore, nor do they see a future for the dairy producer under the Dairy Security Act.

11. Without our remaining dairy producers our existing national milk producing infrastructure and our ability to provide our citizens with fresh and safe domestic milk products will disappear.

12. The U.S. dairy industry can be a competitive, global dairy product provider WITHOUT the continued destruction of the U.S. dairy producer by implementing the goals and policies of the National Dairy Producers Organization, Inc.

Bob Krucker, NDPO Board of Director from Jerome, ID

Negative Production Numbers Can Have a Very Positive Impact on Producer Profitability

Here is to a winning streak of 1 % Below Demand for 480 months in a row, just like August 2012.

September 19, 2012. A day that may well go down in history as the turning point for dairy producers in America. A turning point that could actually signal a much needed change in production philosophy and forever change the financial fortunes of thousands of dairymen and their thousands of vendors across the country who today are amongst the walking financial dead.

Why you ask? How can one day make a difference. What is so big about a single day in September. Now we want you to know that we know full well we could be premature in our assumptions that dairy producers have gotten the message. That dairy producers have grown weary of playing the production game in favor of and to the financial benefit of everyone but themselves.

We are very hopeful that dairy producers have figured it out and that they will no longer play by the rules that have led to the demise of more than 600,000 dairy producers in the past 40 years and to removal of more than 25,000 producers, literally one third of all producers since September 19, 2001, just 11 years ago.

The reason we celebrate this particular moment in time is because every winning streak begins with the first win. Every record begins with the first major accomplishment. On September 19, 2012 whether by default or luck or by divine intervention on behalf of what are truly the greatest men and women in America today; the national production of milk did not exceed the production for the same month a year earlier and in fact the production levels actually dropped.

The celebration continues because for the first time in 32 months an event occurred that will actually help the price of milk paid to dairy producers and it didn’t have to come from a government bailout, from the beleaguered taxpayers in America or from some back room, smoked filled deal that some politician is going to take the national stage and take credit for.

It, “the increase in price paid to dairy producers” is in direct correlation to the current production of milk on the farm and the profitable demand for their product in the market place. Can you imagine that. The increase came from the market place. The increase came from a supply management plan that has been forced on producers, but may well serve as a starting point to what matters most. A greater belief in the producer base brought on by reality that, More money is better than more milk. We have been waiting for this for nearly three years, and finally it has happened.

What is also critical to note is that the increases in prices are from the production reduction that has occurred on the dairy farms of this country due to the high cost of operation or the loss of what is likely 10 percent of the producer base in this country. It is significant to note that it has not been an increase in demand that has led to the higher prices paid to producers. While demand has remained strong, it has not increased. In fact in some areas we are getting very strong competition from imports, and in our export markets from very competitive players like Australia and especially New Zealand.

Granted it wasn’t as if someone actually planned it. That would be way too much to hope for. But the all important impact, planned or by accident we can only hope will also have a much needed impact on producers and the long term solutions that are needed to send milk prices paid to dairy producers to a level that is not only profitable for any given month or quarter, but will become sustainable over a very long period of time.

You see, length of time is critical. Dairy Producers have been laboring with what are now double digit losses per hundred weight of milk and the cumulative affects are and will continue to take their toll. It is not an exaggeration when we speculate that more than 75 percent of all dairies in this country are in financial peril. 20 to 30 percent of them are within a bank approval of closing their doors. Another 20 per cent of them will not get that needed bank approval no matter what and are in various stages of preparing or going through a shut down, bankruptcy or liquidation.

So what will dairy producers learn from this much needed swing in price. What will they do with this latest gasp of breath that has been granted. Will they finally get the message. More money is better than more milk or will they once again chase price with production and resume the death march to the bottom all over again.

Things are in such peril for most producers, it is our hope they are listening more than ever when we say to them; we have a plan! We have workable solutions that will forever allow producers to be true partners in the dairy industry and afford them the opportunity to not only stay in as long as they want, but to pass a meaningful and profitable trade/business opportunity on to their children.

I know for a fact that nothing will make most producers happier than to just be able to focus their attention on farming and milking cows, family and farm. But I also know that if that is going to ever be true again for the US Dairy Producer, then they will need to establish a new management team and implement a new management plan that will focus all necessary attention on the business of milk production on the farm and how that milk is handled and marketed once it leaves the farm. Nothing else will get it done.

The board and members of the National Dairy Producers Organization, Inc. have developed such a plan. A plan that will establish a management team and a marketing team armed with a master plan that if followed will provide that needed profitability, sustainability, personal freedom and dare I say peace of mind that I know dairy producers want most today.

It is in the hands of the producers. We whole heartedly celebrate the unplanned start of what is a very important trend, streak or business plan. Whatever the reason, it is just what producers need most. A market driven method of achieving and maintaining profitability. Anyone, and I mean anyone who will tell you different, producer, processor, co-op, co-op organizations, manufacturers or organizations that support manufacturers or even your elected officials at any level of government is lying to you and you should send them packing for the deceptive practices they would want you to return to.

More money is always better than more milk and anyone who says otherwise is both a liar and a fool. There will be a time when we may ask for increases in production. Get ready, we hope to get there someday. But that someday is not today. We continue to ask every dairy producer to hold their production at 1% below 2011 and 2012 production numbers. You cannot be fooled or led or even pushed to chase these prices with more production. You cannot begin to afford the devastating cost of doing so.

"Therefore we will shout again and again from the tops of every barn in the country and every media outlet available, a message and a warning to everyone in the industry; that the 2012 farm bill, if properly structured could provide meaningful and lasting help for the remaining dairy producers in America if they will unify behind a new management team and a new management plan.
Dairy producer members and the Board Of Directors of the National Dairy Producers Organization, Inc. have written and again propose dairy reform policies contained in the "Dairy Industry Stabilization and Sustainability Act of 2012" DISSA12) which should be included in the 2012 Farm Bill before it is passed later this year by Congress.
A copy of which can be obtained from our website at www.nationaldairyproducers.org.

DISSA-12 will promote producer profitability by :
1. Replacing the CME as the milk price discovery mechanism and establishing a regional competitive pay price mechanism which is backed up with a minimum milk price based on regional cost of production; and

2. Establishing an economic structure which will continuously properly balance the domestic milk supply and imported dairy products and ingredients with profitable demand.
It will do this by:
A. Managing the supply of milk used for butter, powder and cheese; keeping these products balanced with profitable demand through inventory control and

B. Reasonably regulating imported dairy products and ingredients that are used in dairy products.
DISSA-12 will do this with no involvement from government agencies and at no cost to the government or general taxpayer.
DAIRY PRODUCERS HAVE BEEN LISTENING TO THE WRONG IDEAS AND HAVE BEEN REPRESENTED BY THE WRONG PEOPLE FOR DECADES and they will continue to disappear unless they pursue what's in their own best interest, namely disciplined cooperation in pursuit of profitable sustainability for each dairy producer by reducing excess domestic milk supply and imported dairy products and ingredients used in dairy products and properly balancing the domestic and imported milk supply with profitable demand."

Ronald K. O’Brien II
Risk Management Consultant

Fearing bullish surprises in the two dairy reports released late yesterday, Cheese and Whey traders continued to add premium to the futures. The November Cheese futures contract would more than match the 4 cent per pound advance to $1.95 for spot Blocks, closing 4.1 cents firmer to $2.0240 per pound. Whey futures in the same month added another penny yesterday to now stand at 65 cents per pound. November whey, currently at contract highs, has moved back to the where the futures market were comfortably trading 6 months ago. Class 3 milk futures were consistently bid strong throughout the session, with traders easily clearing through the $20 resistance in October, and making New highs for the November contract at $20.87 per cwt. The November contract has now advance more than $5 per cwt. or +35%, since the first week of May.

The Milk production report was a bit of a snoozer considering the hype it had to live up to. Consensus was waiting for a large decrease out of California and that part of the release did not disappoint. Production was down 5.8% is the largest milk producing state in the country. Decreases were seen across the west and southwest, with Washington state down 3.3%, AZ -3.8%, NM -2.9%. Idaho was essentially flat vs. year prior at -0.2%. Idaho has climbed the charts of milk production over the years and considering the states adaptability to all types of weather, it was no surprise that their production had come in exactly in-line with the 23 selected state decrease of 0.2%. Midwest production was and will continue to be, the x factor that will likely eliminate some of the optimism moving forward. Wisconsin, the country’s second largest milk producer and leader in Cheese production, was +4.9%. Other states in the Midwest fared well through the exceptional drought, with MI +5.4%. OH +2.8%, MN +2.7%. Fears of cheese shortages in the biggest cheese producing region of the country are most definitely premature at the moment. A selloff of some of this premium is to be expected in today’s session, yet buyers will likely remain supportive going into Friday’s release of August Cold Storage.

Bulls had also bestowed a great deal of optimism into the dry products portion of yesterday’s national dairy product sales report. Whey prices for week ending September 15th averaged 58.5 cents per pound, up only 1.1 cents vs week prior. NFDM prices, albeit higher than the CWAP, came in at $1.38 per pound. The average was up 1.9 cents vs. week prior but still 15 cents per pound under the struggling Oct NFDM futures contract. CDFA released their weekly price average earlier in the day at $1.3013 per pound, +1.39 cents vs. week prior. The CWAP, since the first week of 2010 has averaged $1.2963 per pound, exactly 2.5 cents below its federal order counterpart during the same time period. The current spread of nearly 8 cents, although wide by historical averages, still pales in comparison to the two weeks during May of 2010 where the CWAP averaged 18 cents under the NASS.

Grain prices bucked the short term trend yesterday, advancing in nearly every sector. December Corn would finish the session +16.5 cents @ $7.5650 per bushel while December wheat finished up 18 cents @ $8.8150 and Nov Beans +29.5 cents @ $16.6950 per bushel. The fund selling that stole headlines over the past few sessions was replaced today by US$ weakness from Japanese stimulus measures and end user buying. Ethanol stocks during week ending 9/14 increased by 300k barrels to 19.3 million barrels. The supply increase failed to surprise anyone, yet daily production increasing by a whopping 17,000 barrels per day vs. week prior was a head scratcher for market bears. The report proved to be a catalyst during midday Corn trade. Another strong note to be taken from yesterday’s trade was the fact the grain markets were able to rally in the face of 2 to 3.5% declines in the entire energy sector.

Good news: Milk prices projected up, corn prices down by Tom Quaife, Editor, Dairy Herd Network

A solid 25 cents. That’s what the U.S. Department of Agriculture has added to its estimate for Class III milk prices this year. In a report issued this morning, the USDA said Class III prices will average $16.75 to $16.95 per hundredweight this year ― up from its August estimate of $16.50 to $16.70.

The USDA also raised its estimate for the all-milk price. It now projects the all-milk price will average $17.80 to $18 per hundredweight this year ― again, extending each side of the range 25 cents from the $17.55 to $17.75 projected last month.

“Product prices are forecast higher for 2012 as the milk production forecast is reduced and demand is somewhat stronger. With higher product prices, both the Class III and Class IV price forecasts are raised,” the USDA said in its monthly “World Agricultural Supply and Demand Estimates” report. To see the full report, click here.

Meanwhile, the USDA has revised its corn price estimate downward. In August, the agency said corn would average $7.50 to $8.90 per bushel for the crop year beginning Sept. 1. Now, it says the corn price will average $7.20 to $8.60.

While that’s small consolation, since the corn price is still high by historical standards, it does mark the first time in many months that a combination of higher projected milk prices and lower projected corn prices has occurred.

The soybean price is unchanged from the August estimate of $15 to $17 per bushel.

Dairymen; Your Leadership Won't Hunt!

(September 10, 2012) Over the last couple of years U.S. dairy farmers have been told ad-nausem, the National Milk Producers Federation, NMPF, and the CEO's of the dairy co-operatives it represents have had the best interests of the nation's dairy farmers at heart. Currently these dairy farmers face a financial catastrophe of unprecedented proportions. So epic, in fact, that not just the nation's dairy farmers are threatened, but national food security may well hang in the balance. So, one wonders, with a national drought crisis in full cry, with the milk-feed price ratio hopelessly out of balance, with dairy farm operations large and small forced from business by financial numbers that can no longer be reconciled, just where are these self-proclaimed champions of the nation's dairy farmers? Why this silence from Jerry Kozak, NMPF's "three quarters of a million dollars (plus perks!) man?" Why is no proposed solution heard from the CEO's of the nation's dairy co-operatives? In times of crisis, when leadership is essential, why aren't these overpaid, perfumed princes at the forefront; speaking to their farmer members' plight and offering practical solutions to their needs? Certainly not because a possible solution is not readily at hand: a clause in the current Farm Law, Section 608(c) 18, requires The U.S. Secretary of Agriculture, when petitioned, to hold emergency hearings and, if warranted, to adjust the Federal minimum milk price into parity with current prices paid for dairy feed. So far as anyone seems to recall, Section 608(c) 18 has never been tested. The time for just such a testing is clearly now at hand. So why this delay? If Kozak and the CEO's of America's dairy co-ops have their member farmers best interests at heart why aren't they spearheading 608(c) 18 petition drives to get Ag. Secretary Vilsack off the dime? Why aren't these dairy "leaders" leading? In the American South of bygone days, the most ominous phrase a sporting gun dog could hear was; "That dog won't hunt!" A one way trip to the woods and a load from a shotgun was likely in his immediate future. Figuratively speaking, looking at what passes as "leadership" in today's NMPF and America's dairy co-ops, one could be excused for seeing little more than a whole pack of sorry mutts that won't hunt...

Nate Wilson 5900 Sylvester Road Sinclairville, New York 14782 Ph. (716) 962-8488 gksworks@gmail.com
Wilson, 65, has retired from 40 years of dairy farming on a small Chautauqua County, New York, grassland farm.

NDPO Moving Forward With Dairy Proposal

(May 25, 2012) The National Dairy Producers Organization continues to push for an alternative to the proposed Dairy Security Act. Board member Gary Genske updated DairyLine listeners on the latest developments this week. Listen to the entire interview below.

You need to thank Domino's

We wholeheartedly endorse the effort to thank Domino's Pizza for taking a bold stand against what has become an ever increasingly important message that needs to be shared with the general public. What you hear from these, I'm sure, well-meaning individuals is not always true; nor does it represent reality in the market place. Consumers need to be better informed and it is our job to see that this happens.

Click here to read the article by Marlys Miller, Editor, Pork Magazine

Listen to Tom Van Nortwick and Mike Eby's interview on WDAC

Click below to listen to the entire radio program from May 5, 2012 on WDAC 94.5 FM in Lancaster, PA as Tom and Mike discuss the goals of the National Dairy Producers Organization.

Contact the members of Congress!

It has been much requested by the members to be able to access the names and numbers of House and Senate officials. In response to those requests the following information is now available on our website, fax on demand, via email, upon request or mailed to your farm, by calling our office at 559-222-5050.

Click here to read the 2012 Agenda

Click here to read the 2012 Agenda

2012 Agenda

We are excited to introduce our 2012 National Agenda. It is specifically designed to finish what was started nearly 18 months ago when the National Dairy Producers Organization was formed. The most important goal we can achieve this year is the unification of every dairy producer in the country behind one plan and one management team.

Click here to read the 2012 Agenda

Urgent-Dairy Farmers Need Your Help

We are requesting that the United States Congress take immediate action to prevent a financial crisis from impacting the majority of American dairy farmers that may mirror the devastation that all dairy farmers experienced in 2009.

Click here to read Urgent-Dairy Farmers Need Your Help

Letter to Members of the House and Senate Agricultural Committees

New Dairy Policy = Budget Savings.

Click here to read Letter to Members of the House and Senate

"Moving the Agenda Forward"

The National DairyProducers Organization will be holding meetings in your area! Check the calendar below to see when we will be in your neighborhood!

Click here to see our schedule.

H.R. 2813

"Milk Import Tariff Equity Act," was introduced by Rep. Peter Welch to the House of Representatives on Aug. 5, 2011.

Click here to read H.R. 2813

S. 1640

Federal Milk Marketing Improvement Act of 2011
Introduced by Senator Robert P. Casey.
Click here to read S1640
FMMIA 2011 summary
FMMIA S-1640 explination

DISSA

Dairy Industry Stabilization and Sustainability Act of 2011
Introduced by The National Dairy Producers Organization.

Click here to read DISSA

S. 1682

Dairy Advancement Act of 2011
Introduced by Senator Robert P. Casey.

Click here to read S1682

S. 1658

Rural Economic Farm and Ranch Sustainability and Hunger Act of 2011
Introduced by Rep. Stutzman and Rep. Lugar

Click here to read S1658

H.R. 3062

Dairy Security Act of 2011
Introduced by Rep. Collin C. Peterson and Rep. Mike Simpson

Click here to read HR3062

H.R. 3111

Rural Economic Farm and Ranch Sustainability and Hunger Act of 2011
Introduced by Rep. Stutzman and Rep. Lugar

Click here to read HR3111

H.R. 1720

H-2A Improvement Act
Introduced by Rep. William Owens

Click here to read HR1720

S. 4571

Democracy for Dairy Producers Act of 2011
Introduced by Sen Gillibrand, Kirsten E.

Click here to read S457

S. 3531

Dairy Market Stabiliazation Act of 2010
Introduced by Congressman Jim Costa


Click here to read S3531