Milk

What happened? What’s next? – Regulatory changes ahead

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 and details atProgressive Dairy.

Items in this column are compiled from Progressive Dairy staff news sources. Send news items to Dave Natzke

OCTOBER FMMO MILK MARKETINGS

What happened?

Federal Milk Marketing Order (FMMO) administrators reported October 2021 uniform milk prices, producer price differentials (PPDs) and milk pooling data.

On the positive side, prices for all individual classes of milk were up from September, as were protein and butterfat values. Average October butterfat and protein tests were higher. That supported higher uniform prices.

However, a larger spread between Class III and Class IV milk prices led to more depooling and a return of negative producer price differentials (PPDs).

What’s ahead?

Near-term, the November 2021 advanced Class I base price is up 90 cents from October. November milk futures prices project a small increase in the Class III price and a large jump in the Class IV price.

As we noted last month, there’s a paradigm shift coming, although how it affects your milk check remains to be seen.

Based on Chicago Mercantile Exchange (CME) milk futures prices at the close of trading on Nov. 23, Class IV milk futures prices will be higher than Class III prices beginning in November 2021 and lasting into the first quarter of 2023.

Currently, the Class III and IV price spread is the widest in December 2021. Class IV handlers can depool, just like Class III handlers have for many months. Longer-term, it doesn’t appear the narrower spread will result in large-scale depooling and will likely yield net benefits using the “average of plus 74 cents” formula.

Bottom line

Average cheese and butter prices both improved in October, yielding higher values for both protein and butterfat. The value of milk protein was the highest since May. Despite a meager increase in the value of butterfat, it was the highest since June.

The spread between October Class III and IV prices widened to 79 cents per hundredweight (cwt), the largest gap since June. That provided incentives for Class III depooling.

On a percentage basis, Class III utilization was about 25% of all FMMO milk marketings in October 2021, down from about 36% in July-September, when Class III pooling had returned more closely to 2020 pre-pandemic “normal.”

By volume, total Class III milk pooled across all FMMOs was about 2.8 billion pounds, the smallest volume since June. Class III pooling averaged 4.4 billion pounds during July-September 2021.

After four months in positive territory, October baseline PPDs turned negative in six of seven applicable FMMOs. The lone exception was in the Northeast FMMO No. 1.

When evaluating your individual milk check, remember that PPDs have zone differentials within each FMMO. For example, depending on location, October PPDs were as much as -$1.04 in California FMMO No. 51 and -89 cents in Central FMMO No. 32. Also, whether positive or negative, individual milk handlers may apply PPDs differently.

PFAS REGULATION

What happened?

Earlier this fall, the EPA released a three-year “PFAS Strategic Roadmap” to address environmental pollution caused by per- and polyfluoroalkyl substances.

Last July, the U.S. Department of Defense (DOD) submitted a report to Congress indicating it had previously notified 2,143 U.S. agricultural operations regarding potential groundwater contamination linked to PFAS use on military bases. According to the National Milk Producers Federation’s Clay Detlefsen, the number of dairy farms known to be affected is small.

What’s ahead?

The PFAS Strategic Roadmap is part of a Biden administration directive involving eight federal agencies. Among other agency activities, the FDA will step up testing of food supplies, and the USDA’s Agricultural Research Service will investigate PFAS contamination of the environment and food supply and the impact on human and animal health. The EPA rule-making process could take years.

Bottom line

The National Milk Producers Federation (NMPF) has raised concerns regarding the potential classification of PFAS-contaminated farmland under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), commonly known as “Superfund.” According to FindLaw’s online legal information website, “Superfund” designation has the potential to open past and present landowners to liability despite arguments that the owner had no responsibility or control over the contaminant disposal activity.

PFAS are a large group of human-made fluorinated chemicals that became widely used in household products and industrial settings as early as the 1950s. To date, there are more than 4,000 compounds that have been identified as PFAS.

In fall of 2019, Progressive Dairy published a comprehensive article on PFAS-contamination concerns on dairy farms.

EPA AND ‘WOTUS’ DEFINITION

What happened?

On Nov. 18, the EPA and Army Corps of Engineers unveiled a proposed rule reinstating pre-2015 federal regulations defining wetlands and waterways subject to federal protection under the Clean Water Act (CWA).

What’s ahead?

Earlier this year, EPA announced a two-step plan that would restore WOTUS to pre-2015 conditions with modifications relevant to Supreme Court decisions.

The release of the newly proposed rule came before completing regional roundtable discussions. The rule will be published in the Federal Register (Docket No. EPA-HQ-OW-2021-0602) but hadn’t been published at Progressive Dairy’s deadline. In addition to a 60-day public comment period, the agencies will host virtual public hearings on the proposed rule, Jan. 12, Jan. 13 and Jan. 18, 2022.

Bottom line

The scope of EPA regulatory authority through the CWA has been controversial for many years and the subject of multiple lawsuits. The Obama administration expanded the federal government’s reach by issuing the Waters of the U.S. (WOTUS) rules. WOTUS was revised through the Navigable Waters Protection Rule, implemented in 2020 by the Trump administration. Now, that’s history, too.

RETAIL DAIRY SALES

What happened?

Rapidly rising inflation and heightened concern over the COVID-19 variant continued into October, with more emphasis on home-prepared meals affecting retail dairy product purchases, according to the International Dairy Deli Bakery Association (IDDBA). While retail inflation is the highest in many decades, the cost of eating out rose even more.

What’s ahead?

The good news for retail sales is that dairy fits in all meal occasions, from snacks to dinner. That means a more home-centric meal outlook benefits retail dairy sales across all meal occasions.

Bottom line

In October, retail dairy sales (value basis) exceeded year-ago levels by 0.5%. Underneath the strong dairy sales performance was a more mixed performance at the category level. The largest seller, milk, moved into positive territory in October based on value, up 0.6%.

Food price inflation was at work, and October 2021 unit and volume sales trended below 2020 levels for most dairy categories, with the exceptions of yogurt and desserts. Milk was down 3.5% on a unit basis and -5.5% on a total volume basis. Natural cheese unit and volume sales were down 2.5% and 1.8%, respectively. Butter unit and volume sales were down 7.6% and 8.2%, respectively. end mark

Dave Natzke


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