Dairy
Producers of
Dairy
Producers of
5106
575-622-1646
/ fax: 575-622-6306
A
GOALS
In
the future, the price of raw milk must be stabilized at a sustainable level so
that the dairy industry can survive and thrive.
With the inherent volatility of the current price structure, only traders
and processors are benefiting and dairymen are being forced out of business.
Pay
prices to dairymen must be stabilized if we are to maintain our industry and
preserve markets.
It
is important from a food safety standpoint, as well as from a homeland security
standpoint that a wholesome and abundant supply of dairy products be produced
domestically for American consumers.
Price
paid for raw milk must reflect true supply and demand.
Government
involvement must be minimized.
Any
milk pricing policy must allow our country’s dairy industry to participate in
world markets.
Any
milk pricing policy must allow individual dairymen to react, as they see fit, to
market conditions without government or other interference.
Policy
must prevent market manipulation by traders or processors from determining the
price of all dairy products.
Policy
should not discriminate against any dairy based on size, location, or management
style.
WHY
A CHANGE IN PRICING POLICY IS NEEDED
When
an excess supply of raw milk occurs, the price drops and cheese plants and
powder plants can then dramatically increase production, using cheap raw milk,
and then stockpile finished products. With the “make” allowance funds
available to them, they make a profit at the expense of the dairymen right off
the bat. Further, the finished products being held in storage serve to keep pay
prices to dairymen at low levels when inventories are reported and factored into
the current pricing formula.
In
the future, considering the federal budget deficit, it is unlikely that adequate
funding will be available to service existing dairy programs.
MILC
(Milk Income Loss Contract) and DPSP (Dairy Price Support Program) do not allow
for market signals and supply/demand indicators to work. MILC pays producers
when supplies are long and prices are low to continue producing and adding to
the problem oversupply. Under DPSP, when world prices drop below support levels,
we lose our export market and the problem of excess supply and low prices is
worsened.
The
NASS(National Agricultural Statistical Service) survey price, a major input in
the pricing formula, does not have a direct connection to retail prices for milk
and cheese and other dairy products, so there is no correlation between the
price the dairyman receives for raw milk and the price paid by the consumer at
the supermarket. During this past
year dairymen consistently received less for their milk than the costs of
production and many dairies were forced out of business.
Extremely low raw milk prices were not reflected in consumer prices for
dairy products at supermarkets. Processors
and cheese makers enjoyed one of the most profitable years ever, largely at the
expense of the dairy producers.
Current
milk pricing policy does not factor in any costs of production.
Last year’s disaster for dairy producers was actually worsened by
rising feed costs and fuel costs that occurred as a result of federal ethanol
subsidies and the conversion of feeds to fuels. Future milk pricing systems must
be linked to production costs!
WHAT
WE NEED TO DO
·
Get
rid of all federal milk pricing programs (especially MILC and DPSP).
·
Remove
pricing influence from CME and NASS with a stable new pricing program.
·
New
program to be implemented through the regional Federal Milk Marketing Order with
the assistance of the federal administrators.
·
Keep
the current milk classification system with minor changes.
(Class I—Fluid, Class
II—Manufacturing, Class III—Powder, No Class IV)
·
Allow
local price enhancements and incentives (because of regional
pricing program).
·
Utilize
the Suggested New Milk Pricing Formula, as follows:
SUGGESTED
Part
1:
·
Sets
price for 90% of rolling 12 month average base production.
·
Readjust
every 6-12 months.
·
Fair
and stable base pricing.
·
Set
up as follows:
A.
Cost
of production: Feed, fuel,
utilities, labor, interest, environmental, & regulatory.
Suggested
weight: 25%
B.
Average
retail prices of milk and other dairy products…true supply/demand.
Suggested
weight: 25%
C.
Previous
period 90% formula price…this dampens volatility.
Suggested weight: 25%
D.
Previous
period Part 2, 10% formula price…reflective of current markets.
Suggested weight: 25%
Part
2:
·
Sets
price for 10% of rolling 12 month average base production.
·
Readjusted
every 1-3 months.
·
Fine
tuning mechanism, controls any surplus quickly.
·
Set
up as follows:
A.
World
powder price.
Suggested weight: 25%
B.
World
cheese price.
Suggested weight: 25%
C.
Competitive
pay prices for raw milk, as determined by actual market activity.
Suggested weight: 25%
D.
Milk
futures and CME (Chicago Mercantile Exchange) Pricing.
Suggested weight: 25%
EXAMPLES
Dairy
A:
·
Operating
at 100% of historical production.
·
Market
conditions at excess supply of 3%.
·
Under
Part 1:
§
90%
of milk gets base formula price.
·
Under
Part 2:
§
Of
the other 10% of total production:
§
7%
will be paid out at the reduced level formula price, which will be considerably
less than the Part 1 price.
§
For
the other 3%, the dairyman will receive no compensation, but he has 30 days to
make the 3% surplus disappear or he may donate it for processing and
distribution in disaster relief or feeding programs.
§
This
will avoid surplus production and it will be a great public relations move.
Dairy
B (excess supply market):
·
Operating
at 105% of historical production.
·
Market
conditions at excess supply of 3%.
·
Under
Part 1:
§
90%
of milk gets base formula price.
·
Under
Part 2:
§
Of
the other 15% of total production:
§
7%
of historical total production will be paid out at the reduced level formula
price, which will be considerably less than the Part 1 price.
§
For
the other 8%, the dairyman will receive no compensation, but he has 30 days to
make the 8% surplus disappear.
§
This
will effectively discourage growth during times of surplus.
Dairy
B (shortage supply market):
·
Same
dairy, same production.
·
Market
conditions at shortage supply levels.
·
Under
Part 1:
§
90%
of milk gets base formula price.
·
Under
Part 2:
§
All
of the other 15% gets paid at the Part 2 price, which may, during these times,
be higher than the Part 1 price, depending on the conditions of supply and
demand in the world market.
§ It would not be necessary to divert or process any surplus product for donations during these times, as there would be no surplus.
CONCLUSION
We
dairy farmers should not have to attempt to guess at a futures market
that is always moving to be able to make a profit.
When we are assisting a cow having a calf at midnight, then getting up
before dawn to start a new day, we should not have to wonder whether, overnight,
the traders decided to drive down the price of milk and suddenly we are working
for free again!
We
need to remove our financial future from the hands of a select few traders,
processors, and market manipulators; whether you own a small 50-cow herd or a
large 2000-cow herd, the same problems confront us all.
We cannot produce milk for less than our cost of production.
While it is easy to say that the market will eventually work it all out,
many of us will wind up being “worked out” at the same time.
This
program, as designed, would allow individual dairymen the opportunity to produce
their historical production base as efficiently as possible.
In times of excess, extra production would be discouraged and the
individual dairyman would be incentivized to shut off his excess milk at the
farm gate—not allowing it to keep depressing our prices as it sits in private
or government commodity warehouses. No
counter-productive MILC, DELAP, DPSP, or any other government programs, no CWT
programs, just good old-fashioned business management and something that we can
put into effect IMMEDIATELY!
Please
note that when milk is in excess, the 90% formula Part 1 would not change, only
the 10% Part 2 formula would be drastically decreased and a portion would be
“no pay.” The result would be
that an individual dairyman could afford to and would cut enough production to
comply if he had a stable price for 90% of his historical production.
Most dairymen would cut their “no pay excess” immediately and produce
their Part 1 formula as efficiently as possible.
Otherwise, as in our current situation, all producers continue to make as
much milk as possible to dilute their overhead and production costs because they
receive a much lower price on all 100% of their milk.
It’s apparent that the current pricing mechanism was designed to keep
milk prices as low as possible for as long as possible.
If this is going to take an act of Congress to be accomplished, now is
the time to get started. I believe
that we, the American Dairy Farmers, can fix this problem!!
Allen
G. Squire, D.V.M.
65
East Ottawa Road
Hagerman,
NM
88232
575-752-0172
phone and fax