FARME Institute: July 2019 Management Report

Protein regained $0.40/lb, and fat advanced $0.03/lb. The price of Other Solids was flat. On a hundred-weight basis, Statistical Uniform Price (3.5% fat) increased $0.55/cwt and Class III price increased $1.28/cwt resulting in PPD decreasing $0.73/cwt. This was $0.06/cwt better than our prediction. July Class I utilization increased about 1 point (29.6% vs 28%). We have recently argued that 1 point of Class I utilization represents $0.06/cwt in the Northeast FMMO. This is consistent in our price forecast. Regionally, fat and protein content of milk continued its seasonal decline.

Milk is produced locally, under a national program, in an international market – There are many factors that influence milk price and, hence, farm profitability. In the center of this matrix is a national program that needs to ensure an adequate food supply for the country. In part, the reason there is a higher Class I price is to ensure adequate supply of fluid milk. When is the last time there was no fluid milk available in the store? However, there are times when other national interests conflict with producing milk. For example, attitudes toward immigrant labor will have profound effects on labor costs. These national interests can remain at odds with producing milk as long as an adequate milk supply continues (no empty shelves). While there is no shortage of milk, farm interests will take a lower priority. Because the US dairy industry is in an oversupply situation, the international market becomes important. For example, July butter settled at $2.39/lb. On the global market, Germany and Oceania were offering butter at $1.80/lb.

 

 

In a “free” market economy, without tariffs and import bans, international butter will drive down the domestic price in this example. For the last three years, butter prices have been on an upward trend ($0.065/year, see attached figure), with only brief periods (4 months) of peaks and valleys. If the only consideration was national milk supply, it would not matter where milk is produced. However, each dairy farm exists in a local community that involves social and economic considerations. These local issues stretch from the state level down to the municipality and are a lot more nebulous, for example, than looking at the Class III price. For instance, New York State just passed a labor law that mandates agricultural employees be paid overtime beyond 60 hours/week.

This will disadvantage New York dairy farms. Some states (e.g., Maine) have opted to collect a consumer tax that is paid to producers to offset local disadvantages. When local disadvantages are created without local relief, it signals the lack of commitment to the dairy industry. These forces will shape the dairy industry over the next few years. Furthermore, advocating for the dairy industry should also consider these forces.

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