California FMMO Hearing - Week #7

WEEKLY UPDATENovember 6, 2015

Contact Us @

1315 K Street, Modesto, CA 95354 Telephone: 209.527.6453 Fax: 209.527.0630 info@westernuniteddairymen.com

Weekly Update delivery options

Send change of address or request for Update delivery to WUD by phone or fax, or email to info@westernuniteddairymen.com

Follow us!

Inside this issue: Weekly Market Update 2

Commodity Markets 2

WUD & Dairy Cares 3

MPP Case Studies 4

Update Distribution 4

by Annie AcMoody, Director of Economic Analysis

“Is it already week seven of the California FMMO hearing? Because it sure feels like it’s only the second or third week!” Said no one ever. Indeed, this week marked the end of the seventh week of the CA FMMO hearing, and the amount of information entered into the record has been nothing short of impressive. While this hearing has been going from 9am to 5pm on a daily basis, there has also been another world of work that has been happening each evening. In fact, when those participating in this hearing full time retire to their “war room” in the evening (this includes some of your coops’ staff), they invest most of their time digesting the days’ information and preparing for the next. With the exception of a few football games watched here and there, that is a lot of total hours spent on this hearing. No wonder the “dairy bar” likes FMMO hearings!

The week started with Mr. Britt from Clover Stornetta stating support for proposal two. Then Dr. Schiek (Dairy Institute) took the stand again, along with Mr. Fish (Saputo Cheese US) to discuss the whey factor. “Whey” has to be one of the words most used so far this hearing (“market clearing”, “Class III” and “disorderly marketing” are not too far behind in the ranking). When asked if there was a risk in setting a minimum price too low, Dr. Schiek answered without concern that the market should determine the correct price. Mr. Dolan (Driftwood Dairy) came next in support of proposal two, stating he did not believe the coops’ proposal provides the performance standards necessary to serve the Class I market.

On Tuesday, two cheeseheads joined the ranks of those taking the stand, as Mr. Buholzer and Mr. Stettler (two cheesemakers) presented testimony on whey and the accompanying challenges of pricing it. Mr. Zolin (a representative for HCC) introduced a one page testimony on producer milk definition (i.e. what milk can associate with the order). Mr. Vetne (a representative for HCC) took the stand for part two of his policy evolution testimony to discuss the pricing of Grade A milk used to manufacture dairy products. The history was interesting, but the coops’ attorney, Mr. Beshore, argued that this testimony would have been well suited for a brief instead. The confrontation changed the mood from peaceful to Law & Order like for a few minutes, but things smoothly resumed afterwards. Mr. Anthony (Unified Grocers) testified against proposal 1 as he is concerned about price increases. Mr. Blaufuss (Dean Foods) came back up for part three of his testimony to state that Class I differentials should be justified; the coops’ currently are not doing that. Trying to take the lead of witness with the most appearance on the stand (I believe Mr. Hollon from DFA is still in the lead), Mr. Zolin came back with part five of his testimony to discuss marketing assessments.

Hump day took an academic turn as Dr. Stephenson from the University of Wisconsin introduced some of his research into the record. He started by saying he has no position, but he did state he has concerns with the CA FMMO because the Class III formula may not set the price low enough to clear the market if California was part of a FMMO. Reading between the lines, this does not sound particularly helpful to the coops’ case. The day ended with Joe Paris (consultant with Joseph Gallo Farms) opposing the coops’ proposal.

Thursday was more of the same, with Sue Taylor going on for her testimony part two, discussing pricing and its impact on Leprino. Her stated preference would be that USDA waits for a national hearing to revise the Class III formula. If not, then the Class III should be set for achievable returns. A nice change of pace, a dairyman from Modesto (Mr. Verburg), shared his support for proposal 1 because it will align prices with the rest of FMMO system and preserve quota. Mr. Kluesner (Nestle), stating concerns with the strict pooling rules in the coops’ proposal, and Mr. Zolin (part six – I still don’t think he’s in the lead), capped off the day.

Processors were as abundant as candy corn in kids’ Halloween buckets this week and Friday was no exception. Mr. Williams and Mr. Blaufuss (Dean Foods) took the stand together to discuss how the California producer-handlers have an unfair advantage. They cranked the heat by sharing a somewhat provocative statement that the soft cap the producer-handlers are enjoying is “the gift that keeps on giving”. They were grilled by the producer-handlers’ attorney (Ms. Hancock) for a few hours. Through a well thought-out testimony, Mr. Doornenbal (dairyman from Escalon) changed the pace positively, highlighting how the situation has changed in California and why we need to be on a level playing field with the rest of the country.

The hearing will resume Monday at the Picadilly Hotel by the Fresno airport, streamed live at: www.ams.usda.gov/live. Don’t have time to sit through entire days of deliberations? “Like” Western United Dairymen on Facebook or follow us on twitter (@wudnews) for daily progress updates. Members who don’t like Twitter or Facebook are more than welcome to send me an email at aacmoody.wud@gmail.com if they would like to receive the daily updates directly in their inbox.

follow/use @wudnews #WUDCAFMMO

Listen to the live audio feed at: www.ams.usda.gov/live

November 6, 2015 Weekly Update ! 2

Average AA Butter NFDM 40# Blocks Barrels Dry Whey

September $2.5939 $0.7963 $1.6699 $1.6176 $0.2270

October $2.4828 $0.8874 $1.6765 $1.6106 $0.2088

November $2.7350 $0.8416 $1.6275 $1.5813 $0.2200

Nov. 6 $2.8850 $0.8416 $1.7000 $1.6500 $0.2250

Week to date 11.5 cents 3.98 cents 8 cents 5.5 cents —-

Estimated* producer CWT prices

Month Class 1 4a 4b Overbase Quota

September $18.23 $15.40 $14.94 $14.98 $16.68

October $17.52 $15.72 $14.75 $14.97 $16.67

November $17.83 $16.73 $14.52 $15.20 $16.90

*Actual announced prices are in BOLD, estimates are in Italics

Commodity Markets: CME - California Plants

What’s Up and What’s Not — Your Weekly Market Updateby Annie AcMoody, Director of Economic Analysis

Butter markets were rocking harder than performances at the CMA Awards this week. After an impressive leap of 30 cents last week, butter managed to gain another 11.5 cents this week. This brought the price to $2.8850/lb – the highest since September 28. According to USDA’s Dairy Products report, butter production in September was up 4.3% from August. This is right in line with the past five year average of 4.2% for the same months. Looking outside the U.S. borders, things aren’t so upbeat. First, the latest Global Dairy Trade (GDT) price average took a dive for the second consecutive auction. The loss brought the average butter price to $1.17/lb, down 21 cents from a month ago. Lower global prices certainly have been having a significant impact in butter exports: in September, butter and milkfat exports were down 70% from last year, down to the lowest level since July 2009. According to U.S. Dairy Export Council (USDEC), as a percent of U.S. production, butter exports represented just 1% of total production in September. At the same time last year, butter exports represented 10% of production.

Unlike baseball fans, dairy market participants didn’t throw much champagne around. But the festiveness from the Royals parade still spilled into the block cheese market, who managed to gain 8 cents this week. This place the block cheese at $1.70/lb – the highest since October 12. American cheese production remains above last year, with September output up 2.8% from a year ago. Still, production slowed down a bit from recent months’ activity, with September production down 3.4% from August on a daily basis. Similar to butter, cheese took a plunge at the latest GDT auction, losing 8 cents to $1.35/lb this week. And just like butter, cheese exports have been suffering from lower global prices. In September, cheese export volume was down 20% from last year, and was at the lowest level since February 2013. As a percent of U.S. production, cheese exports represented 5% of total production. Last year at the same time, that percentage was 7.5%.

Dry whey did not continue in last week’s upward footsteps, but at least it did not decline. The current price level in November is averaging $0.22/lb. This means that the whey value in the Class 4b formula is generating $0.25/cwt. While this is the same value it would have generated with the old formula, prior to the temporary change, it is at least better than last month, where the whey value generated a big $0/cwt. According to Dairy products data, dry whey stocks in September were still up 26% from last year, but at least they were down 15% from August.

The California nonfat dry milk price took a two-step back this week, and not in the fun dance way. Indeed, the average price declined 3.98 cents to $0.8814/lb. Unfortunately, DMN’s latest western state price average moved in the same direction, down 3.5 cents to $0.85/lb. Outside of the U.S. borders, prices remain lackluster. This may sound like a broken record, but the skim milk powder price also declined at the latest GDT. The drop of 7 cents brought the price to $0.92/lb – the lowest since the September 15 auction.

The price may be low, but it remains above domestic prices. This has allowed powder exports to remain competitive. In September, nonfat dry milk exports were up 48% from last year. The jump in volume brought the percentage of U.S. powder exported relative to U.S. production to 71%. That percentage was 54% at the same time last year. According to USDEC, September export volumes of milk powders, cheese, butterfat, whey and lactose combined were up 9% from a year ago.

November 6, 2015 Weekly Update ! 3

About 20 years ago things started to change with respect to how environmental issues and regulations affected agriculture. Until that point, environmental regulations had focused mainly on point sources such as municipal waste water treatment plants and industrial sources, but they were now turning to look at nonpoint sources such as agriculture, forestry, and livestock. New and expanding dairies were being challenged under the California Environmental Quality Act (CEQA) and regulatory agencies were staffing up their agriculture sections. It was during this time that I applied to the Central Valley Regional Water Quality Control Board and was hired in their Confined Animal Facilities Unit. That unit went from one staff member to five in just a few short years during that time.

While I was getting my experience with a regulatory agency, the dairy industry was trying to figure out how to deal with this new reality. Western United Dairymen was helping our members through these issues, but it was clear that this needed a larger effort and funding to fight some of the legal challenges that had the potential to set precedent for the whole industry. It was clear that WUD shouldn’t be the only organization in this effort as others also had a stake in the outcome, including all of California’s dairy producers, processors, bankers, and other allied industries. From this Dairy Cares was born in 2000 when the founding organizations, including Western United Dairymen, decided to work together to solve these bigger issues.

Today Dairy Cares brings the whole California dairy industry to the table to address environmental, animal welfare, and public relations issues affecting the industry. With everyone at the table and contributing, Cares has been able to accomplish great

Western United Dairymen and Dairy Cares Then and Now

things by bringing the resources of each of the organizations to bear.

Cares relies on its members, including Western United Dairymen, to do a lot of the work and provide input as to what direction to take. This effort has also provided funding for legal representation for the industry as whole when the outcome could set industry wide precedent.

Cares is also carrying the message of the great things the industry is doing in our communities and our state by publishing a success stories in sustainability brochure and providing speakers for events.

By fighting for the industry and providing a positive image of family farmers Cares has helped all California dairy families succeed.

Western United Dairymen, and all of the organizations that support Cares, have made California a better place to dairy.

by Paul Sousa Director of Environmental Services

November 6, 2015 Weekly Update ! 4

During the Dairy Margin Protection Program (MPP) sign up period a year ago, 318 dairies in California decided to sign up for supplemental coverage above the $4/cwt level. Nobody signed up at the $8/cwt level, which means no dairy in California has received any payment from MPP in 2015 so far. This means that despite the fact that many dairies are below breakeven in 2015, no dairy in the state is receiving a benefit from MPP. Despite that disappointing aspect, I believe this program is worth looking into – if you haven’t done so, signing up at least at the minimum level for $100/year sounds like a reasonable investment. The deadline to sign up with FSA for calendar year 2016 is November 20.

The margin used to calculate MPP is the difference between the U.S. all-milk price and a feed cost formula based on national corn, soybean meal and alfalfa hay prices. Payment triggers are not based on your own dairy’s margin, so having an idea of how your own dairy’s margin compares to the formula (including other expenses and other income) may help you determine what this program means for you.

If you have an interest in seeing how this program may work more specifically for your operation, the University of Wisconsin website hosts an advanced tool where you can enter your own dairy’ information (http://dairymarkets.org/MPP/Tool/). If you want to have an idea of how MPP fares for different types of operations and what kind of information the Advanced Tool can yield, there are a few case studies published on the same site for example dairies in California, Wisconsin and Michigan (http://dairymarkets.org/PubPod/). I may add the California case studies are particularly riveting.

As a reminder, if you signed up for 2015, you are by default enrolled for 2016 at the minimum coverage level ($4) and will be required to pay the $100 administrative fee to FSA before the deadline. Being automatically enrolled at the default level does not mean you have to stick to it though - you can make changes to the percentage of your production history covered (25% to 90%) and/or to the level of coverage selected ($4 to $8 margins).

Currently, forecasted margins point to no payment being triggered in 2016. A word of caution: those forecasts are based on current market conditions so by the time we roll into 2016, which will then be too late to change your coverage decision, the situation could be completely different than what is currently expected. At a minimum, it would be prudent to sign up at the $4 level. If you have any questions or would like help in using the Advanced Tool, please feel free to contact me (aacmoody.wud@gmail.com).

MPP Case Studies Posted by Annie AcMoody, Director of Economic Analysis

Help Us Save Money and be More Efficient Western United Dairymen publishes a weekly newsletter for our members. The Weekly Update is published every Friday, except for holidays, and is available exclusively to our members only. The main delivery system is the U.S. Postal Service. As many of you know, postal costs continue to rise and postage costs for mailing the Weekly Update have become significant.

To cut down on costs, WUD is offering alternative delivery systems for our members.

• Email delivery. A PDF file of the Weekly Update can be sent directly to your inbox

• Fax. The four-page document can be faxed directly to your home or business line.

Please mark the appropriate box and mail it to the office or email this form to Norma at ncastillo@westernuniteddairymen.com so we can assure timely delivery of your newsletter.

• Please email the Weekly Update to my inbox. • My email address is _____________________________________________(please print) • Please fax the Weekly Update to this number __________________________ • Please continue to deliver the Weekly Update by mail.

Member Name _______________________________________________

Farm Name _________________________________________________

Address ____________________________________________________

City___________________ Zip__________ Phone ________________

Please return form to: WUD Office

Attention: Norma Castillo

1315 “K” Street Modesto, CA 95354