Blimling and Associates Blog

Dairy product and milk prices are a bit higher in Europe and elsewhere in the world. Dairy producers in the EU, however, remain unhappy and willing to show their discontent. A Bloomberg post yesterday (October 5) details a protest in Brussels:

Farmers threw eggs and poured milk onto the streets of Brussels today to protest a slump in dairy prices and plans to scrap production quotas.About 1,500 people joined the protest outside the European Council building, bringing traffic in the city center to a halt, police said. European Union agriculture ministers met there to debate emergency aid to the industry. Dairy farmers may lose 14 billion euros ($20.4 billion) this year after a 30 percent drop in milk prices, the European farm association Copa-Cogeca said.“Farmers are furious,” Padraig Walshe, president of Copa, said in Brussels today. “Never before was any sector of agriculture so badly affected. Farmers are going broke. The European Commission and ministers cannot stand idly by.”

EU Commissioners continue to meet and discuss solutions, but the pace does not seem hurried.

Farmers Pour Milk In the Street As EU Ministers Meet

The Wall Street Journal features an article about calls for investigations of market concentration in the dairy industry:

Dairy farmers, stung by a price-depressing glut of milk, are pressing federal antitrust regulators to investigate competition in the industry.A group of dairy farmers is slated to meet with antitrust enforcers Thursday in Washington, and Christine Varney, chief of the Justice Department's antitrust division, is scheduled to appear Saturday at a Vermont hearing of the Senate Judiciary Committee, which is populated with several Democrats from big dairy states such as Wisconsin, Minnesota and New York.

Dairy Farmers Want Industry Probe 

So the US and China are going to duke it out over tires...with the US Administration announcing late Friday that it would impose an additional 35% on tire imports, much to the chagrin of the government in Beijing. Initial retaliatory shots are being fired over auto parts and chicken meat. According to a story in The New York Times:

Chickens are a longstanding issue in Sino-American trade relations. The United States only allows the import of chicken meat from countries that meet food safety inspection requirements that are certified by the United States Department of Agriculture as equivalent to American standards. But Congress, worried about low-cost Chinese chickens at a time of international worries about food safety in China, has banned the Agriculture Department for the last several years from spending any money to certify China’s procedures as equivalent. he Senate budget bill, expected to come up for a vote next week, would remove the ban. So China’s latest move could represent an attempt to influence that vote.

From a dairy perspective, China is a huge customer for US whey products. Though July, China had imported 59 million pounds of US whey, or about 23% of our export volume for the period.

From a broader economic perspective, some commentators have noted the danger of engaging trade tussles given the fragility of the global economy. We recall what happened in 2002 when the Bush Administration imposed tariffs on foreign steel -- the post-9/11 stock market rally ended and the market swooned into 2003. Perhaps the timing was coincidental. Perhaps it was not.

China-U.S. Trade Dispute Has Broad Implications

The National Milk Producers Federation issued a statement today in support of having USDA purchase cheese using funds that will presumably be available via an amendment to the Ag Appropriations bill put forth by Senator Bernie Sanders (I-VT) last month:

NMPF Urges Senate to Spend $350 Million Buying, Donating Cheese

Analysis Indicates USDA Purchases, Donations Would Be Most Effective Use of Money

ARLINGTON, VA – In an effort to help both dairy farmers and needy Americans, the National Milk Producers Federation is urging congressional leaders to direct $350 million dollars toward the purchase of cheese, which would then be donated through food banks and other charities to help feed the hungry.

In a letter sent Wednesday to Senate and House appropriators, NMPF said that a $350 million amendment offered last month by Sen. Bernie Sanders (I-VT) to an agricultural spending bill would be most effective if used to purchase consumer cheese products, such as American cheese and mozzarella. According to an analysis done by NMPF, appropriating that money to USDA for purchasing products commercially would enhance dairy farmer income by $1.3 billion over a period of several months.

“It is dramatically clear from our results that the purchase of cheese for use in domestic feeding programs would provide the biggest benefit to the producer milk price at this time,” said Jerry Kozak, President and CEO of NMPF, in reference to NMPF’s analysis of how to maximize the value of any additional appropriations directed toward the dairy producer sector. NMPF estimates that the typical dairy producer would see an increase of $0.65/cwt. as a result of such an approach.

In contrast, using the $350 million to increase direct payments to farmers, or to supplement the Dairy Product Price Support Program, would only increase farmer income by $335 million and $185 million, respectively. The wording of the Sanders amendment does not specify how USDA must use the one-time appropriation, so NMPF sent the letter to members of the Senate-House conference committee that will finalize the Fiscal Year 2010 spending bill.

In addition to boosting dairy farmers’ income in a year when they are faced with a $12 billion loss in sales, the proposed cheese purchases “would provide a huge and targeted nutritional benefit to millions of food-insecure American families during this time of national economic hardship,” NMPF wrote.

Because government food stamps often run out prior to the end of each month, “food banks are another means for feeding these individuals. Unfortunately, commodities available for food bank distribution are limited by funds and availability. USDA purchasing of surplus cheese is an excellent opportunity to provide another source of a nutrient rich protein to the food banks,” NMPF wrote.

Secretary of Agriculture Tom Vilsack is from Iowa, so it is logical to expect USDA to pay ongoing attention to the plight of pork producers. A Reuters report this morning indicates that another $30 million is likely on the way:

The U.S. government plans to buy another $30 million in pork products in fiscal 2009 for federal food assistance programs to help the flailing hog industry, U.S. Agriculture Secretary Tom Vilsack said on Thursday. But pork futures prices fell on the news, as traders at the Chicago Mercantile Exchange had expected a bigger aid package, and said $30 million will do little to help the beleaguered sector because of a glut of pork in storage. "Quantity-wise, that's a drop in the bucket," said John Kleist, broker-analyst with Allendale Inc. "We have enough in the freezer that they (USDA) could take and not even put a dent in the freezer for $30 million." USDA has bought about $151 billion of pork so far this fiscal year, which ends this month.

Numerous anecdotal reports suggest that money provided for dairy under the so-called Sanders Amendment could be put to similar use: government purchases of cheese to assist food pantries.

One of the stories on the wire this morning about Senator Chuck Schumer (D-NY) featured a little push back from at least one New York state dairy producer that heard the Senator speak at the state fair. From the Rochester ABC13 WHAM website:

John Mueller of Willow Bend Farms in Clifton Springs, said he has seen better days. "This year is going to be a tough year, it might even be the toughest year ever,” he said. "In 2007 we made a lot of money, it was our best year ever. So in 2009 I'm just giving it all back."  Speaking at the New York State Fair, Schumer said he's urging the U.S. Department of Agriculture to provide $600 million in emergency funds to keep farmers in business. The money would come from the department's Commodity Credit Corporation, which has $10 billion at its immediate disposal. However, Mueller doesn’t think a “milk bailout” is a good idea. "I understand Schumer's intentions, and he's got good intentions, but it's the wrong thing to do,” he said. It's all about the market for Mueller, who says supply and demand are out of whack. Consumers are paying less for milk at the store; farmers are earning less because supply is so high. “The market is telling us we got to have less milk on the market, and by him putting more money into dairyman's pockets--it's going to keep milk on the market--it's going to prolong this low-price situation,” he said. "We need to just ride it through, we need to suck it up, get through it, and we'll be in better shape just like we were in 2007."

Another article on wisconsinagconnection.com notes that  the Wisconsin Farm Bureau Federation plans to lobby for a set of proposals that are not in step with where Washington has been headed:

"Our members are rightfully concerned that when the government purchases dairy products it actually works to prolong low milk prices," [WFBF President Bill] Bruins explained. "The milk price was forecast to begin a recovery this fall. When the government releases these dairy products back onto the market, it will work to blunt the up-tick in price."

The battle continues to heat up.

Schumer Callas for $$$ for Dairy Farmers; Some Say "No Thanks"

Wisconsin Farm Bureau Adopts New Dairy Policies

Senator Chuck Schumer (D-NY) upped the ante in efforts to support dairy producers today, reportedly asking Secretary Vilsack to essentially double MILC payments and use CCC funds to do so. From the Times Union of Albany:

Schumer, D-N.Y., just wrapped up a phone call with Vilsack, in which he urged the agriculture secretary to tap funds from the Agriculture Department’s Commodity Credit Corporation to immediately give financial relief to dairy farmers. Under federal law, the agriculture secretary has the authority to use CCC funds to support the prices of agricultural commodities with direct payments to farmers.

Here is Schumer's take on the situation:

“We do believe the price of milk will come back up,” Schumer said. “Six months from now, most of our farmers would be able to make it. But they can’t make it now” without financial help. “No farmer is going to get rich on this but at least it would allow them to survive,” Schumer added.

We don't doubt that dairy producers are having a hard time -- they are and they have been for months. Nor do we doubt Senator Schumer's sincerity. We do, however, puzzle over the economic contradiction embedded in the Senator's statement. Keeping milk production on line -- that is, facilitating continuation of supply -- is somewhat at odds with potential for milk prices moving higher in six months from now.

That said, direct payments under the MILC facility would seem to be less disruptive to the marketplace than higher support prices -- at least the market can theoretically get down to levels where product clears.

The temperature in Washington is heating up as Autumn approaches. 

Schumer Seeks More Money For Dairy Farmers

Rummaging through the news today we came across an article by Bill Bruins, president of the Wisconsin Farm Bureau. His view on the current dairy situation is sober – and, in our opinion, refreshing:

American consumers today are enjoying comparatively affordable prices for milk and dairy products. Consumers know, as does every dairy farmer, when milk prices go up, they eventually will go down and vice versa. It’s called supply and demand. It’s how the dairy marketplace should be allowed to work. If history repeats itself (and it usually does), the extreme low prices farmers are suffering today will likely rebound next year. In the meantime, many dairy farmers are holding on as their farms lose equity. Many dairy farmers are tempted to turn to the federal government for help. Some go as far as publicly saying depression-era prices and skyrocketing production costs will result in all dairy cows disappearing in a matter of weeks, unless the government takes control of the market... We dairy farmers must remember throughout our current dilemma, the same force that gave us the glory of $20 milk in 2008 is the same thing giving us the grumbling of $10 milk in 2009. That force is the marketplace…. Some are cheering the USDA’s decision to raise the product price formula. Yet, when that was last tried under President Carter’s administration, government warehouses soon overflowed with excess dairy products. The nation’s dairy herd needed to be reduced, so the government also established the whole herd buy-out program at considerable cost to taxpayers. Beef producers have never forgotten what it did to their industry as more cattle hit the market… Every time dairy prices dip, some farmers talk about a supply-management program. However, a government-controlled reduction in the supply of milk is doomed to fail since other dairy-producing nations would race to replace it…Global trade is a fact of life. Last year the U.S. exported nearly 11 percent of its dairy production. When the world economy tanked, demand dropped and prices collapsed. When domestic prices reached support levels, U.S. dairy products began to flow into government warehouses instead of world markets. The global demand for milk protein remains strong, but given the global economic turmoil, we just can’t provide it for the right price.

Marketplace Holds Answer to Dairy’s Dilemma

Seems as though Hugo Chavez has "saved" the coffee business in Venezuela, according to a story in the September 2 editions of the Financial Times:

It saddens Don Luis Paparoni, who is almost 90, to summon up memories of the heyday of Venezuela’s coffee production

 “You see these hills?” he asks, gesturing to the lush green valley around Santa Cruz de Mora, a picturesque town at the lower reaches of the Venezuelan Andes. “They used to be carpeted with coffee plants. Now you’ll scarcely find any.”

Venezuela was one of the world’s top coffee exporters in the early 20th century. But for the first time last month the country was forced by looming shortages to import coffee from Brazil, even though locals say it is no match for the local quality Arabica beans.

Mr. Chavez has gotten heavily involved in recent months:

Shortages prompted Mr Chávez last month to expropriate the country’s two largest coffee roasters, Fama de América and Café Madrid, which account for almost 80 per cent of production. He blamed the scarcity on hoarding, speculation and smuggling.

“We’ve had enough of this! We must do the same with all companies that behave this way,” thundered the socialist leader. “We are going to continue nationalising monopolies to turn them into productive businesses in the hands of the workers, the people, the revolution.”

But analysts say many of the problems confronting coffee production – and the private sector in general – are caused by precisely this kind of government intervention. Such expropriations, as well as an aggressive land reform campaign, have generated a climate of uncertainty that has damped investment.

Price controls have made matters worse. Increasing amounts of coffee – and many other goods – are smuggled abroad to be sold at international prices. “Of course there’s contraband. What does Chávez expect when you can sell coffee in Colombia for double or triple the price?” said one coffee producer, who requested anonymity.

I guess we add "coffee in Venezuela" on a list that includes "sugar in Cuba" or "land reform in Zimbabwe" among other notorious examples of the fruit of "reform" in revolutionary republics.