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, details and updates online.
Items in this column are compiled from Progressive Dairy staff news sources. Send news items to Progressive Dairy Editor Dave Natzke.
DAIRY EMISSION ESTIMATES
In July, the EPA released preliminary draft air emission models for estimating ammonia, hydrogen sulfide and particulate matter emissions from barns and lagoons on dairy farms.
Under the 2005 Air Compliance Agreement, the EPA is responsible for using National Air Emission Monitoring Study (NAEMS) data to develop emission models for ammonia, hydrogen sulfide, particulate matter and volatile organic compounds (VOCs) at livestock operations, including dairies.
Draft emission models for VOC emissions are to be released soon. The EPA then intends to revise and improve all models, then hold a public comment period, likely in mid-2023.
Once finalized, the emission models will be used by operations participating in a voluntary Air Compliance Agreement to determine whether their emissions trigger certain Clean Air Act permitting requirements.
In 2018, the EPA implemented a rule providing livestock operations with an exemption to reporting requirements covering manure-related air emissions under two federal laws, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and the Emergency Planning and Community Right-to-Know Act of 1986 (EPCRA). Numerous environmental advocacy groups filed a lawsuit against the EPA, challenging the agency’s authority to exempt livestock operations.
In July of this year, more than 200 environmental groups wrote to the EPA, demanding that exemption be lifted.
The preliminary draft emission models allow producers to estimate farm-scale emissions, considering the number of cows at the operation, as well as local environmental conditions. The EPA expects the final models may be useful for general estimates of air emissions from dairy operations across the U.S. or comparisons between operations in different regions.
On a sidenote, Frank Mitloehner, a professor and air quality specialist in cooperative extension in the department of animal science at University of California – Davis, tweeted, “The recent sabotage of the European gas pipelines Nord Stream 1 and 2 has caused the release of methane equating to an estimated 7 MMTCO2e (7 million metric tons of carbon dioxide equivalents). Just to put that into perspective, this is the same amount of GHG given off by the entire California dairy industry over a one-year period.”
MILK PRICE SPREADS
June 2022 “mailbox” prices averaged about $1.03 per hundredweight (cwt) less than announced average “all-milk” prices for the same month. At $1.03, the difference in the average all-milk and mailbox prices in June is the widest in 2022, up from $1.01 in March. It’s also the widest spread since October 2021, when the gap was $1.16 per cwt.
Impacts of higher processing costs could drive the spread between all-milk and mailbox prices wider. According to the American Dairy Coalition (ADC), some Wisconsin producers have received notices that milk check deductions, ranging between 90 cents and $2.50 per cwt, will be implemented on September milk marketings and continue through the end of the year.
In late September, leaders of Midwest dairy cooperative Foremost Farms notified its producer milk suppliers it would implement market adjustment deductions of 90 cents per cwt, beginning with September milk marketings. In a letter to producers, Greg Schlafer, president and CEO; and Darin Hanson, senior vice president of supply chain and risk management, said the deductions were needed to address record-high labor costs at manufacturing facilities, higher costs for energy, packaging, equipment and quality services, and significant difference between Class III milk costs and revenue generated from the co-ops cheese and whey product sales.
The letter also notes that Federal Milk Marketing Order (FMMO) milk pricing formulas, which include manufacturing or “make” allowances, have not been adjusted since 2009. The make allowance is a cost factor built into the milk price to account for all the costs required to convert milk to the final product.
ADC founder and CEO Laurie Fischer said a recent cost of processing study indicates that the current make allowances already built into the USDA end-product pricing formulas are collectively about $1 per cwt short of covering costs to make bulk cheddar, butter, nonfat dry milk and whey products that are surveyed monthly for the USDA pricing formulas.
“These milk check deductions appear to be a way to shift rising costs over to farmers through mailbox milk check deductions,” Fischer said.
“Decisions to adjust pay price are difficult and only implemented to ensure the long-term viability of the cooperative. We value your support and the high-quality milk you supply to the cooperative,” the Foremost Farms letter concluded.
Make allowances are part of the ongoing discussion regarding potential FMMO reforms. Citing Class I milk pricing formula changes made in the 2018 Farm Bill, ADC recommends any make allowance formula changes be part of a formal FMMO hearing process.
“We believe these processor make allowances that are embedded in the pricing formulas should be put on hold until the milk pricing change that was made in the last farm bill is thoroughly vetted through a side-by-side comparison at a FMMO hearing or is reversed,” Fischer said. “The reason we have taken this position is because farmers are already on the short end of the stick. They are the last rung in the supply chain ladder, and they have no one to go back to extract a make allowance for their rising inflationary costs.
“If the make allowances are elevated without addressing these other concerns, the mailbox price will be reduced to the farmer, and there is nothing to prevent processors from re-blending and the potential for additional deductions,” Fischer said.
All-milk prices are reported monthly by the USDA National Ag Statistics Service (NASS). Mailbox prices are reported monthly by the USDA’s Agricultural Marketing Service (AMS) and generally lag all-milk price announcements by a month or more.
The all-milk price is the estimated gross milk price received by dairy producers for all grades and qualities of milk sold to first buyers, before marketing costs and other deductions. The price includes quality, quantity and other premiums, but hauling subsidies are excluded.
The mailbox price is the estimated net price received by producers for milk, including all payments received for milk sold and deducting costs associated with marketing.
The price announcements reflect similar – but not exactly the same – geographic areas. The NASS reports monthly average all-milk prices for the 24 major dairy states. The mailbox prices reported by the USDA’s AMS cover selected FMMO marketing areas. Progressive Dairy attempts to align the state-level all-milk prices and the FMMO marketing area prices as closely as possible. The June spread between individual states or regions varied widely, with a difference of -$3.09 per cwt in Florida to a +33 cents per cwt in Illinois. (Read: All-milk, mailbox price spreads could be widening with marketing deductions)
The difference in the two announced prices can also affect dairy risk management, since indemnity payments under the Dairy Margin Coverage (DMC), Dairy Revenue Protection (Dairy-RP) and Livestock Gross Margin for Dairy (LGM-Dairy) programs are all based on the all-milk price.