NMPF President’s Update – June 19, 2020

Normally I wouldn’t begin this weekly update with a USDA statistical report, but Thursday’s May milk report is certainly some of the best news of the week.  Overall U.S. milk output declined by 1.1%, or 218 million pounds, from last May.

This is confirmation that the tough decision made by many of our co-op members to implement base-excess plans to cut supply this spring in light of the pandemic-induced demand disappearance was successful – as also evidenced by the rebound in cash markets and future prices.

The report also shed light on the fact that the production drop was achieved both through more aggressive culling – cow numbers dropped 11,000, or 0.1% from April – as well as through herd management practices, as May milk production per cow was 2,011 pounds, a decrease of 31 pounds, or 1.5%, from the prior year.  Let’s hope that the bitter pill to correct the problem is all that we need this year.

The USDA’s most recent update on the $16 billion CFAP program indicated that 12,000 dairy producers have now applied for direct payments totaling $667 million. Overall, the agency has approved $2.9 billion in direct payments to 220,000 producers. Remember that the initial payment being sent out is 80% of the total that each farm is eligible to receive.

USDA to Open DMC Enrollment for 2021 in October The USDA announced this week that enrollment for in the Dairy Margin Coverage (DMC) program will begin October 12th  and run until December 11th. More than 13,000 operations enrolled in the program for the 2020 calendar year, and as of June 15, the Farm Service Agency has issued more than $100 million in program benefits. The USDA’s calculator is forecasting significant payments in April and May, and then no payments are triggered in the latter half of this year – if current forecasts hold. DMC payments are projected to total $.66/cwt. on the year’s milk production at the $9.50/cwt. coverage level.

SBA Provides New PPP Loan Application – In a further effort to make the new Paycheck Protection Program (PPP) accessible for borrowers, the Small Business Administration (SBA) this week released a new application intended to make applying for loan forgiveness easier.

The new EZ application, at two pages, requires fewer calculations and less documentation than the revised full forgiveness application. The EZ application applies to borrowers that:

  1. Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; Or
  2. Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%; Or
  3. Are self-employed or have no employees.

As I reported last week, under recent PPP rule changes, only 60% of the funds must be used on payroll expenses for the loan to be forgiven, as opposed to the 75% minimum that was included in the original legislation.

Dietary Guidelines Report Positive for Dairy – Both fans and foes of dairy foods were eagerly anticipating this week’s release of a draft report of the committee looking at whether to make changes in government dietary advice that is updated twice a decade. 

The Dietary Guidelines Advisory Committee met via webinar on Wednesday to discuss possible changes to its draft conclusions, prior to release of the final advisory report. The committee is set to release the final report in mid-July, followed by a written comment period with one final opportunity to provide oral comments to USDA and HHS in August.

Despite heavy pressure from vegan groups to have the U.S. adopt an approach more like Canada’s recent changes that diminish the role of dairy foods, we were able to carry the day thanks to a full-court press from dairy and allied organizations.

The key takeaway is that the committee supports keeping dairy foods as an essential component of America’s daily diet. The report continues to recommend dairy consumption across all three eating patterns and recommends three servings of dairy per day for two of the three.

The committee also noted that a diet containing low-fat and fat-free dairy, legumes, whole grains, fruits and vegetables is associated with beneficial outcomes. For the first time in dietary guidelines history, the committee created guidelines for children from birth to 24 months. Both yogurt and cheese were recognized as complementary feeding options for infants 6-12 months and dairy foods were included in the healthy eating patterns designed for toddlers 12-24 months.

Unfortunately, the committee didn’t change the recommendation around saturated fat, keeping it at no more than 10% of daily energy intake. Earlier this week, we issued an admonition to the committee members, urging them to examine recent, evolving scientific evidence that dairy fats are not associated with adverse health outcomes and thus the guidelines should be more flexible on the types of milk in its recommendations.

The letter, co-signed by IDFA, was a continuation of our ongoing efforts with the DGAC process. National Milk submitted detailed comments last fall during the comment period and will continue to engage during the upcoming comment period when the final report is made public.  We have communicated with key Capitol Hill allies on this issue, who are interested in supporting the dairy sector as the final guidelines are composed, and we will continue pressing on the dairy fats issue for as long as we have the opportunity to weigh in with the committee and the agencies that will ultimately implement the final guidance.

NMPF Criticizes Canada’s USMCA Dairy Access – NMPF raised a caution flag this week about the degree to which Canada will comply with both the letter and spirit of the new U.S.-Mexico-Canada free trade agreement.  As we approach the July 1st official implementation date, USDEC President and CEO Tom Vilsack and I expressed our concern that the additional access Canada intends to give U.S. exporters will discourage our high-value exports and limit the upside of what the agreement offers to our farmers.  Most of the Tariff Rate Quotas that Canada announced this week are earmarked for competitors who have no incentive to import U.S. products.

NMPF and USDEC have repeatedly warned that the full benefits of the USMCA will not materialize without careful monitoring and stringent enforcement of Canada’s commitments. We urged the U.S. Trade Representative (USTR) to immediately raise this issue with Canada and insist that Canada adheres to the terms of the pact. Canada’s administration of dairy TRQs in the past has limited the value of such market access, and we’ve continued to tell the Administration and Congress that the process needs to be different in the future.

This issue was also addressed by USTR Robert Lighthizer this week during a lengthy congressional hearing. When pressed on the dairy access issue, he pledged that the U.S. will be keeping a close eye on Canada to make sure it lives up to its promise for dairy reforms. If Canada reneges on its promises, “we’re going to bring a case against them,” Lighthizer said.

NMPF Calls for End to EU Dairy Dumping in International Markets – In a letter to U.S. Trade Representative Robert Lighthizer and Agriculture Secretary Sonny Perdue, NMPF said this week that the U.S. needs to challenge how the European Union has manipulated international dairy markets.  We pointed to a new economic analysis by Darigold that details how the EU’s skim milk intervention program created a “beggar thy neighbor” dynamic that hurt the U.S. dairy industry. The EU program depressed the global price of SMP and thus farm-level milk prices in 2018 and 2019, contributing to a $2.2 billion loss of U.S. dairy-farm income those years. In a joint letter with USDEC and IDFA, we urged the U.S. government to prevent the EU from using future intervention practices that depress global milk protein prices.

Finally, in our most recent podcast, we reviewed how the coronavirus pandemic has shifted dairy consumption patterns away from fake milk products toward what consumers know is tried and true. While consumers bought 7.9 million more gallons of plant-based beverages during the two peak weeks in March than they did during the same period a year earlier, milk demand exploded by more than 45 million gallons, erasing its year-to-date decline in less than two weeks. If current trends hold, milk’s revival may finally force a revision of the “death of dairy” myth.

Thanks for reading and enjoy your weekend.