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Uncle Same Coming to the Rescue

by Lee Mielke

Published: Friday, August 3, 2018

The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."

Uncle Sam is coming to the aid of farmers hurt by the ongoing trade and tariff wars. Agriculture Secretary Sonny Perdue announced July 24 that the USDA will "take several actions to assist farmers in response to trade damage from unjustified retaliation," according to a USDA press release. The plan "authorizes up to $12 billion in programs, which is in line with the estimated $11 billion impact of the unjustified retaliatory tariffs on U.S. agricultural goods."

"This is a short-term solution to allow President Trump time to work on long-term trade deals to benefit agriculture and the entire U.S. economy," Secretary Perdue said. "The president promised to have the back of every American farmer and rancher, and he knows the importance of keeping our rural economy strong. Unfortunately, America's hard-working agricultural producers have been treated unfairly by China's illegal trading practices and have taken a disproportionate hit when it comes illegal retaliatory tariffs."

How this aid filters down to dairy farmers remains to be seen. The National Milk Producers Federation praised the action and stated it had consulted with USDA on how to reduce the economic harm caused by the trade disagreements.

The plan will use USDA's authority through a combination of direct payments to farmers, milk product purchases for distribution to feeding programs and additional export development assistance.

HighGround Dairy's Lucas Fuess stated in the July 30 Dairy Radio Now broadcast that they were surprised by the size of the package, something that typically is "in the millions of dollars, not billions," but said farmers he has talked to were more of the mindset to "fix the tariff issue itself instead of getting financial support from the government."

Fuess warned, "In the long run, the plan could be somewhat bearish to the market," but he admitted that, "in the short term, it will be nice for dairy farmers to receive payments and support due to the current low milk prices. Overall, whenever the government gets involved in trying to assist farmers it might not work out in the long run for the overall market."

A big question is, would direct payments to farmers be WTO acceptable? Fuess says that's another issue and "there has been pushback in Congress on how this plan will be carried out. WTO has frowned upon some of these subsidies that the government is planning on making," he concluded. "HighGound hopes for a full scale reduction of the overall tariff situation and for farmers to compete better in the world market without subsidies."

NMPF also encouraged the administration to conclude the North American Free Trade Agreement (NAFTA) negotiations and "pursue new trade opportunities, which is the long-term solution to the current situation. We need this assistance for now, but we also need new trade deals that allow our farmers to reach customers in other nations," NMPF CEO Jim Mulhern said.

In yet another trade development; it appears that the administration, after meeting this week with European officials, has agreed to avoid a trade war with the European Union and work toward eliminating tariffs, barriers and subsidies. The EU will purchase American exports, including soy beans and liquefied natural gas, plus will work with the U.S. to reform international trade rules.

One thing is certain, world trade is very complicated and some question if there really can be a "level playing field," especially in agriculture where wages and environmental regulations don't even come close to being equal.

June butter stocks were down from May but well above June 2017, according to the Agriculture Department's latest Cold Storage data. The June 30 inventory was at a bearish 336.4 million pounds, down 2.1 million pounds, or .6 percent, from May but 26.2 million pounds, or 8.5 percent, above June 2017.

American type cheese, which includes Cheddar, slipped to 803.3 million pounds, down 1.3 million pounds, or .2 percent, from May, and 6.9 million, or .9 percent, below a year ago.

The other cheese category hit 557.9 million pounds, up 8.4 million pounds, or 1.5 percent, from May and 78.9 million, or 16 percent, above a year ago.

That put the total cheese inventory at another bearish record high of 1.39 billion pounds, up 7 million pounds, or 1 percent, from May and 75.8 million, or 5.8 percent, above a year ago.

HighGround Dairy summed up the report: "With other-than-American and total cheese stocks at record levels as well as butter still close to multi-decade highs, HighGround sees this report as having bearish undertones, but mostly in line with June's stronger-than-expected U.S. milk production data and largely factored into the market."

Cash dairy prices strengthened the week of July 23 as temperatures rose particularly in the West. CME block Cheddar closed that Friday at $1.52 per pound, unchanged on the week but 23½ cents below a year ago. The Cheddar barrels, after closing the previous week at $1.27, also finished last Friday at $1.52, up 25 cents on the week, but 3½ cents below a year ago. Twelve cars of block exchanged hands on the week at the CME and 62 of barrel.

FC Stone reports that "Replacements seem to be plentiful out there to keep our cow numbers up at the moment. The semi-annual cattle report showed milk replacement heifers at 4.2 million head slightly above estimates but in line with year ago levels."

Some Midwestern cheese producers suggest that slowing sales are an indication of rattled markets, according to Dairy Market News. Buyers are taking the bare minimum, waiting out fluctuant markets. Milk supplies for Class III vary widely. Some cheese producers report ample supplies locally, while others are seeing thinning supplies and a number say they are not interested in spot milk regardless of the offer.

Western cheese trading is mixed depending on suppliers. Some manufacturers report that sales are back up, while others are not receiving as many requests as they were a few weeks ago. According to them, both domestic and international sales have slowed somewhat. The alteration of some of U.S. trade agreements remains a concern for many players, especially now that other countries are forging solid trade agreements with some of the U.S. main competitors. Cheese production is active despite a drop in milk volumes. Inventories are plentiful and outpace demand but, as pizza season approaches and educational institutions begin to reopen, processors hope domestic sales will reboot.

Cash butter closed last Friday at $2.2625 per pound, up 1¼ cents on the week but 45¾ cents below a year ago, with 22 cars trading spaces on the week.

Contacts suggest that some Midwestern and southern Central churns are down for maintenance and updating. Cream loads from the West are more difficult to locate as temperatures increase and trucking options decrease. Butter supplies are readily available. Retail buying is reportedly steady, while food service and restaurant purchases are up from early in the year. The market tone is uncertain.

Western butter makers hope the combination of tighter cream supplies and strong demand from ice cream and other spoonable dairy manufacturers will help prevent butter inventories from growing into "an uncontrollable behemoth." While the recent Cold Storage report shows that national butter stocks decreased in June, some contacts suggest inventories in the West are heavy and still growing.

Cash Grade A nonfat dry milk saw a Friday finish at 81¾ cents per pound, up 3¼ cents on the week but 4¼ cents below a year ago, with 16 sales reported for the week.

The EU commission sold 2,408 metric tons of powder out of its intervention program last week, a significant decrease from previous tenders.

Dry whey finished at a new high of 42½ cents per pound, up a half-cent on the week, with three sales at the CME.

One more item from Washington: An amendment to legislation in the House has got a thumbs up that would improve the H-2A Program for dairy producers, according to National Milk.

Authored by Rep. Dan Newhouse (R-Wash.), the amendment to the Homeland Security Appropriations bill would allow farm employers to use the H-2A visa program to hire foreign workers, regardless of whether those employees are engaged in temporary or seasonal work.

A NMPF press release stated that members of its Immigration Task Force worked with Rep. Newhouse on the proposal "so that dairy farmers can more readily use the H-2A visa program to fill their need for year-round workers."

"Dairy farmers have largely have not been able to utilize the H-2A visa program because the current version restricts the visas only to the temporary and seasonal labor needs of agricultural employers," NMPF explained. "The H-2A program simply isn't an option for a commodity that harvests its product multiple times a day, every day."

Meanwhile, the House GOP Leadership promised the agriculture community that it would bring forth an Ag Guest Worker Bill prior to the House going on its August recess. That is not going to happen, says Bob Gray, editor of the Northeast Dairy Farmers Cooperatives newsletter, as the House adjourned for recess July 26 and will not return until Sept. 4.

Lastly, the U.S. Food and Drug Administration held what it called a "Nutrition Strategy" session July 26 in Washington. Part of it included an examination of label claims and whether there needs to be an updating of regulations on such.

NMPF says the FDA needs to enforce existing law before adding new ones, which would benefit dairy by enforcing the current definition of milk as coming from a dairy cow not a plant. NMPF praised the FDA for "finally recognizing the need to increase its scrutiny of plant-based products imitating standardized dairy foods."

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