Dick Groves
Editor, Cheese Reporter


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More Unwelcome Attention For Raw Milk

published September 25, 2015

There has recently been some good news and some bad news on the raw milk front. The bad news is that a bipartisan group of US House members has reintroduced legislation that would, among other things, prohibit the federal government from interfering with trade of unpasteurized (raw) milk or milk products between states where the distribution or sale of such products is already legal.

The good news is that this legislation was introduced last Friday, when most people stop paying attention to the theatrics going on in Washington and start paying attention to more important things, such as football.
So perhaps these raw milk bills won’t garner all that much attention, or at least as much attention as they might have if they had been introduced, say, on a Monday during a slow news week.

As reported on page 11 of this week’s issue, two bills were introduced last Friday that would loosen current restrictions on raw drinking milk. It should be noted that these bills are aimed at raw drinking milk (or, technically, all raw milk products), rather than raw milk cheese, which is legal at the federal level as long as it’s been aged for at least 60 days.

The first bill, the Milk Freedom Act of 2015, would prohibit the federal government from interfering with the interstate traffic of raw milk products. The second bill, the Interstate Milk Freedom Act of 2015, would prevent the federal government from interfering with the trade of unpasteurized milk or milk products between states where distribution or sale of such products is already legal.

Both bills have multiple original co-sponsors. And in this era of hyper-partisanship, it’s noteworthy that both bills have original co-sponsors from both parties (the Milk Freedom Act’s original co-sponsors include nine Republicans and two Democrats, while the Interstate Milk Freedom Act’s original co-sponsors include 12 Republicans and four Democrats). The sponsor of both bills is listed as US Rep. Thomas Massie, a Kentucky Republican.

So, perhaps to its credit, the controversial issue of raw milk can be credited with bringing both parties together. That applies both to the approximately dozen and a half House members who are co-sponsoring one or both of these bills and to the roughly 417 House members who are not co-sponsoring either of these bills.

And, for what it’s worth, lawmakers from four of the top 10 milk-producing states (California, Idaho, Texas, and Michigan) are included as original co-sponsors of at least one of the two bills.
Or, to put a different “spin” on that last point, not a single lawmaker from six of the top 10 milk-producing states has chosen to become an original co-sponsor of one of these bills.

The introduction of these raw milk bills comes just a few weeks after Dr. John Lucey, director of the Wisconsin Center for Dairy Research and a University of Wisconsin-Madison food science professor, noted in a study published in the scientific journal Nutrition Today that raw milk “is not inherently safe and carries a significant food poisoning risk,” and that recent scientific reviews have concluded that there is “no reliable scientific evidence” to support any of the suggested health benefits that could hypothetically be derived from consuming raw milk (for more details, please see the story that appeared on page 5 of our August 28th issue).

No provision of either bill would preempt or otherwise interfere with any state law, sponsors pointed out.
That’s an interesting point made in Massie’s press release announcing the introduction of the two bills, because in the same release Massie is quoted as follows: “The federal government should not punish farmers for providing customers the foods they want, and states should be free to set their own laws regulating food safety.”

Well, states are already free to set their own laws regulating food safety, at least as it pertains to raw milk.
And so somewhere around 30 states allow the sale of raw milk, mostly on the farm and in small amounts. Several other states have debated bills to legalize some form of raw milk sales, but have thus far not approved such legislation.

What all of this adds up to is a lot of headaches for the dairy industry. For example, although several states have opted not to pass raw milk bills this year, the debates in those states have provided a fair amount of publicity for the dairy industry. They say there’s no such thing as bad publicity, but when it comes to the raw milk issue, well, we’re not convinced.

Meanwhile, raw milk also continues to garner a fair amount of publicity in the states where it’s currently a legal product. This publicity comes in the form of product recalls. Yes, dairy products made from pasteurized milk are also the subject of recalls, but, as one study put it, the relative risk of illness is almost 150 times greater per unit of nonpasteurized dairy product, compared to pasteurized.

The further bad news about this new legislation introduced in the House last Friday is that it adds yet another potential area of unwanted publicity for the dairy industry. Already there are 50 different state approaches to regulating raw milk. Congress getting involved means there is now a 51st potential approach (federal).

The further good news is that these bills are likely to go nowhere, either now or before the current Congress finishes its work in late 2016. Massie introduced both the Milk Freedom Act and the Interstate Milk Freedom Act in March of 2014, and that’s about as far as either bill got.

While it’s unlikely these bills will progress, the dairy industry doesn’t really need this extra attention devoted to raw milk.

New York City’s Sodium Warning Label Lunacy

Beginning in just a few short months, diners in New York City will be able to see something new on menus: warning labels next to items that are high in sodium. This is a truly idiotic idea, and an idea that is potentially harmful to the cheese industry.

As we reported last week (in a story that appeared on page 11), the New York City Board of Health has approved a proposal that requires restaurants with 15 or more locations in New York City to post warning labels next to menu items that contain high levels of sodium. Restaurants are required to start posting these warning labels starting December 1, 2015.

As if that’s not bad enough, restaurants will also be required to post a message, at the point of purchase, letting their customers know that the warning (a salt shaker icon) “indicates that the sodium (salt) content of this item is higher than the total daily recommended limit (2,300 mg). High sodium intake can increase blood pressure and risk of heart disease and stroke.”

There are at least four problems with this new sodium labeling mandate in New York City. First and foremost, it’s a pretty anti-cheese proposal.

That’s interesting in and of itself, because New York (the state) ranks fourth in the US in cheese production and has set new cheese production records for three consecutive years now. Why would New York (the city) do something so negative to something that’s so important economically to New York (the state)?

New York City is obviously known for many foods, and one of them is pizza. We can’t help but wonder how many of New York’s famous pizzerias are now going to have to start putting warnings on their menus next to certain pizzas that have what the Board of Health has deemed to be too much salt. We’re thinking a lot of pizzas with extra cheese and maybe sausage and/or pepperoni will have to include a warning label.

This new warning label also negatively impacts a couple of trends that have been quite favorable for cheese sales in recent years: grilled cheese sandwiches and macaroni and cheese. In both categories, it’s pretty easy to come up with menu items that would trigger a sodium warning, including grilled cheese sandwiches with several different cheese varieties plus bacon and/or ham and mac and cheese made with several different cheeses along with bacon.

New York City is trying to take all the pleasure out of dining out.

Yet another problem with this sodium warning mandate is that it continues a foolish trend in the nutrition world: it singles out certain foods as “bad,” rather than trying to help people improve their overall diets.

To help put this in perspective, here’s what Michael Jacobson, president of the Center for Science in the Public Interest, had to say, in part, about New York City’s new sodium warning label mandate: “Someone craving California Pizza Kitchen’s Meat Craver’s pizza, for example, might not have his or her health at top of mind, but seeing a little saltshaker next to that item on the menu might be enough to get some to reconsider. That particular meal happens to have more than 4,000 milligrams of sodium, or almost two days’ worth.”

But that pizza still represents just one meal. It completely ignores what the restaurant customer might have had to eat earlier in the day. Certainly, consuming that particularly pizza three times a day every day for a year isn’t the best approach to a well-balanced diet, but do consumers really need to be warned about something they might eat once a month, or less frequently?

Yet another negative aspect of this sodium warning mandate is that it ignores some of the recent research that’s questioning the need to cut back too extensively on sodium consumption. Over the past several years, a number of studies have cast doubt on recommendations to cut sodium consumption too much, and there’s even been some criticism about how the entire sodium-reduction war got started and gained momentum.

For example, in August of 2014, a study published in the New England Journal of Medicine concluded that sodium intake between three grams per day and six grams per day “was associated with a lower risk of death and cardiovascular events than was either a higher or lower estimated level of intake.”

And earlier in 2014, a study published in the American Journal of Hypertension concluded that both low sodium intakes and high sodium intakes are associated with increased mortality. That study identified a specific range of sodium intake (2,645–4,945 milligrams) associated with the most favorable health outcomes.

So New York City is requiring warnings on foods that fall below the recommended range for the healthiest sodium intakes? That’s ridiculous, and unhealthy.

Yet another troubling aspect of this sodium warning label is the possibility, albeit slim, that it could go national. That’s what CSPI is hoping for, but we’re guessing that this idea never makes it beyond New York City.

Finally, we have to agree with the National Restaurant Association that New York City’s mandate is “overly onerous” and places an “undue burden” on restaurants that are currently working to comply with the federal menu labeling law. That law requires calorie data on menus and also requires restaurants to offer sodium and other nutrition information in writing to customers on request. A sodium warning label on top of that federal law is overkill.

New York City’s sodium warning label on menus seems likely to raise blood pressure more than a little bit of salt possibly could.

Reasons For Optimism On Fluid Milk Sales

Let’s face it, it isn’t easy being optimistic about fluid milk sales these days. As we reported last week, US beverage milk sales in 2014, at 50.659 billion pounds, were at their lowest level since at least the late 1960s. And for what it’s worth, there are almost 120 million more potential milk drinkers in the US today than there were back then.

Reflecting that fact, per capita fluid milk consumption last year, at 159 pounds, was down 88 pounds from 1975 and likely down more than 100 pounds from the late 1960s. (Comparisons going back that far aren’t easy; USDA statistics show that, for example, per capita consumption of fluid milk and cream in 1965 totaled 292 pounds, but the category back then included not only fluid milk, but also cream, sour cream and dips, eggnog and yogurt.)

Despite these gloomy long-term trends, we’re becoming at least a little optimistic about the future of fluid milk sales. This mild optimism is based on several recent developments.

First, USDA’s statistics for 2014 did reveal one rarity: whole milk sales actually increased compared to 2013. Yes, it was just an increase of 48 million pounds (from 13.936 billion pounds in 2013 to 13.984 billion pounds in 2014), but it did represent the first rise in whole milk sales since 2000.

Why is that significant? Because, while some nutritionists may disagree, whole milk is the fluid milk category’s best product, simply because its fat content gives it some actual flavor (as compared, especially, to skim milk).

As the nutrition community begins to scale back its criticism of milkfat, and even begins to find some health benefits to it, consumers will begin to take a new look at whole milk, and our guess is that they’ll like what they see — and also what they taste.

Our guess is that last year’s increase in whole milk sales won’t be the last one over the next several years.
Another reason for some optimism about fluid milk sales is that the number of fluid milk plants is actually on the increase, according to USDA statistics.

Specifically, as we report in a story on page 15 in this week’s paper, there were 440 fluid milk plants in the US last year, 26 more than in 2013 and 52 more than in 2011. And the average product volume per plant has declined for three straight years.

These two trends represent reversals of two very long-term trends. By about 2005, there were almost 5,000 fewer fluid milk plants in the US than there were back in 1960. Meanwhile, the average volume processed per plant increased from 8.8 million pounds in 1960 to a record 194.4 million pounds in 2008.

How will this potentially help boost fluid milk sales? It seems that, with more consumer interest in local foods, the rising number of small fluid milk plants will make it easier for consumers to find locally produced drinking milk.

Some of these smaller fluid milk plants are farmstead operations, meaning consumers can not only buy milk bottled locally, but they know exactly where that milk was produced and bottled. So, for example, here in Wisconsin, a decade ago consumers might have had two or three gallon milk choices at their local supermarket, one of which was a store brand and another of which was a regional milk brand.

Today, consumers in both Wisconsin and northern Illinois can buy milk from Sassy Cow Creamery, located in Columbus, WI (about 15 miles from Madison), which bottles both conventional and organic milks (it has two distinct herds). Milk bottlers like Sassy Cow may never grow beyond the “niche market” stage, but they’re filling a niche that wasn’t being filled to a great degree a decade or two ago. And every niche helps.

The flip side of farmstead milk bottlers is the national fluid milk brand that was launched earlier this year by
Dean Foods Company, the nation’s largest milk processor and direct-to-store distributor of fluid milk. The company’s DairyPure is available in dairy cases at grocery stores around the US.

Gregg Tanner, chief executive officer of Dean Foods, said the company believes that, over the long term, DairyPure “will provide incremental benefits to consumers, our category, our customers and our company.” While it’s too soon to tell if DairyPure will be successful, a national brand in the fluid milk category certainly can’t hurt.

Also generating interest, as well as sales, for the fluid milk category are relatively new products like fairlife, which is produced and marketed by fairlife, LLC, a partnership between Select Milk Producers and the Coca-Cola Company.

Like DairyPure from Dean Foods, it’s too soon to tell if fairlife will be successful, but it’s difficult to understate the significance of having a company like the Coca-Cola Company involved in the marketing and distribution of a product. The company has a pretty deep understanding of the beverage business, to put it mildly.

Finally, while products like soy “milk” and almond “milk” have been taking sales away from traditional milk for a number of years now, the pendulum may eventually start to swing the other way. For one thing, as the Sacramento Bee reported recently, several lawsuits have been filed in recent months against Blue
Diamond and WhiteWave Foods, alleging false advertising and deceptive marketing of their almond milk products.

Second, these aren’t exactly “clean-label” foods, especially when compared to plain white milk.

Fluid milk sales may never approach their record highs again, but some recent developments indicate that sales could at least begin to stabilize, and maybe even rise, in the not-too-distant future. DG


So Much For Cheese Price Volatility, At Least For Now

Volatility. It’s been one of the buzzwords in the dairy industry for the last quarter-century or so. Indeed, when the Coffee, Sugar & Cocoa Exchange launched Cheddar cheese and nonfat dry milk futures and options contracts back in 1993, it explained that dairy price volatility had become significant enough to indicate that those futures and options markets were needed.

Cheese prices were in fact pretty volatile back then, at least when compared to most years in the 1980s. Back in the 1980s, when the National Cheese Exchange was still meeting every Friday morning in Green Bay, WI, there were years when there were very few price changes for an entire year.

In 1983, for example, there were exactly four price (technically, “market opinion”) changes at the NCE, and the Cheddar block price ranged from a high of $1.3675 per pound at the beginning of the year to $1.3100 per pound in December. The Cheddar block price stayed at $1.3600 per pound from January 14 through September 9, 1983, then “jumped” to $1.3650 for a couple of months before “nosediving” to $1.3100 in early December and then rebounding to $1.3150 later in December.

Volatility at the NCE increased noticeably by the beginning of the 1990s, as the dairy price support program became less relevant and market forces increasingly influenced price levels. In 1990, there were 33 Cheddar block price changes at the NCE, and prices ranged from a low of $1.0875 to a high of $1.4675, a range of 38 cents.

That was nothing compared to what the dairy industry experienced after the introduction of futures and options contracts. In 1996, the last full year of operation for the NCE, the Cheddar block price ranged from a low of $1.1875 to a high of $1.6950, a range of 50.75 cents.

Three years later, during the first full year of the daily cash cheese market at the Chicago Mercantile Exchange, the block price ranged from a high of $1.9725 to a low of $1.1000, an eye-opening range of 87.25 cents per pound.

Thus, at the turn of the century, it appeared that extreme cheese price volatility was here to stay. And indeed it was, with block prices ranging from 98 cents to $1.3350 per pound in 2000, $1.0675 to $1.7800 per pound in 2001, $1.0175 to $1.3900 per pound in 2002, 99.25 cents to $1.6000 per pound in 2003 and $1.3000 to $2.2000 per pound in 2004.

Even in the historically low-price year of 2009, cheese prices were extremely volatile, ranging from a low of $1.0400 per pound in January to a high of $1.7200 per pound in December.

But here in 2015, cheese prices have been, by 21st-century standards, relatively calm. The CME Cheddar block price “bottomed out” back in January at $1.4700 per pound, and peaked at $1.7800 per pound back in June. That range of 31 cents is pretty mild compared to, for example, the last full year of the old NCE and its weekly trading session.

This year’s block price range is even narrower when looking just at monthly averages. Through the first eight months of 2015, the monthly block price average ranged from a low of $1.5218 a pound in January to a high of $1.7111 per pound in June, or a range of less than 19 cents per pound.

There are a couple of additional observations that can be made about dairy price volatility now and in the recent past.

First, cheese appears to be a bit of an anomaly in the lack-of-volatility department here in 2015. By contrast — make that extreme contrast — the CME price for Grade AA butter thus far in 2015 has ranged from a low of $1.54 back in January to a high, just today, of $2.4525.

It may be remembered (should be remembered) that CME butter prices set a dairy industry record for volatility last year when they ranged from a low of $1.5400 per pound at the beginning of 2014 to a high $3.0600 per pound in September.

Nonfat dry milk prices have also been pretty volatile this year, with the CME cash price ranging from a high of $1.20 back in February to a low of 69 cents in August.

Second, what happens during the first half or so of any given year isn’t always an indication of what’s going to happen before that particular year ends. To illustrate this point, look no further than 2014, when cheese prices were above $2.00 a pound for almost the entire first 10 months of the year before falling under $1.50 briefly in late December.

In 2013, the block price during the first nine months of the year ranged from a low of $1.55 per pound in early March to a high of $1.9150 per pound in early May, and was generally in a fairly narrow range between $1.60 and $1.80 per pound during most of that period. Volatility wasn’t all that extreme.

But prices started to increase in October and November, and the block price eventually reached $2.00 a pound on December 20.

And during the first seven months of 2012, the CME block price ranged from $1.46 per pound in early March to a high of $1.72 a pound in mid-July, then started to escalate and reached $2.00 a pound on September 21 before peaking at $2.10 in October.

From all of this we can reach a couple of conclusions. First, it shouldn’t be too much of a shock if block prices reach $2.00 a pound before the end of the year. The last time blocks didn’t reach $2.00 was in 2010.
What happens during the first six to nine months of a year isn’t necessarily an indication of what the final few months will hold.

And second, volatility is alive and well when it comes to cheese prices. It just becomes less extreme at certain times. DG


US Becoming Dumping Ground For Global Dairy Surpluses

In recent years, the US has emerged as one of the world’s leading dairy exporters, but at the same time, the US has also remained a major dairy importer, particularly for cheese but also for products ranging from casein to milk protein concentrate.

US dairy imports have been mixed in recent years, but this year they’ve increased pretty impressively, both on a value and a volume basis. And what appears to be happening, at least to some extent, is that the US is becoming a dumping ground for some of the world’s dairy surpluses.

A few very recent import figures help illustrate this point. In July, licensed US Cheddar imports totaled 5.7 million pounds, up some 4.3 million pounds from July of 2014. That represented more than 20 percent of the total annual US tariff-rate quota for Cheddar (27.3 million pounds).

Meanwhile, the US has been importing a pretty high level of butterfat products thus far in 2015. Licensed butter imports during the first seven months of this year totaled 11.2 million pounds, or almost three-quarters of the annual tariff-rate quota (15.3 million pounds). Licensed imports of butter substitutes during the first seven months of 2015, at 7.2 million pounds, are up 5.4 million pounds from the first seven months of 2014.

Also, imports of high-tier butter during the first seven months of 2015 totaled 9.1 million pounds, up an eye-opening 8.6 million pounds from the first seven months of 2014.

And one more import statistic: licensed US imports of dried whole milk during the first seven months of 2015 totaled 4.3 million pounds, up 3.3 million pounds from the first seven months of 2014.

What these higher imports represent, in part, is the fact that domestic dairy commodity prices in the US are higher, sometimes quite a bit higher, than are global commodity prices. This is especially the case for butter. In July, according to USDA’s Dairy Market News, Oceania butter prices averaged under $1.50 per pound, while the CME cash market price for Grade AA butter averaged over $1.90 per pound.

What these higher imports don’t represent, for the most part, is lower domestic production (which would usually necessitate higher imports). Cheddar production through the first six months of this year was running 2 percent above the first six months of last year, although butter production was running 1.4 percent below year-ago levels through June.

And US production of dry whole milk during the first half of 2015 was up more than 30 percent from the first half of 2014.

Because these imports aren’t necessarily needed for immediate use, what we’re seeing is some build-up in US stocks of some dairy products. For example, stocks of American-type cheese at the end of July were up 6 percent from a year earlier and up 2 percent from a month earlier, while butter stocks were up 41 percent from a year earlier (but down 1 percent from a month earlier).
And manufacturers’ stocks of dry whole milk at the end of June were up 74 percent from a year earlier (but down 10 percent from a month earlier).

What these rising US dairy product imports illustrate, to some extent, is the problem some of the world’s leading dairy exporters are currently experiencing. New Zealand is the world’s leading dairy exporter, and New Zealand’s leading export market is China, followed by the US. China is also New Zealand’s leading market for whole milk powder and butter/anhydrous milkfat/cream products, according to figures from the New Zealand government.

But China isn’t buying as many dairy products as it has in the recent past, so New Zealand is looking around for other markets. US government figures indicate that New Zealand has found a market for at least some additional dairy products in the US.

For example, during the January-July 2015 period, licensed US butter imports from New Zealand totaled 2.6 million pounds, up more than 2 million pounds from the same period in 2014.

During the same period, licensed US imports of butter substitutes from New Zealand totaled 6.4 million pounds, up 5.3 million pounds from a year earlier; and licensed Cheddar imports from New Zealand totaled 8.6 million pounds, up more than 7 million pounds from a year earlier.
Meanwhile, the European Union is also facing some dairy export problems, specifically the Russian ban on dairy imports from the EU as well as several other countries, including the US.

Like New Zealand, the EU also seems to have found a home for at least a little more cheese in the US.
During the first seven months of 2015, licensed US imports of other cheese-nspf from the EU totaled 36.4 million pounds, up about 5.5 million pounds from the first seven months of 2014.

Another issue impacting US dairy imports is exchange rates. As USDA’s Economic Research Service puts it, exchange rates “are, arguably, the single most important price for any economy with significant trade.”
From October 2014 to March 2015, the dollar appreciated 8 percent from the preceding six months, which helped boost US import demand, ERS noted.

All of this should be put into the context of the current US balance of dairy trade. That is, among other things, the US remains a net exporter of dairy products, and a net exporter of cheese. And US imports of cheese, while rising impressively, aren’t close to their peak of more than a decade ago.

But it’s a bit troubling to see that, when times get tough for the world’s leading dairy exporters, they tend to look to the US to absorb some of their surplus products. DG

What If The US Still Had A Dairy Price Support Program?

Back on July 10th, the price of Grade A nonfat dry milk on the Chicago Mercantile Exchange’s cash market fell to 79.5 cents per pound.

This was a significant price for at least one key reason: it marked the first time that the price of a commodity traded on the CME cash dairy markets fell below the “old” Commodity Credit Corporation (CCC) purchase price since the Dairy Product Price Support Program was terminated last year.

And so it’s been interesting to see what’s happened, or hasn’t happened, since then. In 2014, in the months after the support program was terminated, CCC purchase prices were truly “out of sight, out of mind,” since market prices were, at least at times, more than twice the level of those old CCC purchase prices.

But dairy commodity prices have softened somewhat this year, particularly nonfat dry milk prices, to the point where, as noted above, the NDM price at the CME is now below the old CCC purchase price of 80 cents per pound. And this raises the question: what would have transpired after July 10th if the price support program was still in operation?

First, a bit of history. The dairy price support program was around for many years, but the program wasn’t really operating during its final years, so to industry newcomers, the dairy price support program is something they’ll never have to deal with. Lucky them.

But for those who have been involved in the dairy industry for a few decades, well, it’s hard to describe how important this program was at various times.

The dairy price support program was established on October 1, 1949, by the Agricultural Act of 1949, and was finally relegated to the scrap heap of dairy policy history last year, when President Obama signed the 2014 farm bill into law. So the price support program was 64 years old when it was terminated.

Over the years, the price support program ebbed and flowed in its importance to the dairy industry in general and to dairy markets (prices) specifically. Under the price support program, the CCC purchased surplus Cheddar cheese (40-pound blocks and 500-pound barrels), butter and nonfat dry milk at pre-announced prices; these purchases enabled processors to pay dairy farmers the mandated support price for their milk.

During its history, the support price ranged from a low of $3.06 per hundredweight to a high of $13.49 per hundred. Under the 1977 farm bill, the support price for milk was set at 80 percent of parity, and it had to be adjusted (raised) every six months (on April 1 and again on October 1) to reflect changes in prices paid by dairy farmers for production inputs.

In 1976, the CCC purchased around 235 million pounds of surplus dairy products, primarily nonfat dry milk.
By 1981, CCC purchases had climbed to 351.5 million pounds of butter, 563 million pounds of cheese and 851 million pounds of nonfat dry milk. CCC purchases of cheese and nonfat dry milk peaked in 1983, at 833 million pounds and 1.061 billion pounds, respectively, while CCC butter purchases reached 413 million pounds that year but peaked at 444.9 million pounds in 1992.

By 1990, the support price had been reduced to $10.10 per hundredweight, and the CCC became a less important buyer of dairy products, starting with cheese and nonfat dry milk, and later, butter.

Since then, CCC purchases have ranged from fairly low to non-existent. The most recent year in which the CCC bought any surplus dairy products was in the low-price year of 2009, when the CCC purchased about 182 million pounds of nonfat dry milk, 15 million pounds of cheese and 23 million pounds of butter (these are net USDA removals).

That brings us back to our original question: What would have happened over the last several weeks if the price support program was still operating? Our guess: at least four things in the short term.

First, it would seem likely that some dairy processors would have started selling nonfat dry milk to the CCC.
Back in 2009, when NDM prices were slightly above 80 cents per pound, the CCC was buying millions of pounds of surplus powder every week. Our guess is that the CCC would have started buying surplus powder a few weeks ago and would still be buying surplus powder today.

Second, nonfat dry milk prices would have stopped falling. Again back in 2009, NDM prices at the CME fell to the low 80s, but never below 80 cents per pound. This year, without the CCC as a buyer of last resort, the CME price for Grade A NDM has actually dropped below 70 cents a pound a few times.

Third, US exports of NDM probably would have declined. Less than a week after the CME NDM price fell below 80 cents, the average winning price on the Global Dairy Trade auction also fell below 80 cents per pound.

US dairy export statistics for July won’t be released for a few more weeks, but it seems that the US is in a better position to compete globally, because the domestic NDM price can fall below 80 cents, than it would have been had the CCC purchase price effectively floored the domestic price well above the world (GDT) price.

And fourth, sometime in the near future, USDA would have started trying to figure out ways to get rid of its surplus NDM stocks.

If the support program was still operating, milk prices might be a bit higher (at least the federal order Class IV and California 4a prices), but exports would likely be lower, and the market would have millions of pounds of surplus CCC-owned powder hanging over it.

Bottom line: the US dairy industry is better off without the dairy price support program. DG

A California Federal Order And Its Nationwide Impacts

While pretty much every step in the process has been based in California, the prospect of a California federal milk marketing order certainly will have implications far beyond that state’s borders. And that makes the California federal order hearing that begins next month worth watching for everyone involved in the US dairy industry.

As reported on our front page last week, the US Department of Agriculture announced that a public hearing will be held beginning on Tuesday, September 22, 2015, in Clovis, CA, to consider and take evidence on a proposal to establish a federal order to regulate the handling of milk in California. If still ongoing (as expected), the hearing will be held on October 22 and 23 in Fresno, CA.

As noted above, everything about this hearing, up until now, has been California-based. It was more than two years ago when California’s three largest dairy cooperatives — California Dairies, Inc., Dairy Farmers of America and Land O’Lakes — announced that the findings of a five-month study they commissioned indicated that a properly written federal order for California would provide a regulatory structure that could potentially result in higher farmgate milk prices.

About a year and a half after they announced those study findings, the three co-ops petitioned USDA to conduct a hearing on a possible California federal order. Three California entities submitted alternative proposals, information meetings were held in California, and in a little over a month, this long-anticipated hearing will begin in California.

But while a California federal order would have profound and lasting implications for California’s dairy industry, its potential implications on the dairy industry beyond its borders cannot be understated. This point becomes obvious when reading through USDA’s preliminary regulatory impact analysis of the co-ops’ proposal, as well as other proposals.

Notably, the co-ops’ 2013 study findings appear to have been confirmed by USDA. Specifically, the agency’s preliminary impact analysis forecasts that adoption of the co-ops’ proposal would increase total California producer revenue by an average of $700 million per year across the 2017 to 2024 forecast period, and would also increase the California all milk price by $1.03 per hundredweight and boost California milk production by 540 million pounds per year.

So USDA’s study agrees with the study conducted two years ago on behalf of the co-ops: a properly written California federal order would provide a regulatory structure that could potentially result in higher farmgate milk prices in California. Quite a bit higher, as it turns out.

But while a California federal order (established as the co-ops have proposed) would have a positive financial impact on California dairy producers, it would have a negative financial impact on dairy producers outside the Golden State, USDA’s analysis shows.

Specifically, the increase in California’s milk production would lead to lower uniform prices, lower all-milk prices, and lower producer revenues across most of the rest of the US, with the exception being the current unregulated areas of the former Western federal order, where “modest increases” in producer revenue and increases to the all-milk price would be similar to those observed in California, USDA said.

This raises a couple of interesting points. First, because two of the three co-ops behind this California federal order proposal — DFA and LOL — are based outside California, how thrilled are the co-ops’ non-California members going to be when they find out this proposal will potentially reduce their milk prices?

And second, since USDA’s analysis indicates that milk prices in currently unregulated areas of the former Western order would increase under the co-ops’ proposal, might we see, if a California federal order becomes a reality, more producers push to terminate their orders in order to boost milk prices?

Taken to the extreme, we could see a highly improbable situation, a few years down the road, in which the federal order system includes just one order, the new California order, and all other orders have been terminated. Yes, that’s highly improbable, but many observers have said for many years that it was highly improbable that California would join the federal order system.

At the plant level, the co-ops’ proposal would, according to USDA, reduce national prices for Cheddar cheese, butter, nonfat dry milk, and dry whey for the period of 2017 through 2024, which would also reduce federal order class prices. In California, the California Class I price would decline, while other class prices would increase, including the California Class III price, which would rise by $1.84 per hundredweight.

This latter point reminds us again of the talk, at the 1989 Midwest Milk Marketing Conference, by Bill Blakeslee of Mid-America Dairymen (now part of DFA). Blakeslee talked about California’s Class 4b price being so much lower than the federal order cheesemilk price (then the M-W price) that California cheese could “go from the West Coast to the East Coast and have a competitive advantage over the Midwest.”

That “competitive advantage” that California has had for all these years would basically disappear if a California federal order becomes a reality. And at the same time, more milk would go into Class III and Class IV products in California.

And that’s a key reason why a California federal order has such enormous implications for the US dairy industry.

FDA Needs To Hear From Industry On Raw Milk Cheese

Well, that didn’t take long. Just a week after we called on the US Food and Drug Administration (FDA) to “move ahead on changing its raw milk cheese regulations,” the agency did just, sort of. It’s a small step, granted, but at least FDA is finally taking the initiative on the raw milk cheese issue.

As reported on our front page last week, FDA is requesting comments and scientific data and information that will help the agency in identifying and evaluating intervention measures that might have an effect on the presence of pathogens in cheeses made from raw milk. Electronic or written comments and data may be submitted through November 2, 2015.

FDA’s Federal Register notice inviting public comments is pretty brief, but also pretty telling. The agency noted that a 2012 review of foodborne illness outbreaks that occurred between 1993 and 2006 that were attributed to dairy products determined that more than 50 percent of the outbreaks reviewed in the study involved cheese, and that 42 percent of the 65 cheese-associated outbreaks were attributable to products manufactured from raw milk.

The 60-day aging period for cheese made from raw milk was “presumed to act as a control measure to reduce the risk that pathogens would be present when the cheese was consumed,” but the “available data and information raise questions about the safety of cheese” made from raw milk, “even when aged,” FDA stated.

Also last Friday, FDA released the “Joint Food and Drug Administration/Health Canada—Sante Canada Quantitative Assessment of the Risk of Listeriosis From Soft-Ripened Cheese Consumption in the United States and Canada,” which concluded, among other things, that there is, “approximately, a 50- to 160-fold increase in the risk of listeriosis from a serving of soft-ripened cheese made from raw-milk, compared with soft-ripened cheese made from pasteurized milk” (this observation is from the 10-page “Interpretive Summary,” rather than from the 192-page report itself).

In its request for comments, FDA said it is “continuing to evaluate the safety of processes for the manufacture of cheese, particularly processes for the manufacture of cheese from unpasteurized milk,” but it’s pretty obvious that the agency has already concluded (and likely reached this conclusion back in the late 1990s) that it considers the 60-day aging period for raw milk cheese to be inadequate.

Indeed, it points out that results from the FDA-Health Canada Quantitative Risk Assessment on listeriosis “suggest that the 60-day aging period for soft-ripened cheese may increase the risk of listeriosis” by allowing more time for L. monocytogenes, if present, to multiply (rather than decrease) as the cheese ages.

So, if nothing else, FDA’s request for comments and data can realistically be considered the beginning of the end of the 60-day aging rule for raw milk cheese.

FDA said it is specifically requesting comments and scientific data and other information to, among other things, understand current practices to reduce the potential for foodborne illness during the manufacture of cheese from raw milk. For example, to what extent do raw milk cheese producers solely rely on an aging period to significantly minimize pathogens that may be present in unpasteurized cheese? And what are those other control measures?

The agency also wants to know whether, for pathogens other than Listeria monocytogenes, a 60-day aging period is effective in adequately reducing a broad spectrum of pathogens that could be in cheese made from raw milk.

And FDA wants to understand the prevalence of testing during manufacture (for example, testing for pathogens of each lot of cheese manufactured from unpasteurized milk and of bulk shipments of raw milk), how practical such testing would be, and how much it would cost.

The FDA-Health Canada risk assessment provides some interesting perspective on testing. Here’s what that report says: “For raw-milk cheeses, testing milk is less efficient than testing cheese lots.” It would appear that any future FDA regulation of raw milk cheese will include some sort of final product testing requirement.

It will be mighty interesting to see how many comments FDA receives in the next three months, and also how diverse those comments are. FDA received a total of 96 comments on its draft risk assessment of listeriosis in soft-ripened cheese; those responses came from organizations such as the International
Dairy Foods Association and American Cheese Society, as well as a number of cheese makers and others.

And that was just a draft risk assessment. Now, FDA is interested in comments and data on various issues related to the manufacture of raw milk cheese, with the obvious outcome eventually being changes to the current 60-day aging requirement.

So the clock has started ticking. FDA has established a comment deadline of November 2, 2015.

Our guess is that the agency will hear from entities around the world, not just in the US. After all the US imports more than 300 million pounds of cheese every year, and a fair amount of that cheese is made from raw milk. Any changes to FDA’s raw milk regulations could have a significant impact on cheese makers around the world who export to the US, as well as US companies that have long imported those cheeses.
No doubt some people would like the US to be able to import more raw milk cheeses.

Comments can be submitted electronically at: www.regulations.gov. The docket number is FDA-2015-N-2596.

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