Dick Groves
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NASS Is Wise To Track Feta, Blue And Gouda Production

Almost a decade and a half ago, USDA’s National Agricultural Statistics Service (NASS) added three cheese categories to its monthly “Dairy Products” report: Feta, Blue and Gorgonzola, and Gouda.

Given the production levels for these three categories, as well as the growth experienced by two of those varieties, we’d have to conclude that NASS made a wise choice in adding these three cheese varieties to its monthly report.

Technically, NASS had been tracking the production of Blue and Gorgonzola for many years. NASS statistics show that US production of Blue and Gorgonzola cheese increased from 7.7 million pounds back in 1950 to 42.8 million pounds in 1997.

But then NASS stopped publishing production statistics for Blue and Gorgonzola, and didn’t start publishing them again until 2010, when output had reached 84.1 million pounds, or almost double the 1997 level.

Since then, production of Blue and Gorgonzola has experienced some ups and downs, topping 90 million pounds every year from 2013 through 2019, dropping back to 73.5 million pounds in 2021, rebounding to 92 million pounds in 2022, and then falling to 84.4 million pounds in 2023.

Also, significantly, there are quite a few plants producing Blue and Gorgonzola these days. Specifically, there were 46 plants producing Blue and Gorgonzola last year, which is more plants than were producing Cream and Neufchatel (32), Provolone (32), Romano (25) or Muenster (43).

To put this in some historical perspective, back in the early years of Blue and Gorgonzola production (from a NASS statistical perspective), the number of plants producing these cheeses peaked at 25, in 1961 (when production totaled 16.2 million pounds), and dropped as low as nine, in 1983 (when production totaled 31.5 million pounds).

Production of Blue and Gorgonzola may not set new records every year, but this is certainly a significant-enough category to be statistically tracked by NASS.

Meanwhile, Feta production has risen impressively since NASS started tracking its production back in 2010. Specifically, Feta output has risen from 77.6 million pounds in 2010 to 145.7 million pounds in 2023.

Granted, Feta production over the past couple of years hasn’t quite reached its record level of 169.2 million pounds, set in 2021, but it has risen 10 times and only declined three times over the 2010-23 period.

And Feta is being produced in a lot more plants than was the case back in 2010. Specifically, there were 47 plants producing Feta in the US last year, 22 more than in 2010. The 47 plants producing Feta in 2023 was the highest number since 2019, when a record 50 plants were producing Feta.

And then there’s Gouda, production of which has risen from 19.0 million pounds in 2010 to 61.5 million pounds in 2023. Like Blue/Gorgonzola and Feta, Gouda production has experienced its ups and downs over the years, reaching a record 65.4 million pounds in 2017 and falling for three straight years after that.

One area where Gouda has really posted impressive increases over the years is in plant numbers. Specifically, the number of US plants producing Gouda has risen from 39 in 2010 to 94 in 2023.

And the increase in the number of plants producing Gouda has been pretty steady over the years. Indeed, the number of plants producing Gouda has increased in all but three years; it declined from 69 to 68 in 2016, fell from 88 to 86 in 2020, and held steady at 86 in 2021. Every other year, at least one additional plant has taken up Gouda production.

Keeping in mind that NASS hasn’t added any new cheese variety to its monthly “Dairy Products” report in well over a decade, we can’t help but wonder what variety might be next, should the agency decide to add another variety.

One logical variety to add to the report would be Havarti. Wisconsin has been tracking Havarti production for three decades now, and output has risen from just 1.5 million pounds in 1993 to 44.6 million pounds in 2023.
Also, the number of plants producing Havarti in Wisconsin has risen from just five back in 1993 to 13 last year.

And Havarti isn’t just produced in Wisconsin; the recent World Championship Cheese Contest also drew Havarti entries from Iowa and New York.

In the Italian cheese arena, NASS tracks production of Mozzarella as well as Parmesan, Provolone, Ricotta and Romano, and lumps other Italian varieties into the “other Italian types” category.

Production of those “other Italian types” last year totaled 85.8 million pounds, or some 35 million pounds more than Romano production. We know that at least 31.7 million pounds of that 85.8 million pounds is Asiago, because that’s the amount of Asiago produced in Wisconsin last year.

So maybe it’s time for NASS to start publishing Asiago production statistics separately, rather than as part of the “other Italian types” category.

Recent additions to the monthly NASS “Dairy Products” report have shown that they belong in that report. It shouldn’t be too long before we see additional varieties being included in those reports.

How Can Bottled Water Continue To Outsell Milk?

It could be said that, in the US, bottled water is “having its moment.” And by “moment,” we mean decade, or two or three or more. Bottled water sales and consumption have been trending upward for many years.

Indeed, sales of bottled water are basically trending in exactly the opposite direction as sales of fluid milk, which we find somewhat puzzling given milk’s many nutritional attributes and bottled water’s lack thereof.

What prompted this train of thought was a couple of related press releases issued earlier this month, one from Beverage Marketing Corporation and the other from the International Bottled Water Association.

Here’s how BMC’s May 22nd release begins: “Bottled water, the largest beverage category by volume in the United States, barely grew in 2023, resulting in an atypical downturn in per capita consumption. Inflation-fueled pricing resulted in sales growing solidly, albeit less rapidly than in the previous year. Despite the slowing growth, the largest beverage category by volume reached new peaks in both producers’ revenues and total gallons.”

Other than two relatively small declines in 2008 and 2009, bottled water volume grew every year from 1977 to 2023, the BMC release noted. By comparison, sales of fluid milk in 1977 totaled 53.7 billion pounds, varied in a range between 51.9 and 55.5 billion gallons from 1977 through 2009, and then declined every year to reach 43.4 billion gallons in 2022 (the latest year for which statistics are available from USDA’s Economic Research Service).

With 2023’s softness, per capita bottled water consumption dipped to 46.4 gallons, down a tenth of a gallon from the year. This marked the first decrease in average intake since overall volume declined a decade and a half earlier, BMC noted.

Meanwhile, per capita fluid milk consumption hasn’t increased since 1984, when consumption of 224 pounds was up one pound from 1983. Since then, per capita consumption has either declined or been unchanged every year, and by 2022 per capita fluid milk consumption stood at 130 pounds.

Fluid milk isn’t the only beverage experiencing consumption declines. According to the BMC, per capita consumption of carbonated soft drinks dipped from 36.3 gallons in 2022 to 35.7 gallons in 2023. At the turn of the century, per capita soft drink consumption regularly exceeded 50 gallons.

For more than a decade, consumers have been increasingly choosing bottled water instead of packaged drinks, the International Bottled Water Association noted in a May 21st press release. In fact, since 2012, 34 percent of bottled water’s growth has come from people switching from “less-healthy drinks” to bottled water.

“Multiple characteristics account for bottled water’s resonance with US consumers, including its associations with healthfulness, convenience, safety, and value. An array of packaging types, ranging from single-serve to bulk, facilitates a wide range of uses,” John G. Rodwan, Jr., BMC’s editorial director, states in the IBWA press release. “Bottled water’s zero-calorie status and its lack of artificial ingredients appeal to many consumers.”

In that context, it’s hard to believe that fluid milk has fared so poorly in recent decades. This is perhaps especially true when it comes to healthfulness.

Yes, milk will never be able to match bottled water’s “zero-calorie status.” But that’s actually a positive for milk.

After all, calories aren’t the only category in which bottled water scores a zero, while milk scores considerably better. As has been pointed out by numerous dairy industry representatives, dietitians, and others, milk is a source of 13 essential nutrients, ranging from calcium and protein to potassium and zinc.

Bottled water? It doesn’t really provide much of anything in the way of nutrients.

Then there’s value. Yes, bottled water can be pretty inexpensive. For example, at Walmart, a gallon of Great Value Purified Drinking Water costs $1.22, while a gallon of Great Value Whole Milk costs $2.51 (these prices were taken from Walmart’s website on Monday, May 28).

So for $1.22, you can buy a gallon of a liquid that contains basically no nutrients, or for $1.29 more, you can buy a gallon of a liquid that is a source of 13 essential nutrients. Seems like, when it comes to nutrition, milk is clearly the better value.

How about convenience? For many years, fluid milk was only sold in bulk containers, but today, fluid milk is sold in a wide range of sizes. Further, fluid milk is available with shelf lives ranging from a couple of weeks to a couple of months (with refrigeration) to six months or more (without refrigeration) for UHT milk.

Granted, bottled water has the advantage of being shelf-stable after being opened, so if you don’t finish your 16-ounce bottle today, it will still be okay the next day or next week, without refrigeration. That’s obviously not the case with milk.

All of this is not to take anything away from the bottled water industry; it’s obviously done a lot of things right over the years. But we can’t believe fluid milk hasn’t fared better, given its many positive attributes compared to bottled water...

A Rare Shake-Up In The Top 10 Dairy States

USDA’s National Ag Statistics Service released its monthly “Milk Production” report on Monday (for more details, please see the story on our front page this week), and the April milk production statistics included something that doesn’t happen very often: a new state in the top 10 dairy states.

Specifically, Iowa ranked 10th among the 24 reporting states in April milk production, bumping New Mexico into the 11th position.

Granted, this is just one month, and recent experience has shown that one month doesn’t necessarily foretell how states will rank in milk production for an entire year. Case in point: in 2023, Texas outproduced Idaho in seven out of 12 months, but for the entire year, Idaho outproduced Texas by 262 million pounds to remain third in milk production, with Texas in fourth place.

But the New Mexico-Iowa shift appears to have “staying power.” Just looking at basic milk production changes, Iowa’s milk output has been rising in recent months, while New Mexico’s production is plummeting.
Specifically, Iowa’s April milk production was up 3.6 percent compared to April 2023, while New Mexico’s was down 17.3 percent. March milk production in the two states had been up 1.8 percent and down 15.4 percent, respectively, from March 2023.

Also, Iowa in April had 4,000 more milk cows than a year earlier and 1,000 more milk cows than a month earlier, while New Mexico had 47,000 fewer milk cows than a year earlier and 5,000 fewer milk cows than a month earlier.

Looked at another way, Iowa’s April milk production, at 512 million pounds, was the state’s highest output for the month since 1965, while New Mexico’s April milk output, at 498 million pounds, was the state’s lowest production for the month since 2001.

New Mexico’s April milk production reached a record high of 723 million pounds in 2018, and was above 700 million pounds as recently as 2021 (713 million pounds). So New Mexico’s April 2024 milk production was some 215 million pounds below its April 2021 milk production.

Meanwhile, Iowa’s milk production in April 2018 totaled 442 million pounds. It didn’t change in April 2019, but has risen every April since then, to 512 million pounds this year.

What all of this seems to add up to is that Iowa’s milk production has some positive momentum, New Mexico’s milk production has some negative momentum, and it’s likely that Iowa will end up ranking 10th in milk production in 2024, followed by New Mexico.

This change in milk production rankings also got us wondering about top 10 dairy states in the past; specifically, how many years New Mexico has been in the top 10, how many years Iowa hasn’t been in the top 10, and how long it’s been since a new state entered the top 10.

It may be recalled that New Mexico hasn’t been a milk production powerhouse for all that many years. For example, New Mexico’s milk production first topped 2 billion pounds in 1992, and it ranked 17th in milk production that year. New Mexico’s milk production was growing rapidly at that time, rising from 1.1 billion pounds in 1988 to 4.0 billion pounds in 1997.

Speaking of 1992, Iowa was a top 10 state back then, ranking 10th, with milk production of just over 4.0 billion pounds. In fact, Iowa was in the top 10 for a number of years, ranking eighth in 1980, sixth in both 1960 and 1970, and fourth in both 1950 and 1940.

The year 1997 was not only the first year in which New Mexico’s milk production topped 4.0 billion pounds, it was also the first year in which the state’s output topped Iowa’s, which totaled 3.7 billion pounds. Interestingly, neither state was in the top 10 that year, ranking 11th and 12th.

One year earlier, in 1996, the two states had also ranked 11th and 12th in milk production, but with Iowa ranking 11th, with milk output totaling 3.78 billion pounds and New Mexico ranking 12th, with milk output totaling 3.75 billion pounds.

New Mexico and Iowa ranked 11th and 12th, respectively, in 1998, and then New Mexico entered the top 10 in 1999, bumping Ohio to the 11th spot and Iowa to the 12th spot. That year (1999), the top 10 milk-producing states were, in order: California, Wisconsin, New York, Pennsylvania, Minnesota, Idaho, Texas, Washington, Michigan and New Mexico.

The top 10 states have remained the same ever since, with some shuffling in their order from year to year. In 2023, the top 10 milk-producing states were, in order: California, Wisconsin, Idaho, Texas, New York, Michigan, Minnesota, Pennsylvania, New Mexico, and Washington.

At this point, it looks like Iowa will replace New Mexico in the top 10 states in 2024.

This brings up one additional question: Is there another state that could possibly end up in the top 10 states anytime soon? In 2023, number 10 Washington produced 6.2 billion pounds of milk, while Iowa’s output totaled 5.9 billion pounds.

Other than Iowa, the state closest to Washington in 2023 milk production was Ohio, at 5.7 billion pounds. But current trends in those states’ milk production indicates no new top 10 state in the near future...

Specialty Cheese Production Keeps Growing, And Evolving

Wisconsin’s specialty cheese production continues to set new records, and it also continues to evolve. And what’s taking place in Wisconsin is also happening across the US.

As we reported last week (in a story that appeared on page 7), Wisconsin’s specialty cheese production reached a record 941.7 million pounds last year, up 1.5 percent, or 13.7 million pounds, from 2022’s record output. Specialty cheese now accounts for more than one-quarter of Wisconsin’s cheese production.

Wisconsin has been tracking specialty cheese production for three decades now, and it’s interesting to look at what the initial statistics looked like compared to the most recent statistics.

Back in 1993, Wisconsin’s specialty cheese production totaled 83.1 million pounds, or about 859 million pounds less than the state’s specialty cheese output in 2023. Also back in 1993, 43 of Wisconsin’s 158 cheese plants produced at least one type of specialty cheese; last year, 94 of the state’s 117 cheese plants produced at least one type of specialty cheese.

In 1993, the leading category of specialty cheese produced in Wisconsin was Romano, at 13.6 million pounds. In 2023, Wisconsin produced 8.4 million pounds of Romano wheels, but overall Romano production in the state actually totaled 29.5 million pounds, according to statistics from USDA’s National Ag Statistics Service.

Ranking second among specialty cheeses reported for Wisconsin in 1993 was Queso Blanco and other Hispanic cheeses, at 9.0 million pounds. In 2023, Hispanic cheese was the leading specialty cheese in Wisconsin, with production totaling 130.0 million pounds.

There are a couple of points worth noting here. First, while Wisconsin has been reporting Hispanic cheese production since 1993, NASS has been reporting it since 1996, and Wisconsin’s production and overall US production have been rising impressively since the 1990s. Last year, US production of Hispanic cheese reached a record 423.5 million pounds, up from just 67.4 million pounds in 1996.

Second, the current production level raises the question of whether Hispanic cheese should still be considered a “specialty” cheese. After all, Hispanic cheese production last year was more than twice the level of Muenster output (202.4 million pounds), but Muenster isn’t considered a specialty cheese (but maybe it should be).

Perhaps the best way to look at this issue is to compare it to the evolution of the Italian cheese industry in the US. So, for example, back in a report released in late 1950, USDA’s Bureau of Agricultural Economics reported that, in 1949, production of Italian varieties of cheese totaled 55,127,000 pounds, the highest since 1946.

Almost 20 years later, USDA reported that, in 1967, Italian cheese output, at 279 million pounds, set another record high, up 3 percent from 1966.
There was no breakdown of Italian cheese production by variety.

Today, of course, USDA reports not only Italian cheese production as a whole, but also breaks out production of Mozzarella, Parmesan, Provolone, Romano, Ricotta, and “other” Italian varieties.

The point is, there are numerous categories of Hispanic cheese, ranging from Queso Fresco and Oaxaca to Panela and Cotija. At some point in the future, perhaps Hispanic cheese production will be broken out into multiple categories (this might prove to be difficult given a lack of standards of identity for Hispanic cheese varieties), but for now it seems like the overall Hispanic cheese category should still be considered a specialty.

Feta production has also grown tremendously over the past 30 years, both in Wisconsin and nationally. In Wisconsin, Feta production grew from 8.1 million pounds back in 1993 to 122.9 million pounds in 2023.

Nationally, NASS has only been tracking Feta production since 2010, when it totaled 77.6 million pounds. Last year, US Feta output totaled 145.7 million pounds. This leads to the question: Should Feta continue to be considered a specialty cheese?

Finally, it’s interesting to look at what Wisconsin lumps into the category “All Other” today compared to what was included in the category 30 years ago. Back in 1993, there were less than two dozen cheese varieties included in the “All Other” category, ranging from Bel Paese to Viertaler.

In 2023, there were about 35 cheese varieties included in the “All Other” category, ranging from Alpine to Yogurt cheese. This helps illustrate how specialty cheese production has not only grown over the years, but also evolved, with the addition of many varieties that weren’t made in the state 30 years ago.

One cheese that’s been included in the “All Other” list in recent years caught our attention: specialty Colby. USDA has for many years been reporting Colby in the “other American-type cheese” category, which also includes Monterey Jack.

Colby, of course, is a Wisconsin original, and for many years the state reported Colby production. But Colby production is no longer reported separately (the last year for which statistics are available is 2020, when Colby output was 89.1 million pounds).

Maybe all Colby should now be considered a specialty.

US Exports 110 Million Pounds Of Cheese, In A Single Month

The US dairy industry generates a wide array of statistics, and as is the case with most statistics, it also sets and then breaks numerous records. Just to cite one example: US cheese production has reached a new record high every year since 1992.

In March of this year, the US dairy industry set another new record: as reported on our front page last week, cheese exports in March totaled 110.0 million pounds, up an impressive 20 percent from March 2023 and the first time ever that the US exported more than 100 million pounds of cheese in a single month.

To mark this major achievement, we thought we’d take a brief look at some historical statistics to put 100 million pounds of cheese exports in a single month into some perspective.

For starters, back in 2014, US cheese exports reached a record high of 810 million pounds, a record that stood until 2021, when they reached 883.5 million pounds. But in 2014, monthly cheese exports peaked at 79.6 million pounds, in March.

It wasn’t until March of 2019 that cheese exports first topped 80 million pounds in a single month. And then cheese exports topped 90 million pounds in three different months in 2022 — including June, when they reached 97 million pounds — en route to setting a new annual record of 991.9 million pounds.

Cheese exports then topped 90 million pounds once in 2023, and then in February of this year reached 95.4 million pounds, the second-highest monthly total ever, trailing only June 2022’s 97 million pounds.

And then cheese exports reached 110.0 million pounds in March, not only breaking the 100-million-pound barrier for the first time ever, but also topping the 110-million-pound barrier for the first time.

It’s also worth remembering that US cheese exports weren’t all that significant for many years. For example, regarding those monthly milestones noted earlier, back in the 1990s, annual cheese exports first topped 70 million pounds in 1996 (at 71.5 million pounds), and first topped 80 million pounds the following year.

It was in 2000 that US cheese exports first topped 100 million pounds, at 105.1 million pounds. So it can be observed that the US in March 2024 exported more cheese than it exported during an entire year as recently as 2000.

It’s also interesting to look at the monthly cheese export record in the context of cheese production. It should be noted, for starters, that the US has produced more than 1.0 billion pounds of cheese every month since March 2018.

But there was a time when the US produced less cheese in a single month than it exported in March 2024. Specifically, US cheese production in February 1963 totaled 109.7 million pounds, slightly less than US cheese exports in March 2024.

Going back a few more years, monthly US cheese production was pretty consistently under 100 million pounds. The last time the US produced less than 100 million pounds of cheese in a single month was in February 1959, when output totaled 96.5 million pounds. That’s slightly less than the previous record for monthly cheese exports noted earlier.

But going back to, say, 1950, cheese production was actually under 100 million pounds in seven months and above 100 million pounds in five months.

Indeed, cheese production showed far more seasonal variation back then than it does today. In 1950, monthly cheese production ranged from a high of 144.4 million pounds in June to a low of 67.8 million pounds in November. By comparison, in 2023, monthly cheese production ranged from a high of 1.22 billion pounds in January to a low of 1.12 billion pounds in February.

One final note on the cheese export record set in March: the cheese being exported by the US right now isn’t exactly being exported at a high price. There are at least a couple of different ways to look at this.

First, while March cheese exports on a volume basis were up 20 percent from March 2023, they were only up 3 percent on a value basis. That is, March’s 110 million pounds of cheese exports were valued at $223.0 million, or about $2.03 per pound, whereas March 2023’s 91.4 million pounds of cheese exports were valued at $217.3 million pounds, or about $2.38 per pound.

During the first three months of 2024, US cheese exports totaled 289.7 million pounds, with a value of $598.3 million, or about $2.07 per pound.

Second, back in June 2022, when US cheese exports set a new monthly record of 97 million pounds, those exports were valued at $225.9 million, or about $2.33 per pound. That monthly value is still a record.

From these statistics, we can conclude, first of all, that March is a pretty good month for cheese exports; exports first topped 80 million pounds in March 2019, first topped 90 million pounds in March 2022, and first topped 110 million pounds in March 2024.

And we can conclude that, at least during the first quarter of 2024, low cheese prices likely helped spur US cheese sales in various foreign markets.

With CME prices now topping $1.90 a pound, it will be interesting to see how cheese exports fare in the months ahead.

Another Volatile Weather Year For Dairy Appears Likely

As has been the case for a number of years now, one of the more interesting and thought-provoking sessions at this week’s ADPI/ABI Annual Conference was a presentation, during the Monday morning dairy market outlook session, looking at upcoming weather conditions, delivered this year by Mark Russo of Everstream Analytics.

The vast majority of conference attendees “just experienced yet another anomalously warm winter,” Russo noted before getting to his outlook for the upcoming Northern Hemisphere growing season. This past winter was “anomalously warm” in the US, most of Europe and East Asia.

Russo presented a few statistics about the October 2023-March 2024 heating session. Just looking at the top five milk-producing states, all of them experienced one of their top 10 warmest winters going back over 100 years. Both Wisconsin and New York experienced their second-warmest winters (October-March) on record.

Regarding precipitation, there’s a lot of variability in the US, but “really no large-scale dryness or wetness over the past six months, so we’re going into this new growing season without any kind of larger-scale drought,” Russo said. In fact, there’s been improvement in parts of the Corn Belt and parts of the Plains, although there’s still some dryness in parts of western Kansas up into the Northern Plains.

All in all, for this time of year, “things are pretty good starting out the new growing season, as well as for dairy cow pastures and general water availability,” Russo said.

Turning to the outlook, a “big key” to what’s going to happen going forward is tied to the El Nino-La Nina going on across the Pacific Ocean, Russo explained. This is a year of transition. Whereas a year ago we were transitioning a La Nina event to an El Nino event, this year we’re transitioning an El Nino event to a La Nina event.

As a result, there’s going to be a “transfer of risk” in terms of heat and dryness for major agriculture and dairy areas around the world, he said.

From a global ocean standpoint, “we are in unprecedented times. The oceans are at their warmest levels on record,” Russo said. We transitioned to the warmest water temperature about a year ago and then stayed there ever since.

Why is that important? The warmer the oceans are, the more extreme weather events are going to be taking place, Russo explained. That’s why we’ve seen an increase in extreme weather events over the past several decades, and that will continue until the oceans start cooling down. And that will in turn reduce air temperatures.

So we’re going into the summer with “phenomenal warmth in the oceans,” Russo continued. Over the summer, however, we’ll transition to a La Nina; virtually all computer models show the development of cooler-than-normal water temperatures, which is a transition to a La Nina.

And that means that a full-blown La Nina event in the Pacific Ocean will be in place by late summer into the fall, Russo said. Based on the latest climate data and ocean temperature projections, the highest probabilities are for La Nina late this summer and into fall.

Why is this important? Russo noted areas at highest risk of wetness and highest risk of dryness. In terms of dairy cattle, from a wetness standpoint, right now the highest risk is in New Zealand and Australia.
In the US, the western US has the highest risk of dryness. That’s California, the Rocky Mountain areas and into the Plains. Historically, over the past 20 or 30 years, transitions to La Nina events have triggered drier-than-normal conditions.

“Here in the US, it’s the western half of the country, with more risk of dryness looking out from now through the end of this year,” Russo said.

So what might this mean for the US dairy industry? Well, at this point, milk production isn’t exactly growing in the leading dairy states in the western US. In fact, with the exceptions of California and Washington, it’s declining.

Specifically, during the first quarter of this year, compared to the first quarter of last year, milk production was down 0.7 percent in Idaho, down 2.2 percent in Texas, and down 13.9 percent in New Mexico. All three of those states also had fewer milk cows in the first quarter than they had a year earlier.

Notably, Idaho and New Mexico ranked third and fourth respectively in cheese production last year, trailing only Wisconsin and California.
USDA’s National Ag Statistics Service doesn’t yet report cheese production statistics for Texas (states aren’t broken out when fewer than three plants report or individual plant operations could be disclosed), but there is a significant volume of cheese being produced in Texas these days, and the state’s cheese production will be increasing in the months and years ahead.

What all this boils down to is that there’s a lot of uncertainty for the dairy industry in the months ahead, ranging from production and exports to bird flu and the November election.

And to this we can add the weather. The transition to La Nina will bring changes in US weather, and changes in milk production prospects.

Prospects For US Milk Production Growth Seem Pretty Dim

USDA’s National Agricultural Statistics Service released its latest “Milk Production” report on Monday, and a quick glance at the March statistics indicates that US milk production might remain fairly stagnant, at best, in the coming months. It’s just really difficult to see milk production expanding appreciably in the near future.

As reported on our front page this week, US milk production in the 24 reporting states during March totaled 18.8 billion pounds, down 0.9 percent from March 2023. Production per cow in the 24 reporting states averaged 2,115 pounds for March, three pounds below March 2023. And the number of milk cows on farms in the 24 reporting states was 8.88 million head, 71,000 head less than March 2023 and 7,000 head less than February 2024.

So to briefly summarize: as of March 2024, there were slightly fewer milk cows on US dairy farms than a year earlier and a month earlier, and those dairy cows were slightly less productive than they were last year.

All of these statistics aren’t new as far as US milk production is concerned. For example, in 2023, the number of milk cows in the 24 reporting states peaked at 8.95 million head in March. Cow numbers in those states generally declined over the next several months, and dropped below 8.9 million head in November. And they’ve now been under 8.9 million head for five straight months.

And these cows are less productive than they were a year ago. In both January and March, milk per cow in the 24 reporting states was lower than a year earlier, by nine pounds and three pounds, respectively.
Adjusting for the extra day due to leap year, February milk per cow was also lower than a year earlier.

This is just what happened in the first quarter of 2024. As USDA’s Economic Research Service noted in its “Livestock, Dairy, and Poultry Outlook” report released on April 17, over the past eight months, both dairy herd inventories and milk production decreased on a year-over-year basis in every month, with the reductions in milk production outpacing the reductions in herd size in six months.

So, how often do these kinds of milk production declines occur? Interestingly, something similar happened just a couple of years ago. Starting in November 2021, milk production for the entire US ran below a year earlier for eight consecutive months, through June 2022.

But milk production rebounded during the second half of 2022, and for the entire year, output totaled a record 226.62 billion pounds, up 0.2 percent from 2021.

It’s worth remembering that the first three months of 2022 — that is, when milk production was declining from a year earlier — featured something that the first three months of 2024 didn’t have: relatively high milk prices.

Specifically, during 2022’s first quarter, the federal order Class III price averaged $21.25 per hundredweight, while the Class III price during 2024’s first quarter averaged $15.86 per hundred. And the uniform milk price for all 11 federal orders averaged $22.67 per hundred during the first quarter of 2022, but averaged under $20.00 per hundred during the first quarter of 2024.

Expectations in early 2022 were also much more positive, from a milk-price perspective, than they have been thus far in 2024. In its monthly supply-demand estimates released in April 2022, USDA was projecting that cheese prices in 2022 would average $2.15 per pound, the Class III price would average $22.75 per hundred, and the all milk price would average $25.80 per hundred.

In its latest monthly supply-demand estimates, released a couple of weeks ago, USDA projected that cheese prices would average $1.62 per pound this year, the Class III price would average $16.20 per hundred, and the all milk price would average $20.90 per hundred.

In other words, dairy farmers arguably had more reason to be optimistic about future milk prices two years ago than they are today. And that likely helped milk production rebound during the second half of 2022.

That same ERS report cited earlier noted that, over the same period (the past eight months), both the milkfat test and nonfat solids test “increased substantially” year over year. Higher concentrations of fat, protein, and other solids (lactose and minerals), all else being equal, should reduce the amount of raw milk required for comparable amounts of dairy products.

One thing that’s especially notable about the ongoing milk production declines is how widespread they are. That is, of the 24 reporting states, just seven posted production increases in March, while 17 posted production declines. Of the top 10 milk-producing states, only California and Wisconsin reported milk production increases in March.

Finally, when looking at milk production prospects for the rest of 2024, we can’t help but mention bird flu. Here’s what USDA had to say about this last week: “Based on information available at this point, we do not anticipate that this will impact the availability or the price of milk or other dairy products for consumers.”

Whether or not that proves correct remains to be seen. But it’s another factor pointing to flat milk production this year

Difficult To Find Good News In Bird Flu Outbreak

Remember the old saying, “There’s no such thing as bad publicity”? Well, we’re having a difficult time trying to apply that to the ongoing outbreak of bird flu in dairy cows in several states.

As reported on our front page last week, something called Highly Pathogenic Avian Influence (HPAI) has infected dairy cattle in at least six states, and federal and state agencies are moving quickly to conduct additional testing for HPAI virus.

Arguably the most pertinent piece of information in this ongoing situation came from USDA’s Animal and Plant Health Inspection Service (APHIS), which observed the following: “This is a rapidly evolving situation.”

Indeed it is a rapidly evolving situation, and also an extremely complex situation. From a dairy industry perspective, it’s worth keeping in mind a couple of key points.

First, as at least two federal agencies (USDA and the Food and Drug Administration) have pointed out, the milk supply remains safe for consumers. As FDA has explained, only milk from healthy animals is authorized for distribution into interstate commerce for human consumption.

Also, pasteurization is required for any milk entering interstate commerce, and pasteurization has continually proven to inactivate bacteria and viruses, including influenza, in milk. Milk from ill (symptomatic) animals is being diverted or destroyed so that it doesn’t enter the human food supply.

Second, milk loss resulting from symptomatic cattle to date (as of the middle of last week) is too limited to have a major impact on supply and there should be no impact on the price of milk or other dairy products,
FDA stated. It would be surprising, if not downright shocking, if we didn’t see higher or even much higher dairy product and milk prices later this year, but the reasons for that will include everything from flat to declining US milk production for several consecutive months now to strengthening dairy exports.

Bird flu, at this point, is expected to have a negligible impact on dairy product supplies and prices.

To their great credit, US dairy organizations — including the International Dairy Foods Association, National Milk Producers Federation, US Dairy Export Council, and Dairy Management Inc. — have been involved in this situation from the beginning, noting that there is no threat to human health and that milk and dairy products remain safe to consume.

Despite all of this, the ongoing HPAI situation remains concerning, for at least three reasons. First of all, it’s still a bit difficult to comprehend that this is a situation involving bird flu being detected in dairy cattle. It doesn’t seem fathomable that an outbreak of bird flu should concern the dairy industry (other than maybe boosting demand for dairy products because chickens are being destroyed and egg prices are soaring).

But here we are, with bird flu being detected in dairy cattle in least eight states. So suddenly the dairy industry has to become more knowledgeable about flu that, up until a few weeks ago, had never before been found in dairy cattle.

As it turns out, there’s a fairly lengthy history of bird flu in the US.
According to a timeline from the Centers for Disease Control and Prevention (CDC), in March 2020, outbreaks of LPAI H7N3 and an outbreak of HPAI H7N3 occurred on US turkey farms. During 2020, reassortment (gene-swapping) between poultry and wild bird viruses led to the emergence of HPAI H5N1 with the NA viruses with an N1 NA from wild birds.

To make a long story short, bird flu has been around the US, and in many other countries, since 2020, but it wasn’t until just last month that it was detected in dairy cattle. And human cases have also been reported since 2020.

Second, bird flu is a virus. And so the dairy industry is dealing with a new virus roughly four years after coronavirus upended the industry. If this new virus has anywhere near the impact of that coronavirus, well...

Third, and perhaps most importantly, this is an ongoing situation and, as APHIS put it, a “rapidly evolving” situation. That could mean several things, but we’ll mention just a couple of them here.

First, while milk loss as of now is too limited to have any significant impact on the milk supply, we are still very early in this outbreak. Keep in mind that APHIS first reported that HPAI had been detected in dairy herds in Texas and Kansas on Monday, March 25. As of late this week, it had been detected in six more states.

APHIS noted that wild migratory birds are believed to be the source of HPAI, and that the HPAI detected in dairy cows is the same strain and clade that has been affecting wild birds and commercial poultry flocks and has been detected in some wild animals. In other words, controlling the spread of HPAI will be very difficult.

Second, this issue appears unlikely to simply disappear from the national radar anytime soon. And most if not all of the ongoing headlines being generated by this outbreak are going to be negative, from a dairy industry perspective.

Let’s hope this outbreak rapidly evolves out of the headlines.

Federal Order Modernization Process Passes Halfway Point

The ongoing federal milk marketing order modernization process has reached two milestones over the past couple of weeks, and is now over halfway complete. Maybe this is an indication that federal order reforms will be implemented sometime around Apr. 1, 2025.

It may be recalled that, according to USDA’s Agricultural Marketing Service, there are 12 formal rulemaking steps for amending a federal milk marketing order (or orders). The first step is USDA receiving a proposal, and the last step is USDA holding a referendum and implementing the amendments.

Coincidentally, it was just over a year ago when Step 1 got underway. Hearing requests dated Mar. 28, 2023, were submitted to USDA by both the International Dairy Foods Association and Wisconsin Cheese Makers Association.

Step 1 included a flurry of activity including, among other things: USDA’s response to IDFA and WCMA, and IDFA’s and WCMA’s responses to USDA’s response; a hearing request submitted by National Milk Producers Federation; USDA requesting additional proposals and issuing an action plan; USDA receiving numerous additional proposals; and USDA holding a pre-hearing information session.

It wasn’t until July 21, 2023, that Step 2 was reached; that was when USDA issued a notice of hearing. The hearing itself was Step 5; prior to the hearing getting underway, proponents could request USDA data to be used the hearing; and those proposing amendments and participating in the hearing as witnesses had to submit their testimony in advance.

Step 5 took a while, to put it mildly. Specifically, USDA’s hearing got underway on Aug. 23, 2023, and finally concluded on Jan. 30, 2024. The hearing took place over 49 days in August, September, October, November and December 2023 and January 2024.

USDA made the full hearing record available shortly after the hearing ended, and that meant the hearing process was halfway completed, because that’s Step 6 in the process.

Step 7 was for parties to file corrections to the transcript, and the deadline for that was Friday, March 22.

And then Monday, April 1, was the deadline for interested parties to file proposed findings and conclusions, and written arguments or briefs. This is Step 8 in the process.

So to briefly review the first eight steps in this 12-step process, the amount of time it takes to complete any single step varies widely. Step 1 took almost four months, while Steps 3 and 4 took place between July 21, when USDA issued a hearing notice, and August 23, when the hearing got underway.

That hearing (Step 5) took seemingly forever, and then it took just over two months to complete Steps 7 and 8.

So now what? Well, the dairy industry will have to wait a while for the next three steps to be completed. Specifically, Step 9 is USDA issuing a recommended decision or, when applicable, a tentative final decision, not later than 90 days after the deadline for submitting post-hearing briefs.

That means the dairy industry can expect a recommended decision around July 1, 2024.

Next, comments and exceptions to the recommended decision may be filed with USDA not later than 60 days after publication of the recommended decision, unless otherwise specified in that decision. That’s Step 10, and should be completed by roughly the end of August.

After that, USDA has to issue a final decision not later than 60 days after the deadline for submitting comments and exceptions to the recommended decision. This is Step 11, and should be completed by around the end of October.

Finally, we arrive at Step 12, when USDA holds a referendum and implements the amendments to the orders. Through this referendum process, dairy producers are able to approve the federal order(s) as amended, or reject the proposed changes, effectively terminating the order(s).

If approved by producers, the amendment(s) to the order(s) are published as a final rule; the publication of the final rule announces when the amendment(s) become effective and concludes the 12-step rulemaking process.

Notably, of the four remaining steps, only Step 12 is somewhat “open-ended.” That is, USDA has specific deadlines for completing Steps 9, 10 and 11, but not for Step 12.

How might this play out starting in early November? That’s impossible to know for certain, but the recent federal order proceeding for three southeastern orders can provide some idea of what the industry can expect.

In that proceeding, USDA published a final decision on Dec. 1, 2023, to amend the Appalachian, Southeast and Florida orders. Exactly two months later, on Feb. 1, 2024, USDA published a final rule to amend those three orders. The amendments to those three orders became effective for milk marketed on and after March 1, 2024.

The bottom line here is that this federal order modernization proceeding is more than halfway finished, but the final four steps could take close to another year to complete.

FDA Revokes A Standard (But Not For A Dairy Product)

The US Food and Drug Administration did something late last week that it very rarely does: it revoked a standard of identity for a food product.

This got us pondering the future of standards of identity, and whether we can expect similar action from FDA on dairy product standards anytime soon. And the simple answer to that question is: No.

By way of somewhat detailed background, FDA is revoking the standard of identity and the standard of quality for frozen cherry pie. The agency had originally proposed the standards of identity and quality for frozen cherry pie way back in late 1967, and finalized them in early 1971.

FDA’s revocation of this standard, in part, responds to a citizen petition submitted by the American Bakers Association. Among other things, the ABA’s petition stated that there is no basis for singling out frozen cherry pie for the imposition of standards of identity and quality.

The ABA petition observed that there are no standards of identity and quality for any other types of frozen fruit pies, or for any non-frozen fruit pies, including those filled with cherries. The petition further asserted that nonstandardized fruit pies have been sold throughout the US for many years without any evidence of public confusion.

In December 2020, FDA issued a proposed rule to revoke the standards of identity and quality for frozen cherry pie which, in part, responded to the ABA’s request. The proposed rule provided a 90-day comment period.
FDA received over 62 comments on the proposed rule from, among others, trade associations, consumer advocacy organizations, industry, individuals, and academia.

A majority of comments actually opposed revoking the frozen cherry pie standards because of general quality, safety, and public health concerns, without any supporting evidence, FDA noted.

The comments asserted that revoking the standards would lower, or remove, the requirements for frozen cherry pie, would not benefit or protect consumers, and would provide frozen cherry pie manufacturers too much flexibility in the manufacture of frozen cherry pie.

FDA disagrees that removing the standards will result in lower protection for consumers. While there will no longer be a standard of quality that prescribes a required weight for the fruit content of frozen cherry pie or a standard of identity specifying requirements for products labeled as frozen cherry pie, other safeguards exist under the Food, Drug & Cosmetic Act to prevent adulterated and misbranded frozen cherry pie product, the agency pointed out.

Some comments supported revoking the standards of identity and quality for frozen cherry pie. In general, FDA said, the comments agreed that the standards of identity and quality are no longer needed to promote honesty and fair dealing in the interest of consumers, and revoking the standards would: provide benefits in terms of additional flexibility to the manufacturers of frozen cherry pie products; and promote innovation and the introduction of new unbaked, frozen cherry pie products, providing benefits to both consumers and industry.

In its final rule, FDA concluded that the standards of identity and quality for frozen cherry pie are no longer necessary to promote honesty and fair dealing in the interest of consumers, and that revoking these standards will provide greater flexibility in the product’s manufacture, consistent with comparable, nonstandardized foods available in the marketplace.

So, can we expect a similar revocation of any dairy product standard anytime soon? No, for at least three reasons.

First, we aren’t aware that any trade association or any company has petitioned FDA to revoke any or all of the federal standards of identity for dairy products. Remember, it was a petition from the American Bakers Association that started the process that resulted in the revocation of the standard of identity and the standard of quality for frozen cherry pie.

Second, standards of identity continue to enjoy widespread support in the dairy industry (at least publicly). It may be recalled that FDA has been mulling over the modernization of its food standards for almost three decades now (starting with an advance notice of proposed rulemaking in 1995), and four years ago reopened the comment period on its 2005 proposed rule to modernize the standards.

We can’t recall any industry comments submitted during that reopened comment period that supported eliminating dairy standards. Just to cite one example, National Milk Producers Federation had this to say to FDA: “NMPF has long been a supporter of the standards of identity. Standards of identity are central to consumers’ perception of products, ensuring the product has the ingredients and nutrition they expect.”

Finally, regarding whether the dairy industry can expect FDA to revoke any dairy standards anytime soon, well, keep in mind that the American Bakers Association first submitted its frozen cherry pie petition in 2005, and FDA didn’t publish a proposed rule to do so until 2020.

When it comes to standards, nothing moves very fast at FDA, including efforts to revoke them.

Retail Dairy Prices Keep Trending In The Right Direction

It seems like only yesterday when we were reporting, on a monthly basis, that the Consumer Price Index (CPI) for dairy products had reached yet another new record high, and that retail Cheddar cheese and whole milk prices continued to increase and were at or near all-time highs.

In fact, it’s actually been quite some time since the dairy CPI was at or near record levels, and it’s also been some time since retail Cheddar cheese and whole milk prices have been near record highs. And that’s certainly good news for today’s inflation-stressed consumers, and likely good news for future dairy product sales.

As reported on our front page this week, the dairy CPI for February was 267.3 (1982-84=100), down an eye-opening 0.6 percent from January and 1.8 percent lower than in February 2023.

To put this in some historical perspective, the dairy CPI had reached a record high of 271.3 in November 2022, the first time ever that the dairy CPI topped 270, and then remained above 270 through April 2023. The lowest it got last year was 267.6, in November.

At 267.3, the dairy CPI is now at its lowest point since July 2022, when it was 265.6. And, after reaching a record high of 272.3 in February 2023, the dairy CPI has now declined in eight of the last 12 months.

Another way to put this into perspective is to look at other major food categories. Compared to February 2023, the CPIs for cereals and bakery products and for fruits and vegetables are 1.7 percent higher and 0.8 percent higher, respectively, in February 2024.

Meanwhile, the CPI for meats, poultry, fish, and eggs was 0.5 percent lower in February than it was in February 2023. But the CPI for those products stood at 320.1 in February, more than 50 points higher than the dairy CPI. In fact, among the four major food categories, the dairy CPI is the only one below 300.

Within the dairy category, the CPI for cheese and related products stood at 263.4 in February, down 1.1 percent from January and down 2.8 percent from February 2023. That’s the lowest level for the cheese CPI since May 2022, when it was 260.8.

Like the dairy CPI, the cheese CPI was above 270 for several months in 2022 and 2023. Specifically, it was above 270 every month from August 2022 through May 2023. But it’s now been under 265 for three of the past four months; the exception was in January, when it was 266.5.

Reflecting this lower level for the cheese CPI, the average retail price for Cheddar cheese was $5.73 per pound in February, up less than one cent from January but down more than 12 cents from February 2023.

It seems like only yesterday when we were reporting, on a monthly basis, that the Consumer Price Index (CPI) for dairy products had reached yet another new record high, and that retail Cheddar cheese and whole milk prices continued to increase and were at or near all-time highs.

In fact, it’s actually been quite some time since the dairy CPI was at or near record levels, and it’s also been some time since retail Cheddar cheese and whole milk prices have been near record highs. And that’s certainly good news for today’s inflation-stressed consumers, and likely good news for future dairy product sales.

As reported on our front page this week, the dairy CPI for February was 267.3 (1982-84=100), down an eye-opening 0.6 percent from January and 1.8 percent lower than in February 2023.

To put this in some historical perspective, the dairy CPI had reached a record high of 271.3 in November 2022, the first time ever that the dairy CPI topped 270, and then remained above 270 through April 2023. The lowest it got last year was 267.6, in November.

At 267.3, the dairy CPI is now at its lowest point since July 2022, when it was 265.6. And, after reaching a record high of 272.3 in February 2023, the dairy CPI has now declined in eight of the last 12 months.

Another way to put this into perspective is to look at other major food categories. Compared to February 2023, the CPIs for cereals and bakery products and for fruits and vegetables are 1.7 percent higher and 0.8 percent higher, respectively, in February 2024.

Meanwhile, the CPI for meats, poultry, fish, and eggs was 0.5 percent lower in February than it was in February 2023. But the CPI for those products stood at 320.1 in February, more than 50 points higher than the dairy CPI. In fact, among the four major food categories, the dairy CPI is the only one below 300.

Within the dairy category, the CPI for cheese and related products stood at 263.4 in February, down 1.1 percent from January and down 2.8 percent from February 2023. That’s the lowest level for the cheese CPI since May 2022, when it was 260.8.

Like the dairy CPI, the cheese CPI was above 270 for several months in 2022 and 2023. Specifically, it was above 270 every month from August 2022 through May 2023. But it’s now been under 265 for three of the past four months; the exception was in January, when it was 266.5.

Reflecting this lower level for the cheese CPI, the average retail price for Cheddar cheese was $5.73 per pound in February, up less than one cent from January but down more than 12 cents from February 2023.

It may be recalled that the average retail Cheddar price was above $5.80 per pound every month from July 2022 through May 2023, including a record high of $6.08 a pound in September 2022. Now, the average retail Cheddar price has been below $5.80 per pound for four consecutive months.

Looking back a bit more, the average retail Cheddar price in February 2024 was more than 18 cents higher than it was in February 2014, but it’s actually more than one cent lower than it was in April 2014, when it was $5.73 a pound. So compared to a decade ago, there’s been very little inflation when it comes to retail Cheddar prices.

Also in February, the CPI for whole milk was 251.1, down 0.3 percent from January and down an impressive 2.7 percent from February 2023.
The whole milk CPI first topped 260 back in May of 2022, at 260.9, and was above 260 four more times in 2022, including a record high of 261.0 in June.

As recently as February 2023, the whole milk CPI was still above 258, but it’s been under 255 every month since April 2023, including three consecutive months (July, August and September) in which it was under 250.

Reflecting the whole milk CPI, the average retail price for whole milk in February was $3.94 a gallon, down almost two cents from January and down more than 22 cents from February 2023. The average retail whole milk price was at or above $4.00 per gallon for nine straight months in 2022 and then for another seven months in 2023, but it’s been under $4.00 per gallon for two straight months here in 2024.

What all of this adds up to is that dairy products continue to be a great bargain for consumers. They pack a powerful nutrition punch at a price that’s more than reasonable compared both to recent history and also to other major food product categories.

Still, it would seem that there’s more room for retail dairy product prices to decline in the months ahead. After all, the CME block price has now averaged under $1.60 per pound for three straight months.

The last time that happened was in the first three months of 2019. At that time, the average retail Cheddar price ranged from $5.37 per pound in January to $5.19 per pound in March, or considerably lower than it has been in recent months.

Still, given inflationary pressures these days in pretty much every cost category, from labor to packaging, it appears that dairy products offer a pretty good bargain for consumers. And it looks like consumers will continue to enjoy relatively inexpensive dairy product prices in the months ahead.

It may be recalled that the average retail Cheddar price was above $5.80 per pound every month from July 2022 through May 2023, including a record high of $6.08 a pound in September 2022. Now, the average retail Cheddar price has been below $5.80 per pound for four consecutive months.

Looking back a bit more, the average retail Cheddar price in February 2024 was more than 18 cents higher than it was in February 2014, but it’s actually more than one cent lower than it was in April 2014, when it was $5.73 a pound. So compared to a decade ago, there’s been very little inflation when it comes to retail Cheddar prices.

Also in February, the CPI for whole milk was 251.1, down 0.3 percent from January and down an impressive 2.7 percent from February 2023.
The whole milk CPI first topped 260 back in May of 2022, at 260.9, and was above 260 four more times in 2022, including a record high of 261.0 in June.

As recently as February 2023, the whole milk CPI was still above 258, but it’s been under 255 every month since April 2023, including three consecutive months (July, August and September) in which it was under 250.

Reflecting the whole milk CPI, the average retail price for whole milk in February was $3.94 a gallon, down almost two cents from January and down more than 22 cents from February 2023. The average retail whole milk price was at or above $4.00 per gallon for nine straight months in 2022 and then for another seven months in 2023, but it’s been under $4.00 per gallon for two straight months here in 2024.

What all of this adds up to is that dairy products continue to be a great bargain for consumers. They pack a powerful nutrition punch at a price that’s more than reasonable compared both to recent history and also to other major food product categories.

Still, it would seem that there’s more room for retail dairy product prices to decline in the months ahead. After all, the CME block price has now averaged under $1.60 per pound for three straight months.

The last time that happened was in the first three months of 2019. At that time, the average retail Cheddar price ranged from $5.37 per pound in January to $5.19 per pound in March, or considerably lower than it has been in recent months.

Still, given inflationary pressures these days in pretty much every cost category, from labor to packaging, it appears that dairy products offer a pretty good bargain for consumers. And it looks like consumers will continue to enjoy relatively inexpensive dairy product prices in the months ahead.

 

FDA Opens Door For Dairy-Diabetes Health Claims

The US Food and Drug Administration, as reported on our front page last week, doesn’t intend to object to the use of certain qualified health claims regarding the consumption of yogurt and reduced risk of type 2 diabetes.

FDA’s decision should open the door for more qualified health claims and, eventually, for authorized health claims (which are more rigorous) for not only yogurt, but other dairy products, particularly fermented dairy products, in the future.

FDA detailed its decision in a Mar. 1, 2024 letter of enforcement discretion that the agency issued in response to a qualified health claim petition submitted by Danone North America.

In that letter of enforcement discretion, FDA said it intends to consider exercising its enforcement discretion for two qualified health claims:
•“Eating yogurt regularly, at least 2 cups (3 servings) per week, may reduce the risk of type 2 diabetes. FDA has concluded that there is limited information supporting this claim.”
•“Eating yogurt regularly, at least 2 cups (3 servings) per week, may reduce the risk of type 2 diabetes according to limited scientific evidence.”

FDA stated that it intends to consider exercising enforcement discretion for these qualified health claims for when all other factors for enforcement discretion identified in the letter are met. Among other things, the agency said it intends to consider the exercise of enforcement discretion for yogurts bearing the claim that do not exceed the disqualifying nutrient levels for total fat, saturated fat, cholesterol, or sodium.

The agency expects that many yogurts do not exceed the disqualifying levels. For example, the “vast majority” of yogurts do not exceed the cholesterol disqualifying level of 60 milligram of cholesterol per RACC (reference amount customarily consumed) and per labeled serving, and yogurts generally don’t contain sodium at levels that would exceed the disqualifying level for sodium of 480 milligrams per RACC and per label serving size.

Furthermore, FDA expects that the vast majority of yogurts do not exceed the total fat disqualifying level of 13 grams per RACC and per label serving size. Similarly, with a few exceptions, FDA expects that many yogurts don’t exceed the saturated fat disqualifying level of four grams per RACC and per labeled serving.

So, as a starting point, FDA will now consider exercising its enforcement discretion for qualified health claims regarding the relationship between yogurt and reduced risk of type 2 diabetes. But maybe this should be considered just the beginning of dairy product claims and the reduced risk of type 2 diabetes.

Why is that? Well, one thing that really stands out when glancing through the 102-page petition submitted on behalf of Danone North America and FDA’s 51-page response is that there has been a heck of a lot of research already conducted on dairy consumption and diabetes. In fact, 15 pages of FDA’s response is devoted just to references.

Also notable: some of these references aren’t limited to just yogurt; they also look at other fermented dairy products, or just dairy products in general. One of the many references cited in FDA’s response is a review published in 2022 in the Journal of Dairy Science, entitled: “Invited review: Potential effects of short- and long-term intake of fermented dairy products on prevention and control of type 2 diabetes mellitus.”

That review suggested that higher intake of fermented dairy products, such as cheese, “may have some potential” in decreasing the risk of developing type 2 diabetes in the long term, as revealed by longitudinal cohort studies.

So, sometime in the future, perhaps FDA will approve a qualified health claim for cheese and reduced risk of type 2 diabetes. But there are a couple of negatives worth mentioning before getting too excited about this prospect.

First, it should be noted that the Danone petition was submitted to FDA in December of 2018, and that FDA had posted the petition on the regulations.gov website in April of 2019 with a 60-day comment period.
Thus, it took more than five years from the time the petition was submitted until FDA gave its okay.

So it might not be until around 2030 before the agency would get around to approving, for example, a qualified health claim for cheese and reduced risk of type 2 diabetes.

Second, it would be more difficult for cheeses bearing such a claim to not exceed disqualifying nutrient levels for total fat, saturated fat, cholesterol, or sodium. Many yogurt products won’t exceed those disqualifying levels, but it would appear that many cheeses would exceed some of those levels.

That leads us to wonder if FDA’s qualified health claim regulations need to be updated. We mention this point in part because FDAs response to Danone mentions disqualifying levels for cholesterol, but dietary cholesterol isn’t the villain that it used to be.

Certainly a qualified health claim for yogurt has its shortcomings, but we can’t help but view FDA’s decision as a positive for yogurt specifically and for dairy products generally.

Class I Market Appears To
Be A Real Mess

A year ago this week, the US Department of Agriculture held a hearing to consider various proposals to amend the inter-market transportation credits in the Appalachian and Southeast federal milk marketing orders and adopt distributing plant delivery credits in those two orders as well as the Florida order.

Proponents of those proposals contended that the three southeastern federal orders have a chronic milk deficit, creating challenging marketing conditions to ensure that the fluid milk needs of the orders are met.

That proceeding technically concludes today; the final rule amending the transportation credit balancing fund provisions in the Appalachian and Southeast orders and establishing distributing plant delivery credits in those two orders as well as the Florida orders is effective for milk marketed on and after Mar. 1, 2024.

Meanwhile, a federal order hearing that focused on various aspects of federal order milk pricing formulas finally concluded a month ago, and is now moving into the rulemaking steps in which parties file corrections to the hearing transcript (the deadline for this is Mar. 22), and post-hearing briefs must be submitted (by Apr. 1).

These two hearings are different in many respects, but they do have one important factor in common: they both received considerable testimony and input on the ongoing problems with the Class I market across the country.

The “input” on Class I problems dates to the beginning of the southeastern proceeding, when the Dairy Marketing Cooperative Association requested a USDA hearing to amend the three southeastern orders. DCMA is a common marketing agency consisting of nine cooperative members; the DCMA noted that its members have long been the “predominant suppliers” of the Class I needs of distributing plants in the southeastern federal order markets.

DCMA’s hearing request details problems with the fluid milk market in the southeastern region, specifically declining dairy farm numbers and falling milk production, coupled with rising population, “exacerbating the gap between supply and demand for fluid milk products.”

Prairie Farms, a dairy cooperative with members located in all three southeastern orders and also the operator of nine pool distributing plants in the Appalachian and Southeast orders, submitted its own hearing proposals, and explained that, with the decreased milk production in the three southeastern orders, “there are longer routes and increased miles to deliver the milk from the remaining producers to fluid milk plants.”

USDA itself discussed this Class I problem in its recommended decision and in its final decision. Here’s just one sentence from the agency’s final decision: “The record reveals a significant reduction in the number of Class I plants in each of the Southeastern orders and an increase in the distance milk travels to a Class I plant.”

About six months after that hearing concluded, the national federal order hearing on milk pricing formulas got underway. That hearing focused on a total of 21 industry proposals, eight of which directly dealt with Class I issues, including the base Class I skim milk price and Class I differentials.

Needless to say, there was no shortage of hearing witnesses detailing ongoing problems with the Class I market, not just in the southeastern region but around the US.

One way to put this in some perspective is to note that, on Sept. 19, 2023, the 18th day of the hearing, testimony began on Proposal 13, from the National Milk Producers Federation, which would return to the “higher-of” Class I skim milk price mover.

While there was some additional testimony that week on earlier proposals, testimony in the weeks and months after that focused pretty much exclusively on Class I-related issues. And in particular, testimony beginning on Oct. 4 focused on proposals to amend Class I differentials, and it was during this testimony that considerable attention was paid to ongoing problems in the Class I market.

And some of this testimony came from the same dairy co-ops who advocated for Class I changes in the three southeastern orders earlier last year. For example, Jeff Sims, secretary and chief market analysis officer of Lone Star Milk Producers, a DCMA member, testified last October that, in Texas, the combination of manufacturing plants conveniently located near major milk production centers in eastern New Mexico and the Texas panhandle, coupled with the diminishing motivation to transport milk from these areas to Class I processing facilities, “has placed an enormous strain on milk supply for Class I.”

So what’s the bottom line with these ongoing Class I problems? Well, first of all, they aren’t all going to be resolved with whatever USDA ends up deciding at the end of this national federal order proceeding.

And second, Class I problems are going to become less important in the overall federal order program, because Class I volumes continue to decline. That’s not to diminish these problems, just to put it in some context of the overall program.

US Remains A Very Attractive Market For Dairy Imports

While the US didn’t set a new record for dairy exports last year, it did set a new record for dairy imports. And it doesn’t look like that record is going to last for very long.

As reported on our front page two weeks ago, US dairy imports in 2023 were valued at a record $4.86 billion, up 5 percent from 2022’s record.

Strictly by value, US dairy imports have been increasing at an impressive pace in recent years. To put this in some historical perspective, it’s useful to go back to the turn of the century and examine dairy import trends since then.

In the early years of the 21st century, US dairy imports increased from $1.5 billion in 2000 to $2.1 billion in 2004 and then to a record $2.7 billion in 2008. But due at least in part to the global financial crisis, dairy imports dropped to $2.1 billion in both 2009 and 2010 and didn’t break that 2008 record until 2014, when they reached $2.9 billion.

After 2014, dairy imports stagnated in 2015 and then declined for two consecutive years, to $2.7 billion in 2017. As noted earlier, that’s the same value that dairy imports had reached back in 2008.

But starting in 2018, and especially in 2019, dairy imports started to increase significantly, topping $3.0 billion for the first time ever in 2019, and reaching $3.6 billion in 2021.

In 2022, dairy imports took an impressive leap, rising by more than $1 billion in value, to $4.65 billion. And then dairy imports increased again in 2023, to a record $4.86 billion.
In other words, dairy imports have risen by more than $2.0 billion in value just from 2018 to 2023.

As far as short-term prospects are concerned, it wouldn’t be at all surprising to see US dairy imports top the $5 billion mark this year. Indeed, dairy imports did top $5 billion in value during fiscal 2023, which ended Sept. 30, 2023.

USDA, in its latest ag trade outlook (released in late November 2023), projected that dairy imports in fiscal 2024 would reach $5.4 billion in value. So it seems at least possible that dairy imports in calendar year 2024 will top $5.0 billion in value (although, for what it’s worth, the value of dairy imports during the fourth quarter of calendar year 2023 was down almost 9 percent from the fourth quarter of calendar year 2022).

Beyond the value of US dairy imports, what’s going on with some key import categories? While cheese imports have topped 400 million pounds for three straight years, they aren’t close to where they were over 20 years ago, when they reached a record high of 474.6 million pounds in 2002, were above 470 million pounds for three straight years (2002-04), and were above 450 million pounds for five straight years (2002-06).

But the value of the cheese being imported into the US today is a lot higher than it was back when volumes were at their peak. Back in that 2002-06 period, the value of cheese imports was under $1.0 billion for three years (2002-04), and then just above $1.0 billion for two years (2005-06).

But cheese imports have actually topped $1.0 billion in value every year since 2011 (when imports totaled 312.8 million pounds, their second-lowest level this century, trailing only 2010’s 304.8 million pounds). And last year, the value of cheese imports set a new record, at $1.76 billion.

A little math tells us that cheese imports were valued at around $1.66 a pound back in 2002, when they were setting a volume record, and at around $4.15 a pound in 2023, when they were setting a value record.

Not only are the values and volumes of US cheese imports changing, so too are the main sources. In 2002, the leading sources of US cheese imports, on a volume basis, were, in order: New Zealand, Italy, France, Denmark, Lithuania, Netherlands, Germany, Australia, United Kingdom and Argentina.

In 2023, the leading sources of US cheese imports, on a volume basis, were, in order: Italy, France, Netherlands, Spain, Ireland, Nicaragua, Switzerland, United Kingdom, Canada and Greece.

Meanwhile, the US has also been importing more butter in recent years. Since 2000, butter imports fluctuated wildly for a number of years, ranging from just 8.1 million pounds in 2010 to 45.5 million pounds in 2001.

But with the exception of the COVID-19 year 2020, butter imports have clearly been on the upswing over the past decade, rising from 24.2 million pounds in 2014 to 100.5 million pounds in 2021 and then continuing to increase, reaching 118.6 million pounds last year.

Perhaps the most eye-opening statistics regarding butter imports is their value. In 2001, the US imported 45.5 million pounds of butter with a value of $31.6 million; last year’s 118.6 million pounds of butter imports were valued at $440.9 million.

Finally, we note that the US remains a major destination for imports of skim solids from around the world. In 2023, the US imported 133 million pounds of casein and caseinates, plus 125 million pounds of milk protein concentrates (Chapters 4 and 35), at a total value of about $1.0 billion.

No doubt about it, the US remains an attractive market for various imported dairy products from around the world
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Another Interesting Year For Federal Orders

The year 2023 will long be remembered as the year in which the dairy industry tackled, or at least started to tackle, some long-overdue updates to the federal milk marketing order program.

But setting aside the just-concluded national federal order hearing, last year turned out to be another in a long line of interesting and volatile years in the federal order program. Some recently released statistics, reported on our front page last week, help illustrate this point.

For starters, a record volume of milk was pooled on the 11 federal orders in 2023: 158.45 billion pounds, to be exact. That broke the previous record of 156.1 billion pounds, which was set in 2019.

There are a couple of points worth noting about this new federal order volume record. First, 2023 was just the fifth full year for the California federal order, but adding California and its potential of over 40 billion pounds of milk to the federal order system has translated into only two new volume records and three below-average volume years.

Second, that’s because depooling continues to alter the volume of milk being pooled, in some years more than others, but in all recent years to a certain extent. California is a great example here; in 2023, a total of 26.4 billion pounds of milk was pooled on the California order (which covers the entire state), which means somewhere around 14 billion pounds of milk was depooled in California.

But California wasn’t the only order that saw significant volumes of milk being depooled last year. As the latest figures from USDA show, basically any order with significant Class IV utilization saw considerable volumes of milk being depooled.

This can be illustrated simply by looking at the volume of milk being pooled in Class IV every month last year. That volume ranged from a high of 3.7 billion pounds in April to a low of just 803 million pounds in August.

And that can be easily put into historical perspective by going back to 2019 and 2020, when Class IV volume totaled 30.5 billion pounds and 41.5 billion pounds, respectively.

A fair amount of milk was also depooled in Class II last year. Class II volume in 2023 totaled 14.8 billion pounds, which is down more than 5.0 billion pounds from 2021’s record high (but up 606 million pounds from 2022).

Class III volume set a new record last year, at 85.25 billion pounds. Class III volume has now topped 80 billion pounds for two straight years, something that of course wouldn’t be possible without the California order and its 16.6 billion pounds of Class III milk in 2023 and its 14.7 billion pounds of Class III milk in 2022.

Not that the presence of the California order guarantees higher Class III volumes. It may be recalled that, in the turbulent, COVID-upended year of 2020, Class III volume for the entire year totaled just 32.9 billion pounds, with the California order contributing all of 673 million pounds to that total.

Despite record volumes in 2023 and 2022, Class III is still not “living up to its potential.” That is, volumes aren’t quite as high as might be expected, given recent years.

Just to cite one example: while Class III volume on the Upper Midwest order reached a record 30.5 billion pounds last year, monthly volumes trailed 2022 volumes in each of the last five months of the year. Had 2023 volumes during the August-December period matched volumes of that same period in 2022, Class III volume for the entire year would have been almost 1.2 billion pounds higher than it was.

So what kind of volume would the federal order system be looking at if there was ever a “normal” year? That is, if Classes II, III and IV all saw record volumes in a single year?

If that were to happen, the volume of milk pooled in all 11 federal orders would total around 187 billion pounds, up almost 30 billion pounds from last year’s record.

But that’s probably never going to happen, for at least two reasons. First, depooling isn’t going to go away anytime soon. Even if the spread between Class III and Class IV prices narrows, and it will at some point, not all milk in Classes II, III and IV is going to be pooled every month in the future. The volumes of Class III milk in the August-December periods in 2022 and 2023 illustrate that point.

Second, while there are very few guarantees in the federal order program, here’s one: Class I volumes are going to continue to decline. Last year’s Class I volume of 40.4 billion pounds was the lowest since 1975, when Class I utilization was 57.9 percent (it was 25.5 percent, a record low, in 2022).

Notably, 2023’s Class I volume was lower than it was in 2017, the last full year without the California order.

As noted above, if there was little or no depooling, the total volume of milk pooled on all 11 federal orders would be around 187 billion pounds. With no Class I milk being depooled, Class I utilization would actually be somewhere around 21 percent.

Federal order volumes will continue to be volatile and at least somewhat unpredictable in the future. About the only guarantee is that Class I volumes will continue to fall
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Why Ag Baselines Always Include Caveats

In 2023, according to preliminary estimates from USDA’s National Ag Statistics Service (and as reported on our front page last week), US milk production totaled a record 226.55 billion pounds, up 0.04 percent, or 89 million pounds, from 2022. In other words, and to be very clear about it, milk production in 2023 was pretty much unchanged from 2022.

Also, for what it’s worth, milk production totaled 226.3 billion pounds in 2021, meaning production increased by all of 258 million pounds from 2021 to 2023. By comparison, milk production increased by about 7.9 billion pounds from 2019 to 2021.

This got us thinking about the ag baselines that are released every year by USDA. These ag baselines, more formally known as long-term agricultural projections, are a USDA consensus on a conditional long-run scenario for the agricultural sector, including the dairy sector.

The last three baselines released by USDA — in February 2021, February 2022 and February 2023 — all stated that US milk production “is projected to rise at a compound annual growth rate of 1.1 percent” per year through the end of the projection period.

So the 2021 USDA baseline had US milk production reaching 248 billion pounds in 2030, while the 2022 baseline had milk production reaching 252.4 billion pounds in 2031 and the 2023 baseline had milk production reaching 253.7 billion pounds in 2032.

There are a couple of points to keep in mind here. First, milk production can still reach those levels in those years. But second, production will have to rise at a compound annual growth rate of greater than 1.1 percent for at least a couple of years in the future to reach those levels.

That’s because, as the statistics noted earlier indicate, milk production basically didn’t grow at all in 2023. Indeed, 2023 milk production was well below what was projected in the 2021, 2022 and 2023 USDA ag baselines: 2023 milk production was projected to reach 229.2 billion pounds in the 2021 baseline, 230.3 billion pounds in the 2022 baseline, and 228.2 billion pounds in the 2023 baseline.

One thing the 2021, 2022 and 2023 baselines have in common is that they don’t project any annual milk production increases under 1.0 billion pounds between 2024 and the end of their projection period. But in fact we’ve now had two straight years in which milk production increased by less than 1.0 billion pounds.

This is why USDA’s baseline reports always contain caveats. For example, in the “Abstract” to the February 2023 baseline, the report notes that projections “are based on specific assumptions, including a macroeconomic scenario, existing US policy, and current international agreements.”

Also noteworthy in the Abstract to the February 2023 baseline: the 2018 farm bill is assumed to remain in effect through the projection period. Given the current dysfunction in Congress, this might prove to be an accurate assumption.

The February 2023 baseline report also included the following: Agricultural trade projections assume that trade agreements, sanitary and phytosanitary restrictions, and domestic policies in place as of October 2022 remain in place throughout the projection period.

Also, trade tariffs policies in place as of October 2022 are assumed to remain in effect throughout the next 10 years. And trade agreements implemented before October 2022, such as the United States-Mexico-Canada Agreement (USMCA) and the Japan-US Free Trade Agreement, were also considered in the 2023 projections.

Beyond farm and trade policy, the baseline reports make some interesting observations about macroeconomic conditions. For example, the 2023 baseline notes that persistent inflation, severe weather events, supply chain disruptions, high input costs, and Russia’s war against Ukraine continued to pressure commodity prices above their historic trends in 2021/22 and 2022/23.

Here in 2024, inflation has cooled at least a little bit, but it’s pretty much guaranteed that we’ll see numerous severe weather events, supply chain disruptions, and high input costs continuing. Meanwhile, Russia’s war against Ukraine continues, and we’re now about four months into a war in the Middle East that has some pretty significant ramifications for agriculture.

When USDA releases its 2024 ag baseline later this month, no doubt that report will contain numerous caveats about everything from the farm bill and trade agreements to the overall economy and global political turmoil (wars). And the 2025 ag baseline will include similar caveats.

What these ag baselines will also include is projections that likely show US milk production increasing every year through the end of the projection periods. This seems pretty reasonable; after all, milk production hasn’t declined since 2009, so expecting a decade of increases is a fairly safe projection.

But there are so many caveats that it would also be reasonable to expect milk production to decline at some point, and fall short of some projections.

Dairy Trade Surplus A Bright Spot For US Agriculture

The US dairy industry hasn’t been a really significant exporter for all that many years, but it has emerged just in the past couple of years as a real bright spot for US agriculture.

Michael Dykes, president and CEO of the International Dairy Foods Association, put this point in perspective during his Dairy Forum 2024 President’s Breakfast Address Monday morning in Phoenix. Throughout history, he pointed out, the US has always had a positive balance of trade when it comes to food and agriculture, “meaning we export more than we import.”

However, this past year, “we imported more food and agriculture than we exported” for the first time in history. But “we’re exporting far more than we are importing on dairy.”

This is quite an accomplishment for the US dairy industry. To put it in just a bit of historical perspective, we went back to the beginning of the 21st century and looked at some agriculture and dairy trade statistics.

Back in 2000, US dairy exports were valued at about $967 million, while dairy imports were valued at just over $1.5 billion, for a dairy trade deficit of over $500 million. In 2003, US dairy exports topped $1 billion for the first time, while dairy imports were valued at almost $1.8 billion, for a dairy trade deficit of almost $800 million.

Finally, in 2007, the US ran a dairy trade surplus, with exports reaching $3.0 billion and imports valued at just under $2.5 billion, for a dairy trade surplus of over $500 million.

During this period (2000-2007), the US was running a healthy agriculture trade surplus. In 2000, US ag exports were valued at $55.9 billion, while imports were valued at $41.9 billion. By 2007, ag exports has risen in value to $93 billion, while imports had risen in value to $77 million.

So during that period in the early part of the 21st century, US dairy wasn’t contributing to the positive US ag trade balance.

But that’s changed, in a significant way, in recent years. From 2014 through 2022, US dairy exports have topped $7 billion in value twice (in 2014 and in 2021), and topped $9 billion in value once (in 2022). Their lowest level during that period was $4.7 billion, in 2016.

US dairy imports, meanwhile, ranged from about $2.7 billion to around $2.9 billion between 2014 and 2018, between $3.0 billion and $3.6 billion between 2019 and 2021, and then reached a record $4.65 billion in 2022.

So the US went from running dairy trade deficits in the hundreds of millions of dollars in the early years of the 21st century to running dairy trade surpluses in the billions of dollars over the past decade-plus.

Meanwhile, US ag exports have continued to grow in recent years, from $156 billion in 2014 to $196 billion in 2022. Ag imports have grown more impressively, from $119 billion in 2014 to $198 billion in 2022, for a US ag trade deficit of around $2.0 billion.

That ag trade deficit widened considerably in 2023. During the first 11 months of 2023 (December trade figures haven’t been released yet, so annual totals aren’t available), US ag exports were valued at $159 billion, while imports were valued at $179 billion, for a deficit of around $20 billion.

For fiscal year 2024 (which runs from Oct. 1, 2023, through Sept. 30, 2024), USDA is forecasting a US ag trade deficit of $30.5 billion, but it’s also forecasting a dairy trade surplus of $1.8 billion. So dairy trade will remain a bright spot for US agriculture.

But what does the future hold? Dykes noted that USDA is projecting 20 billion pounds more milk by 2030, that today the US is exporting about 18 percent of its milk production, and as more milk comes online, “we’re going to need to be north of 22 percent of our milk for exports.”

To do that, the US will need to defend against unfair trade barriers, expand existing trade agreements and work on new agreements, Dykes said.

Unfortunately, there seems to be little help coming from Washington. The Biden administration and Congress are “too busy fighting with each other and not focusing on helping. And when they’re fighting, we’re not going to be winning,” Dykes said.

What does the future hold for US trade policy? The Biden administration has been focused on the Indo-Pacific economic framework “but there’s no market access in that,” Dykes noted. If the Biden administration continues for a second term, it “doesn’t appear as though we will have a trade agenda.”

Former President Trump is the Republican front-runner at this time, and if there’s a Trump administration, “it looks like we’re going to be back into tariffs,” Dykes said. And if we have tariffs, “food and ag products get retaliated on the import side.”

These pose both short- and long-term problems for US dairy trade. In the short run, retaliatory tariffs can reduce US dairy exports almost immediately.

In the long run, new trade agreements take years to negotiate and years to implement. As Dykes pointed out, New Zealand’s trade agreement with China was signed in 2008, but it wasn’t until Jan. 1, 2024, that New Zealand gained complete duty-free dairy access to China.

US dairy exports are a bright spot for US agriculture trade right now, but continuing to be a bright spot in the future isn’t going to get any easier...

A Couple Of Interesting Price Elasticity Perspectives

One of the benefits of the federal milk marketing order program is the volume of information it produces. This includes everything from class prices and milk pooled by order to utilization and component tests.

But as impressive as this information is, it pales in comparison to the amount of information generated by federal order hearings, particularly the national hearing that reconvened this week in Indiana.

Just to cite one example of this information: price elasticity, particularly for Class I (fluid) products, isn’t something that’s necessarily “top-of-mind” for most folks in the dairy industry, but it was the focus of testimony from at least two witnesses at the hearing.

Harry M. Kaiser, a professor of applied economics at Cornell University, testified back at the end of August as an expert witness on behalf of the National Milk Producers Federation concerning the expected impacts on milk product demand accompanying regulated price changes.

“The price elasticity of demand for milk is inelastic, which means that consumers are not very sensitive to adjusting their purchases in response to price changes,” Kaiser testified.

He explained that a price elasticity measures the percentage change in demand, given a 1 percent change in price. Technically, any elasticity that is lower in absolute value than 1.0 indicates that demand is relatively price inelastic since changing the price by 1 percent results in a less-than-1-percent change in quantity demanded.

The “overwhelming majority” of empirical studies that have measured the price elasticity of milk have found it to be inelastic, Kaiser said. Based on 38 peer-reviewed studies that have measured the price elasticity of demand for milk at the retail level, the average estimated elasticity indicates that a 1 percent increase in the retail price of milk would cause a 0.35 percent decrease in per capita quantity demanded, holding all other milk demand drivers constant.

Demand for milk is inelastic because it’s considered a “staple good,” in that milk buyers regularly consume it usually in the same amount regardless of price level, Kaiser noted. For regular milk consumers, milk is considered more of a necessity than a luxury, which explains why consumers are not very sensitive to price changes.

There are at least three reasons for the steady decline in per capita milk demand over time, Kaiser continued, “and they do not include the retail price of milk.” First, the beverage market has become increasingly competitive, with milk losing “significant market share” to soda in the distant past and, more recently, bottled water, sports drinks, and plant-based milk products have taken “tremendous market share” away from milk.

Another cause of declining per capita milk consumption has been the increasing trend in food consumed away from home. And third, an important demographic change causing a decrease in milk demand is the proportion of young children in the population, which is lower than it was in 2013.

The bottom line in the context of the national federal order hearing is that NMPF’s proposal to increase Class I differentials, therefore increasing Class I prices, “will increase gross revenues to dairy farmers while not having a significant negative impact on milk sales volume,” Kaiser testified.

A couple of months after Kaiser testified at the hearing, Oral Capps, Jr., a professor of agricultural economics at Texas A&M University, testified as an expert witness on behalf of the International Dairy Foods Association concerning the own-price elasticities of demand for milk products.

Capps noted that his research serves to provide a more up-to-date demand systems analysis for fluid milk products as well as for plant-based beverages and other alternatives to milk currently lacking in extant literature. This research is the first to deal with a “granular array” of fluid milk product segments as well as alternatives to fluid milk.

Among the major points associated with Capps’ analysis: the more expensive milk sub-categories had higher own-price elasticities, except for lactose-free milk in the pre-COVID period; and the own-price elasticities for the granular array of fluid milk categories are indicative of elastic demands, not inelastic demands as suggested by Kaiser.

And among Capps’ conclusions: to better understand the demand for fluid milk, it is necessary to disaggregate this category into various segments, namely traditional white milk, traditional flavored milk, organic milk, lactose-free milk, and health-enhanced milk.

Also, Capps noted, it’s necessary to consider the interrelationships with plant-based milk alternatives, bottled water, juices, sports drinks, refrigerated yogurt, and protein beverages. The prices of these alternative beverages and refrigerated yogurt had statistically significant impacts on the quantities purchased of the respective milk sub-categories.

Price elasticity isn’t discussed all that often in the dairy industry, but it was kind of nice to hear two different perspectives on elasticity at the ongoing federal order hearing. And the bottom line from that testimony seems to be that prices matter more for some products than others
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Reviewing 2023 Price Volatility And Previewing 2024 Volatility

It goes without saying that price volatility is here to stay in the dairy business. It was certainly here in 2023, and it most certainly will be here again in 2024, and every year beyond that.

To briefly review a few aspects of price volatility in 2023, we start with the fact that last year was another year in which the CME spot (cash) market price for 40-pound blocks topped $2.00 per pound at some point.

It’s worth remembering that the block price doesn’t always top that $2.00 mark; recent years in which the block price peaked below $2.00 include 2021, and every year from 2015 through 2018.

Last year, the CME block price topped $2.00 per pound at three different points: in January, when blocks topped out at $2.1975 a pound; in March, when blocks reached $2.1000 a pound; and in August, when blocks reached $2.0275 a pound.

At the other extreme, blocks dropped below $1.50 a pound in May (hitting $1.4700), June (hitting $1.3100), and December (hitting $1.3900).

So the “spread” between the low and high block prices in 2023 was 88.75 cents. Also in 2023, the monthly block average ranged from a low of $1.4039 per pound in June to a high of $2.0024 a pound in January, a range of just under 60 cents.

In other recent years in which the block price topped $2.00, the range from the block price low and high was 68.25 cents in 2022, 86.75 cents in 2019, and 95.5 cents in 2014 (this doesn’t include 2020, when pandemic-related volatility caused an unprecedented swing in the block price from $1.00 to $3.00 per pound).

In years in which the block price didn’t reach $2.00, the range from the low to the high price was 52.25 cents in 2021, 41.75 cents in 2018, 49.0 cents in 2017, 67.25 cents in 2016 and 40.0 cents in 2015.

From these price statistics, we can conclude that block prices tend to be more volatile when they reach and exceed $2.00 a pound.

And the relatively simple reason why blocks are less volatile when they remain below $2.00 a pound is because there is a sort of natural “bottom” to the block market.

That is, in the five most recent years in which blocks failed to top $2.00 a pound, the block price only bottomed out below $1.30 a pound once (in 2016, at $1.2700 a pound), below $1.40 a pound twice (in 2017, at $1.3600 a pound, and in 2017, at $1.3300 a pound), at exactly $1.40 a pound once (in 2015), and at $1.4575 once (in 2021).

By contrast, when blocks reach $2.00, they don’t stop there, reaching $2.3975 a pound in 2022, $2.2375 a pound in 2019 and $2.4500 a pound in 2014. But in two of those years, blocks bottomed out under $1.50, making for some extreme volatility.

Meanwhile, the CME spot market price for 500-pound barrels never did make it to $2.00 a pound last year, not even when blocks topped that level. In 2023, the barrel price ranged from a low of $1.3225 on July 3 to a high of $1.9625 in late March, a range of 64 cents.

Interestingly, the block price in 2023 averaged almost 12 cents higher than did the barrel price ($1.7395 vs. $1.6205), after averaging less than three cents higher in 2022 ($2.0737 vs. $2.0525).

Last year marked a return to the recent wide spread between annual block and barrel price averages (more than 10 cents in 2021 and 2018, almost nine cents in 2019, almost eight cents in 2017). And that’s one reason why one of the 21 proposals being considered at the ongoing national federal order hearing would eliminate the barrel price series from the protein price formula.

When it comes to price volatility in 2023, it’s hard to beat butter. Last year, the CME spot butter price ranged from a low of $2.2675 a pound in January to an astonishing high of $3.5025 a pound on Oct. 6, a range of $1.2350 a pound. And, also somewhat astonishingly, monthly butter prices ranged from $2.3553 a pound in January to $3.3814 a pound in October, a range of $1.03 a pound.

With this background in mind, how volatile might cheese and butter (and therefore milk) prices be in 2024? Just focusing on Cheddar blocks, we note that the block market started off the new year under $1.50 a pound, something that doesn’t happen all that often.

In fact, going back to 2014, it’s only happened once, in 2019. And blocks ended up reaching $2.2375 in September of that year.

Interestingly, US milk production was relatively weak in 2019, rising just 0.3 percent for the year, with a 0.1-percent decline in the second quarter.
Milk production was also relatively weak during 2023, particularly during the second half of the year, with milk output down 0.6 percent in the third quarter and then down 0.7 percent and 0.6 percent in October and November, respectively.

Meanwhile, the CME spot butter price started off 2024 above $2.60 a pound. That’s the highest level ever for the butter price at the beginning of a year, although butter also started off 2022, 2019, 2018, 2017 and 2016 above $2.00 a pound.

From all of these price statistics, we can safely reach two conclusions: dairy product prices in 2024 will be extremely volatile, and they will also be highly unpredictable
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A Few Dairy Predictions For 2024

Making dairy-related predictions is generally a risky undertaking, but as 2023 draws to a close, we thought we’d take a stab at making at least a handful of predictions for 2024.

One thing we’re reasonably confident in predicting is that the ongoing national federal milk marketing order hearing will finally end. This is the hearing that started in August, recessed in October, reconvened in November, recessed again in December and will reconvene on Jan. 16, 2024.

And the hearing should wrap up sometime that week, or shortly thereafter.

After that, there are several additional predictions that can safely be made regarding this federal order proceeding, thanks to USDA’s online “brochure,” on the federal order amendment process. This 12-step process is currently at Step 5, which is USDA holding a public hearing.

Once the hearing finally wraps up, the timetable includes the following: the hearing record is made available within two weeks of the completion of the hearing; interested parties may, within 30 days after the hearing record is made available, file suggested corrections to the hearing transcript; participants may then, within 60 days, file post-hearing briefs; USDA must then, not later than 90 days later, issue a recommended decision; comments may be filed, within 60 days, on that recommended decision; USDA has to issue a final decision within 60 days of the deadline for submitting comments on the recommended decision; and then USDA holds a referendum so that producers are able to approve or reject the federal orders as amended.

Thus, assuming that the hearing concludes by the end of January, corrections to the hearing transcript might be due by mid-March; post-hearing briefs might be due by mid-May; a recommended decision might be issued by mid-August; comments on that recommended decision might be due by mid-October; and a final decision might be released by the end of 2024.

So our first prediction for 2025 is that federal order amendments based on the 2023-2024 national hearing will finally be implemented, or rejected.

Another thing the dairy industry can expect in 2024 is a new farm bill. A year ago, we actually predicted that the dairy industry could expect a new farm bill in 2023, given that the 2018 farm bill expired at the end of September 2023. However, instead of passing a new farm bill, Congress extended that 2018 farm bill for another year.

But it would be surprising, if not shocking, to see Congress pass another one-year extension of the farm bill rather than finalizing a new five-year farm bill, if for no other reason than organizations ranging from the American Farm Bureau Federation to the National Farmers Union are urging Congress to pass a new farm bill as early in 2024 as possible.

The process of updating the Dietary Guidelines for Americans will continue in 2024, although the next edition of the Dietary Guidelines probably won’t be released until near the end of 2025.

In 2024, the Dietary Guidelines Advisory Committee will continue its work, including its fourth meeting, which is scheduled for Jan. 19, 2024.
The DGAC will meet approximately six times and is expected to conclude its work in late 2024, when it submits a scientific report to the secretaries of agriculture and health and human services.

But the Dietary Guidelines will be “in the news” in 2024 for additional reasons, as well. Just to cite one example: USDA’s Food and Nutrition Service is expected to issue a final rule sometime in 2024 that would finalize long-term school nutrition standards based on the Dietary Guidelines for Americans, 2020-2025. These standards deal with, among other things, fluid milk, sodium, and added sugars.

That final rule could, in turn, influence the 2024 farm bill. Depending on what USDA decides to do with school fluid milk standards, Congress may opt to include the Whole Milk for Healthy Kids Act in the farm bill. That legislation was approved earlier this month by a healthy bipartisan margin in the House.

Meanwhile, we expect to see some interesting developments at the US Food and Drug Administration in 2024. We’ll mention just a couple of those developments here.

First, FDA will possibly issue a final rule sometime in 2024 to provide for the use of fluid ultrafiltered milk in the manufacture of standardized cheeses and related cheese products. This proceeding dates back to December of 1999 and includes, among other things, a proposed rule released in 2005, reopened comment periods in 2007 and 2019, and guidance regarding enforcement discretion for the use and labeling of UF milk in certain cheeses in 2017.

Also in 2024, FDA is expected to issue a final rule that would update the existing definition of the implied nutrient content claim “healthy” by requiring that food products bearing the claim contain a certain amount of food from recommended food groups, including dairy, and also require such foods to be limited in saturated fat, sodium and added sugar.

All in all, 2024 promises to be another mighty interesting year for the dairy industry
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Good Riddance To Partially Hydrogenated Oils

The US Food and Drug Administration last week announced that today (Dec. 22, 2023) is the effective date for the direct final rule regarding the revocation of uses of partially hydrogenated oils (PHOs) in food.

This direct final rule amends FDA’s regulations to no longer provide for the use of partially hydrogenated oils in food given the agency’s determination that PHOs are no longer generally recognized as safe (GRAS). The final rule also revokes prior sanctions (i.e., pre-1958 authorization of certain uses) for the use of PHOs in margarine, shortening, and bread, rolls, and buns based on FDA’s conclusion that these uses of PHOs may be injurious to health.

And so ends the legal use of one of butter’s most notorious competitors. The end of the PHO era prompts us to take a quick look back at this ingredient that was the key ingredient in margarine for many years.

According to a 2004 petition from the Center for Science in the Public Interest, partially hydrogenated vegetable oils have been used since the 1930s, and the FDA approvals for using hydrogenated vegetable oils in margarine and food dressings were published in 1977.

For what it’s worth, the purpose of CSPI’s 2004 petition to FDA was for the agency to revoke the legal authority for industry to use partially hydrogenated vegetable oils in both packaged foods and foods served in restaurants and other food-service establishments.

Eleven years after CSPI submitted that petition to FDA, the agency released its final determination that partially hydrogenated oils are not GRAS. That determination was based on extensive research into the effects of PHOs, as well as input from stakeholders during a public comment period.

Also for what it’s worth, it was 100 years ago this year that Congress passed, and President Warren G. Harding signed into law, legislation defining butter as a food product “made exclusively from milk or cream, or both, with or without common salt, and with or without additional coloring matter, and containing not less than 80 per centum by weight of milk fat...”

That year was part of butter’s “glory days,” with production rising from 937 million pounds in 1920 to 1.33 billion pounds in 1923 and then reaching a record 1.87 billion pounds in 1941 — a record that stood until 2018. And per capita butter consumption during that period generally ranged from 16 to about 18.5 pounds annually.

So what happened during the butter-margarine battle over the past 80-plus years? Well, according to a report from USDA’s Economic Research Service, shortages and rationing of butter during World War II led consumers and food processors to substitute margarine for butter. Post-World War II, many earlier public policies and restrictions on margarine (including restrictions on coloring) were relaxed.

Further, some consumers had become more accustomed to the taste of margarine, and the cheaper cost of margarine relative to butter also favored the switch (23 cents per pound for margarine, compared with 71 cents per pound for butter in 1946), ERS explained.

And at that time, margarine was touted as a healthier alternative to butter because it contained less saturated fat, ERS noted. What a difference a few decades makes!

Originally, margarines were prepared from a blend of animal fats, such as tallow and lard, with semi-solid palm, palm kernel, and coconut oils, ERS pointed out. By the 1930s, margarine was primarily made from domestically produced vegetable oils that were partially hydrogenated to convert the liquid oils into a spreadable product that’s semi-solid at room temperature.

And so, for several decades, margarine took advantage of its “health halo,” as well as its lower price, to steal market share from butter, to the detriment of public health and the dairy industry, among others.

Three sets of statistics help illustrate this point. From a production standpoint, after reaching a record 1.87 billion pounds in 1941, US butter output drifted lower, even dropping below 1.0 billion pounds for several years back in the 1970s. As recently as 1998, butter production was under 1.2 billion pounds, or more than 700 million pounds below that 1941 record.

From a consumption standpoint, after ranging from 16 to over 18 pounds annually for several decades, per capita butter consumption dropped below 10 pounds in 1951 and then fell below five pounds in 1973. With the exception of 1984, when it was 5.0 pounds, per capita butter consumption remained below that level until 2008.

And the number of plants producing butter in the US dropped from well over 4,000 back in the 1930s and early 1940s to under 100 by 1997.

These trends were caused in large part by a product (margarine) that competed with a now-illegal ingredient that somehow was viewed as healthier than butter. Given what we know now, margarine probably never should have been allowed on the market in the first place.

Butter no longer has to compete with margarines made with partially hydrogenated oils, but it’s difficult to understate the harm margarine did to butter, and to the dairy industry, when it was made with PHOs
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The Never-Ending Saga Of Updating Federal Orders

The ongoing national federal milk marketing order hearing is recessed again, and won’t resume until Tuesday, Jan. 16, in Carmel, IN. That means that, by the time it reconvenes, the hearing will have taken place in six different months, starting in August 2023, possibly continuing into a seventh month, and in two different years.

It was two months ago when we noted, in this space, the “good news” that the hearing had advanced to the fifth and final hearing proposal category, Class I and Class II differentials, but also the “bad news,” which was that the hearing had recessed until Nov. 27, “meaning it will likely continue at least until early December.”

Well, it not only continued until early December, it’s now going to continue until at least mid-January, and possibly even into early February.
And now it looks like it could be February of 2025, if not later, before updates to the federal order system are finally implemented.

These lengthening timelines have prompted us to look back at some missed “opportunities” to update the federal order system prior to this ongoing proceeding, which might not have been needed, or might not be taking as long as it is, had these earlier opportunities been taken advantage of.

Keep in mind that the current federal order system has now been around for over two decades. Federal order reforms were implemented starting on Jan. 1, 2000.

Eight years later, the 2008 farm bill included a section requiring the secretary of agriculture to establish a “Federal Milk Marketing Order Review Commission” to conduct a “comprehensive review and evaluation” of the federal milk marketing order system in effect on the date of establishment of the commission; and non-federal milk marketing order systems.

One of the seven “elements” of this review and evaluation was as follows: “streamlining and expediting the process by which amendments to Federal milk market orders are adopted.”

That section of the 2008 farm bill was never implemented.

That same farm bill included a separate section requiring USDA to issue supplemental rules of practice to define guidelines and timeframes for the rulemaking process relating to federal order amendments. Those supplemental rules of practice were supposed to establish proposal submission requirements, pre-hearing information session specifications, written testimony and data request requirements, public participation timeframes, and electronic document submission standards.

That section of the 2008 farm bill was implemented, which is why the first part of this current proceeding moved relatively fast, from the first proposals being submitted on Mar. 28, 2023, to USDA releasing an “Action Plan” on June 1 and then releasing a hearing notice on July 21.

But obviously things have gotten bogged down since the hearing got underway, which makes us wonder what a Federal Milk Marketing Order Review Commission might have recommended for streamlining and expediting the federal order amendment process, had that commission been created.

That wasn’t the only time USDA had an opportunity to address federal order problems. In August of 2009, US Secretary of Agriculture Tom Vilsack established the Dairy Industry Advisory Committee to review the issues of farm milk price volatility and dairy farmer profitability.

Two of the 23 recommendations included in the DIAC’s final report, which was released in March 2011, dealt with the federal order program. Both of these recommendations were approved unanimously (17 DIAC members in favor, none opposed).

The first of these federal order- related recommendations was for the secretary of agriculture to appoint a committee to review implications of federal orders, including, but not limited to, end-product pricing’s impact on milk price volatility and impact of classified pricing and pooling on processing investment, competition and dairy product innovation.

The second of these recommendations was to explore alternative measures to the current end product pricing system, such as competitive pricing and mandatory price reporting.

Why is this pertinent today? Think back to August and September, when the ongoing federal order hearing was focusing on the issues of Class III and Class IV formula factors, surveyed commodity products, and milk composition. All of those issues are part of the end product pricing system, which has been controversial for a couple of decades now but hasn’t really been addressed directly when it comes to a possible replacement (which would come with its own set of controversies).

Finally, we recall that, in 2015, USDA sought comments as part of its regulatory review of the federal order program. The purpose of that review was to determine whether the program should be continued without change, amended, or rescinded.

Several changes to the federal order program were recommended, but those ideas went nowhere.

So here we are, waiting to ring in the new year and continuing a federal order amendment proceeding with no end in sight
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More Room For Per Capita Cheese Consumption Growth

When the issue of per capita cheese consumption is considered, the key question isn’t whether it will continue to grow, but rather how high it will eventually reach. And the answer to that question, in our opinion, is: a lot higher than it is today.

As reported on our front page last week, per capita cheese consumption in 2022 reached a record high of 40.14 pounds, up more than half a pound from 2021’s record. With the exception of the COVID-19 year of 2020, per capita cheese consumption has set new records every year since 2011, according to figures from USDA’s Economic Research Service.

To address the issue of how high per capita cheese consumption might eventually go, it might be worthwhile to look at how much it has already grown over the years. This is a great time to look at the history of US per capita cheese consumption, because it just reached a momentous milestone, topping 40 pounds for the first time ever.

So when did per capita cheese consumption first top the previous milestones of 10, 20 and 30 pounds? According to ERS statistics, per capita cheese consumption first topped 10 pounds in 1967 (at 10.0 pounds), first topped 20 pounds in 1983 (at 20.6 pounds), and first topped 30 pounds in 2001 (at 30.05 pounds).

There are several conclusions that can be reached from this brief look at cheese consumption milestones. First, milestones seem to be topped every other decade — that is, in the 1960s, 1980s, 2000s, and now 2020s — so we can expect per capita cheese consumption to reach 50 pounds sometime in the 2040s.

Second, per capita cheese consumption doesn’t decline very frequently.
For example, after reaching 30.05 pounds back in 2001, per capita cheese consumption declined just twice before topping 40 pounds last year: in 2008 and in 2020.

Notably, both of those declines took place during major economic calamities, specifically the Great Recession and the COVID-19 pandemic, respectively.

And third, there are very few major “jumps” in per capita cheese consumption; that is, increases of one pound or more in a single year. For example, after per capita consumption reached 30.05 pounds in 2001, per capita cheese consumption has increased in all but two years, but only twice (in 2016 and 2021) have those increases been greater than one pound. And one of those increases (in 2021) followed one of the two declines over that period.

After topping the 40-pound mark, a couple of questions come to mind. First, is 50 pounds even possible?

Yes, it’s definitely possible, for a couple of reasons. First, as history shows, increases in per capita cheese consumption are the rule, rather than the exception.

Per capita cheese consumption would obviously have to increase by half a pound per year to get to 50 pounds annually by around 2042. From 2001 to 2022, per capita cheese consumption actually posted 10 increases of more than half a pound, so getting to 50 pounds by 2042 seems to be possible if not probable.

And second, how do we get to that 50-pound milestone? There are numerous answers to that question, but we’ll just touch on a few of them here.

First of all, to get to 50 pounds of per capita consumption in the next couple of decades, the US needs to act more like several European countries.

The International Dairy Federation’s recently released World Dairy Situation 2023 report includes per capita cheese consumption statistics for numerous countries, and several countries are (and have been) well above the 50-pound mark. Topping the list, at an impressive 62.3 pounds, is Denmark, followed by France at 60.3 pounds.

Other European countries with per capita cheese consumption above 50 pounds annually are Germany, Netherlands, Switzerland, Austria, Finland, Lithuania, Estonia, Cyprus, and Iceland. Greece is not included in the IDF’s report, but we’ve seen estimates that per capita cheese consumption in Greece is above 60 pounds as well.

So if the US starts to consume cheese more like consumers in some European countries do, 50 pounds will be relatively easy to achieve.
That leads to another area of growth opportunity: cheese for breakfast. This is very popular in some European countries, but hasn’t necessarily taken off in the US.

Getting more consumers to eat cheese for breakfast would go a long way toward helping boost per capita consumption to 50 pounds and beyond.

Yet another growth opportunity lies in the Hispanic cheese category. Like overall per capita consumption, per capita Hispanic cheese consumption also reached a milestone last year, topping one pound for the first time (at 1.05 pounds).

Per capita Hispanic cheese consumption has more than tripled since 2000, and in fact has only declined once since then (in 2012). Considering how popular Mexican and Southwest cuisines are in the US, it’s probably safe to assume that Hispanic cheese consumption will continue to increase in the future.

The US reached another major cheese consumption milestone last year. Those milestones don’t come along very often, but for numerous reasons, we expect to see another one reached within the next couple of decades.

Has The US Dairy Import Assessment Been Too Successful?

Starting in August 2011, US dairy importers have been paying mandatory assessments to the National Dairy Research and Promotion Program. According to USDA’s 2020 report to Congress on the Dairy Promotion and Research Program and the Fluid Milk Processor Promotion Program, total import assessment funds varied between $3.44 million and $4.76 million per year between 2012 and 2020, averaging $3.93 million annually.

Meanwhile, US dairy imports increased in value from $2.63 billion in 2012, the first full year the dairy import assessment was in effect, to a record $4.65 billion in 2022. Imports are on pace to reach somewhere around $4.8 billion in value this year.

These figures raise an interesting question: Has the dairy import assessment been too successful?

To analyze this question, a brief review of the history of the dairy import assessment, and dairy import trends, is helpful.

While the dairy import assessment didn’t become effective until August 2011, its origins actually date back more than a decade. It was in June of 2001 when bipartisan members of both the US House and Senate introduced the Dairy Promotion Fairness Act, legislation that would require dairy importers to pay into the National Dairy Promotion and Research Board at the same rate as US dairy producers do (15 cents per hundredweight).

The reasoning behind the legislation was that dairy imports were benefitting from the efforts of the dairy promotion program but not helping to pay for those efforts.

The dairy import assessment was eventually included in the 2002 farm bill. At that time, the US was running a significant dairy trade deficit.
Specifically, in 2001, US dairy exports were valued at $1.08 billion, while dairy imports were valued at $1.64 billion, for a dairy trade deficit of $554 million. In 2002, when the farm bill was signed, dairy imports were valued at just under $1.6 billion, while dairy exports were valued at $937 million, for a dairy trade deficit of $660 million.

A couple of additional dairy import statistics from two decades ago are also worth mentioning. First, in 2002, US cheese imports reached a record 475 million pounds, a record that still stands (over the last 10 years, cheese imports have ranged from 324 million pounds in 2013 to 452 million pounds in 2016). Also in 2002, the US imported about 91 million pounds of milk protein concentrate, while producing zero pounds of MPCs.

Six years later, the 2008 farm bill included language that paved the way for implementation of the dairy import assessment. Specifically, to overcome concerns that the import assessment might violate WTO rules, the 2008 farm bill extended the existing 15-cent dairy promotion assessment to Alaska, Hawaii, and Puerto Rico, which were previously exempt from the national assessment.

Also, the original assessment on imported dairy products was reduced in that farm bill from 15 cents to 7.5 cents per hundredweight milk equivalent.

Notably, in 2008, when the dairy import assessment was included in a farm bill for the second time, US dairy imports were valued at $2.7 billion, while dairy exports were valued at $3.75 billion, for a US dairy trade surplus of $1.05 billion.

The dairy import assessment was finally implemented in 2011. That year, dairy imports were valued at $2.4 billion, or just over half their value last year and roughly half the value of what they’ll reach this year.

Meanwhile, US dairy exports were valued at $4.8 billion in 2011 and $9.5 billion in 2022, and the US has run significant dairy trade surpluses every year since the dairy import assessment was implemented.

But export growth is kind of beside the point here. Given the significant growth in the value of dairy imports in recent years, has the import assessment been too successful?

To some extent, that depends on your perspective. For example, while the US doesn’t import as much cheese as it did 20 years ago, the value of those cheese imports has grown considerably, from $788 million ($1.66 per pound) in 2002 to $1.57 billion ($3.78 per pound) in 2022.
It seems that the US is importing more higher-value cheese and less lower-value cheese now than it did 20 years ago. But is that due to the import assessment or other factors?

Meanwhile, US imports of milk protein concentrates last year totaled about 87 million pounds, down 4 million pounds from their 2002 level. And notably, the US in 2022 produced 221 million pounds of MPCs, in 14 plants, up from zero and zero back in 2002.

So the US has shifted from being just an importer of MPCs 20 years ago to producing more than twice as much MPCs as it imports today. But is that due to the import assessment or other factors?

Finally, it's worth remembering that dairy trade statistics vary from year to year, due to factors ranging from the value of the US dollar to a desire by dairy product buyers to source products domestically rather than from foreign countries, due to supply chain issues.

No doubt the value of US dairy imports is rising these days, but it's hard to attribute those increases just to the assessment
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Retail Dairy Product Prices Looking Pretty Good These Days

Inflation continues to garner headlines and remains among the greatest concerns of many if not most consumers. But the good news from a dairy industry perspective is that inflation is turning out to be a one-year wonder, and stable if not somewhat lower retail dairy prices have recently become the rule rather than the exception.

There are several ways to illustrate this point. From a “big-picture” perspective, as reported on our front page last week, the Consumer Price Index for dairy and related products in October was 268.3 (1982-84=100), down 0.02 percent from September and down 0.4 percent from October 2022.

That last comparison is the key here. During 2022, the dairy CPI rose every month, from 238.7 in January to 271.4 in December. It continued to increase during the first two months of 2023, reaching a record high of 272.3 in February.

But the dairy CPI has been slowly declining since then, and has now been under 270 for five straight months. Granted, that’s still very high — after all, the dairy CPI had never been above 240, 250, 260 or 270 until last year — but it’s trending in the right direction, from a consumer perspective.

Further, among the four major food categories broken out by the US Bureau of Labor Statistics — dairy and related products; meats, poultry, fish, and eggs; cereals and bakery products; and fruits and vegetables — dairy is the only one that is lower than a year ago. Yes, October’s CPI for meats, poultry, fish, and eggs was up only 0.4 percent from October 2022, but it was actually up 0.7 percent from September.

Also worth noting is that the CPIs for those other three categories are all over 300. In fact, the October CPIs for cereals and bakery products and for fruits and vegetables were over 350, while the CPI for meats, poultry, fish and eggs was 322.5.

Looking at some specific dairy product categories, October’s CPI for cheese and related products was 266.4, which was up 0.5 percent from September but down 1.9 percent from October 2022.

Much like the dairy CPI, the cheese CPI topped a few milestones in 2022, reaching 250, 260 and 270 for the first time ever, and reaching a record high of 272.9 in December.

But while the cheese CPI remained above 270 in each of the first five months of 2023, it’s been below that level for five straight months.

Meanwhile, average retail Cheddar cheese prices reached a record high of $6.08 per pound in September 2022, and were above $5.90 a pound in nine of the 12 months between August 2022 and July 2023. But they’ve now been under $5.90 a pound for three straight months and five of the last six months.

To put that in a bit of historic perspective, average retail Cheddar cheese prices reached a record high of $5.94 per pound back in February 2013, and that record stood until last August, when the average retail price reached $6.00 a pound (technically, $5.995 a pound).

Early 2013 was a pretty inflationary period for retail Cheddar prices, which averaged about $5.83 a pound during the first quarter of that year. Interestingly, during the third quarter of this year, retail Cheddar prices averaged $5.88 a pound, or just five cents higher than the first quarter of 2013.

At this rate, it’s at least somewhat possible that average retail Cheddar prices in the fourth quarter of 2023 will be lower then they were in the first quarter of 2013.

Retail fluid milk prices are also trending in the right direction for consumers. Yes, the three fluid milk CPIs in October were all higher than they were in September, but they were all also lower than they were in October 2022.

For example, October’s CPI for whole milk, at 251.8, was up 0.9 percent from September but down 2.2 percent from October 2022. Looking back at the whole milk CPI, it reached a then-record 252.2 in April of last year, and was above 260 five times last year, including in both November and December.

But the whole milk CPI has been below 260 every month this year, hasn’t been above 255 since February, and was below 250 in July, August and September before rebounding in October.

Average retail whole milk prices were above $4.00 a gallon every month from May 2022 through May 2023, including a record high of $4.20 a gallon in January of this year. But they’ve now been below $4.00 a gallon for five straight months.

Also, and related to the point about historic Cheddar prices, the average retail price for a gallon of whole milk had reached a record high of $3.86 a gallon back in November of 2014, a record that was finally broken in February of 2022. And in October of 2023, the average retail whole milk price was less than seven cents higher than it was back in November of 2014.

Retail dairy product prices may never again get back to where they were a few years ago; in 2017, for example, retail Cheddar prices averaged under $5.00 a pound for eight straight months. But based on what’s been happening in recent months, it might be a while before retail dairy product prices reach 2022 levels again. Dairy products continue to be a great bargain.

25 Years Of A Daily Cash Cheese Market

This might come as somewhat of a surprise to some cheese industry veterans, but it’s now been 25 years (plus a few weeks) since the industry’s cash cheese market became a daily instead of a weekly event.
That silver anniversary prompts us to take a trip back in time to briefly review how the industry’s cash market has evolved.

Going back a bit over a century, the Wisconsin Cheese Exchange was formed in 1918. But the Wisconsin Cheese Exchange was actually preceded by other “exchanges,” including the Plymouth Central Call Board of Trade and other so-called call boards.

Going even further back in history, it was to improve the position of the cheese factory operator that the so-called dairy boards were established, 1873 being the year in which they first made their appearance, according to an article written by Robert W. Leffler, president of the Wisconsin Cheese Exchange from 1941 to 1960. That article was published in the July 1954 edition of the Journal of Dairy Science.

Essentially, Leffler explained, a dairy board was no more than a marketplace where buyers and sellers of cheese might get together. The cheese maker had an opportunity to come into contact at a dairy board with more buyers than the limited number who might call at his factory, and buyers no longer had to travel from factory to factory in order to buy his cheese.

“For a while these boards attained considerable popularity. Over 50 were in existence at one time,” Leffler noted.

As a side note, this publication started out in 1876 as a dairy-related section of The Sheboygan County News; the dairy news in those early issues mostly concerned local call board dairy trading, among other things.

The call boards were succeeded in 1918 (although at least one remained somewhat active for a couple more decades) by the Wisconsin Cheese Exchange, which was originally based in Plymouth, WI. That exchange moved to Green Bay, WI, in 1956, and changed its name to the National Cheese Exchange in 1975.

As Leffler explained, the Wisconsin Cheese Exchange (and later the NCE) met on Friday of each week. The trading session lasted for 30 minutes, with the presiding officer having the right to grant all necessary extensions of time, “a right which is frequently exercised.”

That’s an interesting observation, given how trading at the WCE and later the NCE evolved over the years. Specifically, during at least a couple of years in the early 1980s, there was no activity whatsoever at the NCE for weeks and months on end.

That point can be partially illustrated by the number of price changes on the NCE during some of those years. Specifically, in 1981, 1982 and 1983, there were all of four changes in the 40-pound block Cheddar price per year. A typical observation in the Cheese Reporter’s “Market Opinion” back then was: “There was no trading activity today.” Remember, that’s when trading took place just once a week.

While a least part of the 1980s was uneventful at the NCE, things got mighty interesting in the 1990s. Things started to get interesting in March of 1996, when the University of Wisconsin-Madison and the Wisconsin Department of Agriculture, Trade and Consumer Protection released a very lengthy and detailed study of the NCE.

That study concluded, among other things, that NCE trading conduct during the 1988-1993 period “is consistent with the hypothesis that some leading traders are motivated primarily by a desire to influence NCE prices.”

Two months later, two subcommittees of the House Agriculture Committee held a two-day hearing on that study as well as on possible alternatives to the NCE for price discovery for bulk cheese and milk.

In between that study being released and that hearing being held, Congress passed a farm bill that, among other things, mandated the reform of the federal milk marketing order program. At that time, NCE prices were being used to calculate the Basic Formula Price (predecessor to today’s Class III price).

By early 1997, it became apparent that the NCE’s days were numbered. A joint committee of the boards of the NCE and the National Cheese Institute was looking at an alternative cash market for the cheese industry.
In March of that year, a proposal from the Chicago Mercantile Exchange was accepted to create a new cash cheese market at the CME.

The NCE held its final trading session on Friday morning, April 25, 1997, in Green Bay. Six days later, on a Thursday afternoon, the CME launched its new cash cheese market.

That, as it turned out, is sort of a forgotten chapter in cash cheese trading: weekly trading that took place on Thursday afternoons. That’s because, a year and a half later, on Sept. 1, 1998, the CME moved to daily trading for its cash cheese market.

So what can we learn from this brief history? If nothing else, we can safely conclude that cheese price volatility is here to stay: in the 2020s, there are times when cheese prices change more in a single week than they changed in an entire year back in the 1980s. Such is life with a 25-year-old daily cash market
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Checking Out Some Of The Latest Plant-Based Dairy Developments

Love ‘em or hate ‘em, plant-based dairy alternatives seem to be pretty good at generating at least three things: controversy, sales, and hype (not necessarily in that order). This week, we’ll focus just on the hype.

For what it’s worth, we looked up the meaning of the word “hype,” and found that several of the definitions had a couple of things in common, namely the use of the words “extravagant” or “exaggerated.” Not that plant-based dairy alternatives could be accused of either, but...

One new plant-based dairy alternative that caught our attention recently has been introduced by a company called GOOD PLANeT Foods, whose mission is to be better for people and the planet. This product is described as the world’s first olive oil cheese.

“With exceptional taste, meltability, and more heart health benefits, the Olive Oil Cheeses are projected to change the cheese category,” GOOD PLANeT Foods stated in a recent press release.

Most vegan cheeses are high in saturated fat from coconut oil, the press release continued. The switch to olive oil in GOOD PLANeT’s new Olive Oil Cheese “means it offers the heart health benefits of unsaturated fat, less saturated fat, and fewer calories than most dairy and vegan cheeses — all without sacrificing flavor or performance.”

Hype aside, there are a couple of interesting things we noticed about these olive oil cheeses. First, particularly compared to traditional dairy cheeses, they have lengthy and not necessarily appetizing ingredient lists.
For example, the Italian-Style Mozzarella contains, among other things, food starch-modified (tapioca and potato), faba protein, potato protein, maltodextrin and sugar.

Last time we checked, real dairy Mozzarella contained the following ingredients: milk, salt, cultures and enzymes.

Depending on your perspective, Olive Oil Cheese might be considered an ultra-processed food product. Maybe consumers don’t care about such things, but it seems like a shorter ingredient list is preferred over a longer one by many consumers.

Second, Olive Oil Cheese doesn’t appear to offer much nutritional punch. Among other nutrients, GOOD PLANeT’s Italian-style Mozzarella contains one gram of protein and provides zero percent of the Daily Value for calcium per one-ounce serving, whereas real dairy Mozzarella has somewhere around seven grams of protein and 15 percent of the Daily Value for calcium per one-ounce serving.

Also, the company’s Olive Oil Mozzarella contains more sodium than a couple of part skim Mozzarella products we checked (240 milligrams for the Olive Oil Mozz versus 190 milligrams for the part skim Mozz products).

On top of these points, more and more research is finding benefits to the dairy matrix, but what about the “olive oil cheese” matrix?

Another plant-based dairy alternative that has recently caught our attention is Wesson Plant Butter (for more details about this product, please see “Long Known For Cooking Oil, Wesson Launches Plant ‘Butter’,” on page 7 of last week’s issue).

Wesson, of course, is best known for its cooking oil. Wesson was established in 1899, and claims to be one of America’s best-selling cooking oil brands. Now, consumers can find two of its products, Wesson Plant Butter (Original) and Plant Butter (with Olive Oil) in the refrigerated aisle (possibly, or even probably, right next to the real dairy butter).

Here again, we couldn’t help but notice the lengthy ingredient statement. The Original version of Wesson Plant Butter contains, among other things, canola oil, palm and palm kernel oils, salt, vegetable monoglycerides, soy lecithin, and natural flavors.

This, of course, reads like the ingredient statement for an ultra-processed food product. Real butter, by contrast, contains only cream and salt.

Real butter is also defined by Congress, and regulated by the US Food and Drug Administration. So we can’t help but wonder if FDA has any objections to a product with the name Wesson Plant Butter. Probably not, based on the agency’s recent inaction on such products.

Finally, a sentence in a recent news release from Tulane University caught our attention. The sentence reads as follows: “According to a new study co-authored by a Tulane University researcher and published in the journal Nature Food, making simple substitutions like switching from beef to chicken or drinking plant-based milk instead of cow’s milk could reduce the average American’s carbon footprint from food by 35%, while also boosting diet quality by between 4-10%, according to the study.”

Here’s some advice from Diego Rose, senior author of that study and nutrition program director at Tulane University School of Public Health and Tropical Medicine: “When you’re at the grocery store, move your hand one foot over to grab soy or almond milk instead of cow’s milk. That one small change can have a significant impact.”

But almond milks contain almost no protein. Yes, this can have a “significant impact,” especially for kids who drink three servings a day of almond milk instead of real dairy milk.

US Milk Production Appears To Be Stagnating

US milk production is on track to set yet another record this year, but this year’s milk production increase will be smaller than some recent increases. And that may, or may not, have some significant repercussions for dairy processors.

Let’s face it, milk production increases are pretty much taken for granted these days. The last time milk production declined was in 2009, when output of 189.2 billion pounds was down 776 million pounds from 2008.

By 2022, milk production had increased every year since 2010, reaching a record 226.5 billion pounds. Although it increased every year during that period, there were some years in which the growth was pretty small. For example, milk production in 2013 was only 618 million pounds higher than it was in 2012, and 2019 milk production was only 873 million pounds higher than 2018 production.

Most recently, 2022 milk production was just 169 million pounds higher than 2021 output.

And there were also some years in which milk production growth was pretty impressive. For example, 2014 milk production was almost 4.8 billion pounds higher than 2013 output, and 2020 milk production was almost 4.9 billion pounds higher than 2019 output.

Here in 2023, milk production started out well above last year’s output; specifically, first-quarter production was up 1.0 percent, or 550 million pounds, from 2022’s first quarter. This would seem to imply that 2023 milk production would top 2022’s output by more than 2 billion pounds.

But at this point, the first quarter is looking more like the exception than the rule, when it comes to milk production. During the second quarter, milk production was up just 0.3 percent, or 195 million pounds, from the second quarter of 2022.

And then in the third quarter, milk production declined 0.7 percent, or 372 million pounds, from 2022’s third quarter, meaning that milk production through the first three quarters of 2023 is running just 373 million pounds above 2022’s output.

And it’s losing momentum. Milk production was positive in the first half of the year but negative in the third quarter, and milk cow numbers for the entire US in September were down 30,000 head from June. Also, milk per cow for the entire US has been slightly above a year earlier in two of the past four months (September and June), but down from a year earlier in two months (July and August).

Interestingly, in its most recent supply-demand estimates (which were released a week before the latest “Milk Production” report), USDA forecast that US milk production this year would total 227.6 billion pounds, up 100 million pounds from last month’s forecast and up 1.1 billion pounds from 2022’s output.

Well, that just doesn’t seem very realistic at this point in time. If fourth-quarter milk production just matches output during 2022’s fourth quarter, milk production for all of 2023 will end up around 226.8 billion pounds, or 800 million pounds below USDA’s latest forecast.

In USDA’s defense, its latest production forecasts were made before some earlier production statistics were revised, and revised down. These revisions actually came in two forms.

First, the August milk production estimate for both the 24 reporting states and for the US as a whole were revised down, by 73 million pounds and 119 million pounds, respectively. Thus, August milk production for the 24 reporting states went from being down 0.3 percent to being down 0.7 percent from August 2022, while production for the entire US went from being down 0.2 percent to being down 0.8 percent from a year earlier.

Second, there were revisions to the milk production estimates for the entire US for every month from April through August. The second-quarter milk production estimate was revised down by 39 million pounds, so output during that quarter was only up 0.3 percent from a year earlier, rather than up 0.4 percent as originally estimated. And July’s milk production estimate was revised down by 40 million pounds.
In other words, USDA’s latest milk production forecast was based on earlier estimates that were a bit on the high side.

What all of this adds up to is that US milk production here in 2023 could end up very close to where it was in 2022, meaning that milk production will have basically held steady for two consecutive years.

Does that mean it’s time for dairy processors to panic? Will they be facing chronic milk shortages now or in the next year or two?

That seems unlikely, for at least three reasons. First, one of the few things that have been consistent in the dairy business over the past decade or so is the decline in fluid milk sales. Every year, less milk is being bottled, meaning there’s more milk available for other uses.

Second, while milk production isn’t increasing very much, the milk that is being produced contains more solids. Just to cite one example: in August, the average fat test in the US was 4.00 percent, up from 3.93 percent in August 2022.

And third, the US is exporting less this year than in 2022, meaning more milk is being used, or stored, domestically.

Milk production might be stagnant right now, but history tells us it will bounce back, and sooner rather than later.

Globally, US Dairy Industry Has Changed A Lot Since 1993

The International Dairy Federation held its annual World Dairy Summit in the US this week, specifically in Chicago. IDF noted that this was the first time the World Dairy Summit has been held in the US in 30 years.

That got us thinking about where the US dairy industry stood, globally, back in 1993, compared to where it stands today. It’s safe to say things are a bit different now than they were three decades ago.

For starters, one only has to look at some of the key sponsors of this year’s World Dairy Summit to see how much has changed for the US dairy industry over the past 30 years. The “Diamond” sponsor is Dairy Management, Inc. (DMI), which didn’t exist back in 1993.

DMI was actually established in 1995, when National Dairy Board and United Dairy Industry Association board members created DMI as the organization responsible for boosting demand for US-produced dairy products on behalf of US dairy farmers.

DMI today isn’t just funded by dairy farmers; in 2011, dairy importers started being assessed the equivalent of 7.5 cents per hundredweight of milk on imported dairy products. So today, DMI’s mission is to drive increased sales of and demand for dairy products and ingredients on behalf of dairy producers and dairy importers.

One of the “Gold” World Dairy Summit sponsors is the US Dairy Export Council, which also didn’t exist back in 1993. USDEC was formed by DMI in 1995 to leverage investments of processors, exporters, farmers and industry suppliers to enhance the US dairy industry’s ability to serve international markets.

Today, USDEC also receives funding from USDA’s Foreign Agricultural Service, under both the Market Access Program and the Foreign Market Development Program.

Another “Gold” World Dairy Summit sponsor is the Consortium for Common Food Names. CCFN is a relatively young organization, having been formed in 2012. CCFN didn’t really have to exist until then, because the European Union hadn’t been nearly as aggressive in trying to protect its cheese and other common food names in trade agreements with various countries around the world.

And that situation has only gotten worse since CCFN was established, both because the EU has continued to sign trade deals that protect common food names and because the list of protected cheese names continues to expand to include cheeses that have long been considered generic.

Just to cite one example: the European Commission in 2019 agreed to register the name “Havarti” as a protected geographical indication for Denmark, despite the facts that, among other things, Havarti is produced in large volumes outside that country, and has had a Codex standard since 1966.

How significant a role did the US play in the global dairy market back in 1993, and how has that role changed since then? Well, in 1993, US dairy exports were valued at $877.3 million, while dairy imports were valued at $955.7 million, for a dairy trade deficit of $78.4 million.

The following year, the value of dairy exports dropped to $736.7 million, while the value of dairy imports actually topped $1.0 billion for the first time, at $1.066 billion.

The US cheese trade balance also helps illustrate the US dairy industry’s position on the global stage 30 years ago. In 1993, the US exported 38.2 million pounds of cheese, and imported 320.6 million pounds of cheese, for a cheese trade deficit of 282.4 million pounds.

Suffice it to say that the US ran a significant dairy and cheese trade deficit 30 years ago. Oh, and it’s worth remembering that a fair amount of US dairy exports were subsidized back then, under USDA’s Dairy Export Incentive Program.

Today, of course, the US runs a significant dairy trade surplus. In 2022, US dairy exports were valued at $9.5 billion, while dairy imports were valued at $4.7, for a dairy trade surplus of $4.8 billion. Also in 2022, cheese exports totaled 992 million pounds, while cheese imports totaled 414 million pounds, for a cheese trade surplus of 578 million pounds.

One additional area worth highlighting here is the evolution of the US cheese industry over the past 30 years. Specifically, the US has greatly diversified its cheese production; while overall cheese production hasn’t declined since 1991, and that growth has been driven primarily by Mozzarella and Cheddar, the US has also greatly expanded its specialty cheese production.

The US doesn’t specifically track specialty cheese production, but the state of Wisconsin does, and those statistics coincidentally date back to 1993, when Wisconsin’s specialty cheese output totaled 83.1 million pounds. By last year, the state’s specialty cheese production had grown to 928 million pounds.

This diversification can also be seen at the national level, with states from coast to coast producing award-winning specialty cheeses made not only from cow’s milk but also from goat, sheep and other milks.

No doubt about it, the US dairy industry has changed considerably since the World Dairy Summit was held here in 1993. Kind of makes us wonder what it will look like in 2053.

There’s Gotta Be A Better Way To Modernize Federal Orders

The wide-ranging hearing to modernize federal milk marketing orders continued this week in Carmel, IN, but it was recessed on Wednesday and won’t be continued until Monday, Nov. 27. All of which begs the question: Is there a better (shorter) way to modernize federal orders?

It may be recalled that the current process of modernizing federal orders got underway, at least formally, back on Mar. 28, 2023, when both the Wisconsin Cheese Makers Association and International Dairy Foods Association petitioned USDA to hold a hearing to update make allowances in Class III and Class IV pricing formulas.

Things progressed from there, and the much-anticipated hearing to modernize federal orders got underway back on Wednesday, Aug. 23, in Carmel, IN. A total of 21 proposals are being considered at this hearing (not counting USDA’s own proposal), falling into five categories: milk composition, surveyed commodity products, Class III and Class IV formula factors, the base Class I skim milk price, and Class I and Class II differentials.

The good news, here in the second week in October, is that the hearing has advanced to the fifth and final hearing proposal category, Class I and Class II differentials.

The bad news, here in the second week in October, is that the hearing has now recessed until Monday, Nov. 27, meaning it will likely continue at least until early December.

There are at least two big problems with this hearing continuing until then. First, it extends the timeline for this entire proceeding. USDA’s federal order website (www.ams.usda.gov/rules-regulations/moa/dairy) includes a “brochure” outlining the steps for amending a federal milk marketing order using formal rulemaking; that process includes a total of 12 steps.

The first four steps in this process, from USDA receiving a proposal to witnesses submitting testimony in advance, took roughly five months to complete (exhibits for milk composition proposals were supposed to be submitted by Monday, Aug. 21).

Step 5, USDA holds a public hearing, will now run off and on over the course of over three months. After that, USDA’s timeline includes the following: the hearing record is made available within two weeks of the end of the hearing; parties have 30 days to file corrections to the hearing transcript; interested parties have 60 days to file post-hearing briefs; and then USDA has 90 days to issue a recommended decision.

Comments will then be accepted for 60 days, after which USDA has another 60 days to issue a final decision and then USDA holds a referendum and implements the amendments.

So we could be looking at changes to federal orders being implemented more than a year from right now, and more than a year and a half from when this process started.

The other big problem with this hearing taking so long is that pretty much everybody involved in this proceeding has stressed that changes to federal order pricing formulas are long overdue and urgently needed.

Just to cite one recent example: Jeffrey Sims, secretary and chief market analysis officer of Lone Star Milk Producers, stated (in his written statement) that his testimony “aims to highlight the urgent need for updating and improving” the Class I pricing surface, and also noted that, earlier in the hearing, proponents of updating make allowances “have emphasized the urgent need” for updating make allowances.

The point here is, for a proceeding that’s tackling so many “urgent” issues, the end result will seemingly take forever. It’s hard to associate the word “urgent” with this proceeding.

So what’s the solution here? Given the tight timelines in other steps, it’s obvious that the hearing itself is where the real cuts perhaps can be made.
This is an obvious point, given that we’re at the beginning of a delay that’s going to take more than six weeks, and almost double the time the entire hearing will take.

But we can’t help but wonder if there’s a better way to handle this than holding a live hearing, especially the extensive cross-examination that’s been taking place with various witnesses (the aforementioned Jeffrey Sims, for example, submitted a detailed 51-page written statement, plus nine additional exhibits to supplement his statement, and was still cross-examined both late last week plus most of Monday).

Given that written statements are already required to be submitted in advance, would it be possible to eliminate cross-examination? Granted, this is one of the more “colorful” aspects of federal order hearings, but it is also, without a doubt, the most time-consuming.

Currently, after witnesses testify, they are subject to cross-examination and then their testimony can also be rebutted or criticized in post-hearing briefs. Can’t the post-hearing briefs, which address witness testimony, adequately serve the function of cross-examination?

All of this is of course just an idealistic look at how to speed up the process of amending federal orders. USDA is following current law and regulations in conducting this proceeding, and that’s as it should be. But given this drawn-out process, we can’t help but wonder if there’s a better, quicker way to amend orders
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FDA Nutrition Initiatives Are Way Too Biased Against Cheese

Looking over some of the comments submitted in response to the US Food and Drug Administration’s draft guidance on Dietary Guidance Statements, we were reminded that there are several nutrition-related initiatives under way at FDA, and none of them seem very positive for cheese.

As noted in a front-page story in last week’s edition, Dietary Guidance Statements are written or graphic material, based on key or principal recommendations from a consensus report, in food labeling that represent or suggest that a food or a food group may contribute to or help maintain a nutritious dietary pattern.

The draft guidance recommends that foods with Dietary Guidance Statements not exceed certain amounts of saturated fat, sodium, and added sugars, and that foods with Dietary Guidance Statements contain a meaningful amount of the food or category of foods that is the subject of the statement.

Appendix 1 of the draft guidance lists examples of Dietary Guidance Statements, and the one dairy-related example is as follows: “Choose fat-free or low-fat dairy products instead of full-fat dairy options.” That’s pretty much eliminating Dietary Guidance Statements on the vast majority of cheeses produced in the US.

Further, as National Milk Producers Federation points out in its comments, this “implies that the most important message to consumers is to change the type of dairy foods they currently consume, rather than increasing consumption to recommended amounts.” And the “large majority of Americans” consume fewer than the recommended number of dairy servings, NMPF noted.

Also, of the 11 statements in Appendix 1, the only one about dairy has a negative rather than positive tone, and it doesn’t encourage increasing consumption or highlight the beneficial role dairy plays in healthy dietary patterns, NMPF pointed out. By contrast, two of the other examples are to eat leafy green vegetables “as part of a nutritious dietary pattern,” and that seafood, including shrimp, “is part of a nutritious dietary pattern.”

As further evidence of FDA’s anti-cheese bias, the International Dairy Foods Association doesn’t support FDA’s proposal to use disqualifying nutrients to limit (NTL) if the food meets the proposed food group equivalents (FGEs); IDFA believes this is “overly restrictive” and would inhibit the use of Dietary Guidance Statements on certain otherwise nutrient dense foods.

IDFA and others asked FDA to refrain from finalizing the draft guidance until the agency issues its final rule updating the criteria for the nutrient content claim “healthy.” Further, as the Institute of Food Technologists points out, other food labeling initiatives underway at FDA include a healthy icon and front-of-package labels.

“The convergence of these labeling initiatives will result in multiple, major changes to food packaging that could cause confusion among consumers as to the meaning of each part of the label,” the IFT noted in its comments to FDA on Dietary Guidance Statements. While some of these proposed label changes, such as front-of-package labels, are being tested with consumers, they are being conducted in isolation of the other proposed changes to the label that may influence consumer understanding and choice.

Therefore, IFT suggested that FDA consider inclusion of these multiple initiatives in consumer testing to better understand the interaction of these labels on consumer understanding and choice. For example, IFT asks, how might a consumer respond to a Dietary Guidance Statement of
“Eat yogurt as part of a nutritious dietary pattern” if the yogurt also includes a front-of-pack label stating “high in added sugar” or includes the color red for added sugar content.

Looked at another way, how might a consumer respond to a statement of
“Eat cheese as part of a nutritious dietary pattern” if cheese also includes a front-of-pack label stating “high in saturated fat and sodium” or includes red lights for high saturated fat and sodium content?

In fact, while FDA’s Appendix 1 offers an example of eating leafy green vegetables as part of a nutritious dietary pattern, it seems like dairy products including cheese, yogurt and fluid milk should all be able to bear that Dietary Guidance Statement. If nothing else, these products could all bear a different example noted in Appendix 1: “Vary your protein routine.”

Two other issues bear mentioning here. First, of the 1,200-plus comments
FDA received on its draft guidance, only four mentioned the dairy and/or food matrix; those comments came from IDFA, NMPF, National Dairy Council and Dairy Council of California. FDA’s draft guidance makes no mention of the food matrix, but it should.

Second, in addition to FDA’s various labeling initiatives, the federal government is in the early stages of writing the 2025-2030 Dietary Guidelines for Americans, and that new document will be released in a little over two years.

It seems foolish to finalize the draft guidance, or any of FDA’s other food labeling initiatives, until the next edition of the Dietary Guidelines is released. Maybe the new guidelines will be more cheese-friendly
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Flawed Studies On Milk, Meat, And Plant-Based Alternatives

The dairy and meat industries continue to come under considerable criticism for alleged contributions to greenhouse gas emissions and other offenses, so we thought we’d take a look at a couple of recent studies in this area and provide our (admittedly biased) perspective.

Just last week, a study published in Nature Communications concluded that replacing 50 percent of milk and meat products with plant-based alternatives by 2050 can reduce agriculture and land use-related greenhouse gas emissions by 31 percent and halt the degradation of forest and natural land.

The study, which was highlighted in separate press releases by the University of Vermont (one of the study’s 13 authors is affiliated with the University of Vermont) and the International Institute for Applied Systems Analysis (six of the authors are affiliated with the IIASA), has garnered a fair amount of publicity over the past week or so, in the US as well as in several other countries.

There are at least a couple of noteworthy aspects to this study that weren’t mentioned in any of the coverage we read, but are worth noting nonetheless.

First, as noted earlier, the study has a total of 13 authors from a variety of entities, including the aforementioned University of Vermont and IIASA. Interestingly, three of the authors are with Impossible Foods, whose mission, according to the company’s website, is “to make the global food system truly sustainable by eliminating the need to make food from animals.”

Impossible Foods produces and markets a variety of plant-based “meat” products, including, among others, beef, pork and chicken. The new study specifically looks at the “main animal products” (pork, chicken, beef and milk).

Granted, in a section at the very end of the study (on page 12, after the 100 references, plus acknowledgements and author contributions), there’s a section labeled “Competing interests.” Here it mentions that three of the authors declare the following competing interests: they were or are employees of Impossible Foods Inc., “which is a company that develops plant-based substitutes for meat products.”

Since this “competing interest” doesn’t appear to have been mentioned in any of the other coverage this study received around the globe, we thought we’d mention it here.

Also noteworthy about this study is how the research was conducted. For the study, researchers used sets of hypothetical plant-based “recipes” designed to be nutritionally equivalent to the original animal-derived products, and also selected “realistic ingredients that could feasibly be produced within existing food manufacturing capabilities and for global production (to balance global and regional abundance).”

The recipes, according to the study, allow for the use of more diverse ingredients and are “largely agnostic to current recipes on the market.” One or more modeled recipes are similar to the Impossible Burger and Beyond Burgers. The novel alternatives recipes were constructed using processed ingredients such as flours and protein concentrates. Each of the recipes also calls for the inclusion of a vegetable oil.

Well, it sounds like these plant-based recipes all result in what’s commonly referred to as “ultra-processed” foods. Last time we checked, ultra-processed foods were generating considerable controversy, regarding everything from how they should be defined to how harmful they are, or aren’t, to human health.

Another recent study that caught our attention was conducted by researchers at Stanford University, and compared innovations and policies related to plant-based and lab-grown alternatives to animal meat and dairy in the US and European Union. This study was published in One Earth.

The study states that a transformation of the food system “is required to reduce its impact on climate, deforestation, and biodiversity,” and that GHG emissions of the food system, especially livestock production, “must be greatly reduced to avoid the most extreme impacts of climate change.”

The study goes on to note that, in the past decade, “substantial investments” have gone into developing a new generation of animal-derived food analogs, such as meat, milk, and dairy products derived from plants, biomass and precision fermentation, and cell cultivation.

The study’s main hypothesis “is that governments are de facto hindering the diffusion of animal product analogs through a policy mix that preserves the dominance of animal farming systems.” One section of the study specifically mentions the Dairy Pride Act, which would prohibit food not containing animal-derived ingredients from being marketed as dairy.

As the study points out, the bill has been “repeatedly introduced” in Congress, but as not noted, it has never passed.

Meanwhile, the US Food and Drug Administration, in draft guidance released early this year, said plant-based milk alternatives may use the term “milk.”

Given that FDA’s draft guidance drew praise from several organizations that advocate plant-based alternatives, it’s hard to see how government policy is hindering that industry. Seems like it’s actually helping
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Record Years And Months Skew Statistical Comparisons

It’s been another mighty interesting statistical year in the dairy industry, and one of the many interesting aspects of this dairy year is the percent or absolute changes in various price and trade statistics. That’s what happens in the year or years after numerous records are set.

For example, in the price arena, there have been some astonishing declines in Class III and Class IV prices this year, compared to last year.
That’s due, of course, to the fact that so many milk price records were set last year.

In May, for instance, the Class III price was $16.11 per hundredweight, down an eye-opening $9.11 per hundred from May 2022. But it may be recalled that the Class III price in May 2022, $25.21 per hundred, was the highest Class III price ever, for May or any other month.

Indeed, last year featured Class III prices above $24.00 per hundred for three straight months (April, May and June), including May’s record high, and those high prices all resulted in huge drops when comparing them to this year’s Class III prices. That’s especially true for June, with the 2023 Class III price down $9.42 from June 2022.

This point is noteworthy simply because Class III prices above $24.00 just don’t occur very frequently, and when they do, they’re generally followed by eye-opening drops a year later.

This is, of course, a very limited set of statistics, since the Class III price has only been above $24.00 per hundred six times: in April and September of 2014; in July of 2020; and in April, May and June of 2022. The smallest drop a year later was in April of this year, when the Class III price of $18.52 was down just $5.90 from April of last year. The other declines from Class III prices above $24.00 per hundred all exceeded $8.00.

Dairy trade statistics are another area in which record years can skew comparisons the following year. In July, for example, as reported on our front page last week, the value of US dairy exports was down an eye-opening 21 percent from July 2022.

In June, dairy exports had been down 24 percent from a year earlier, and in May, exports had been down 19 percent from May 2022.

But it’s worth remembering that dairy exports in 2022 were at astonishingly high, and in some cases record, levels. May exports were valued at a record $912.4 million, up an eye-opening 33 percent from May 2021 and a new (and still standing) single-month dairy export record.

In that context, the 19-percent drop in May dairy export value this year doesn’t look all that bad. In fact, the May export value of $732.4 million is the second-highest May export value ever, trailing only last year’s $912.4 million.

Here’s a different way of looking at May’s dairy export value: it’s just the second time ever that May dairy exports topped $700 million in value.
The previous time, of course, was in 2022. And prior to that, the highest value for May dairy exports was $679.6 million, set in 2014.

Meanwhile, back in June, US cheese exports on a volume basis totaled 78.6 million pounds, down an eye-opening 19 percent from June 2022. But, as noted in the front-page story in our Aug. 11th issue, cheese exports in June 2022 had set a new single-month record of 97.0 million pounds.

If nothing else, the month of June has seen more than its share of “eye-opening” ups and down over the past decade when it comes to cheese exports. Back in June of 2014, cheese exports totaled 74.4 million pounds, up 32.2 percent from June 2013. Cheese exports in June 2015, at 57.4 million pounds, were down 22.8 percent from June 2014.

The last four years have seen some wild swings in June cheese exports. In 2020, US cheese exports during June totaled 84.7 million pounds, up 29.2 percent from June 2019 and a new monthly record (breaking the previous record of 75.4 million pounds, set in 2018).

Cheese exports then dropped 12.8 percent in June 2021 before jumping 31.4 percent in June 2022 to a new record high. So while cheese exports in June 2023 dropped 19 percent from June 2022, they were still the third-highest ever, trailing only June 2022 and June 2020.

On the cheese import side, we reported last week that July cheese imports, at 33.6 million pounds, were up 10 percent from July 2022. That might not be an eye-opening increase, but it seems pretty significant nonetheless.

But as it turns out, the July cheese import figure isn’t necessarily all that impressive. Over the past decade (2014-2023), July cheese imports were higher than this year four times, and lower five times.

A more eye-opening comparison could be made by going back to, say, 2002, when cheese imports set a July record of 48.9 million pounds.
That’s up an eye-opening 45.3 percent from July 2023.

Finally, it was interesting to report average retail whole milk prices last year and compare them to a year earlier. Prices were generally half a dollar higher per gallon in 2022 compared to 2021. But at least in some cases, prices were less than 20 cents higher than they were back in 2008.
Comparisons of dairy statistics in many categories can be eye-opening, and also pretty misleading, at times
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Falling Fluid Milk Sales Overhang Federal Order Changes

It was definitely just a coincidence, but in a case of interesting timing, USDA’s Economic Research Service last Thursday released beverage milk sales data at the same time USDA’s Agricultural Marketing Service was conducting a hearing on various proposals to amend federal milk marketing orders.

Fluid milk is, after all, the “bedrock” of federal orders. Marketing order provisions created under the Agricultural Marketing Agreement Act of 1937 are intended to promote orderly market conditions in fluid milk markets, assure consumers (both locally and nationally) of an adequate supply of good quality milk, stabilize milk prices, and improve farmers’ income (emphasis added), according to a 1988 study by the US General Accounting Office (now known as the Government Accountability Office).

Further, as AMS itself notes, federal orders establish certain provisions under which dairy processors purchase fresh milk from dairy farmers supplying a marketing area. A marketing area “is generally defined as a geographic area where handlers compete for packaged fluid milk sales...”

So it’s interesting to, on the one hand, listen in on the testimony at the ongoing federal order hearing in Carmel, IN, and on the other hand, see that fluid milk sales continue to decline.

Specifically on that latter point, as reported on our front page last week, beverage milk sales in 2022 totaled 43.45 billion pounds, down 2.4 percent, or 1.07 billion pounds, from 2021.

In fact, fluid milk sales last year were at their lowest level since 1955, when they totaled 43.40 billion pounds.

To put that in some historical federal order perspective, in 1955, according to AMS statistics, there were 63 federal orders, 1,483 pool handlers, and 188,611 pooled producers, and a total of 18.0 billion pounds of producer milk was used as Class I. The percent of producer milk used as Class I was 62.3.

In 2022, there were 11 federal orders, 213 pool handlers, 23,108 pooled producers, and a total of just under 41.0 billion pounds of producer milk was used as Class I. The percent of producer milk used as Class I was 27.0 percent, and that percentage would have been considerably lower had it not been for large volumes of Class IV milk being depooled almost every month.

Looking ahead, there are a couple of conclusions that can be reached. First, fluid milk sales are likely to keep dropping. This seems like an obvious conclusion, given that sales have now fallen for 13 consecutive years.

And several of these fluid milk sales declines have been pretty significant. Just in 2021 and 2022, fluid milk sales fell by a total of 2.9 billion pounds, after declining by just 51 million pounds in 2020 (when sales were aided by the pandemic).

Further, over the 2010-2019 period, fluid milk sales dropped by over 1.0 billion pounds four times (in 2013, 2014, 2017 and 2018). During the first two of those four years, average retail whole milk prices were relatively inflated, averaging above $3.50 per gallon every month of 2014 and averaging $3.30 per gallon or more every month of 2015, so the large sales declines could maybe be attributed, in part, to high retail prices.

But high prices can’t be blamed for the large drops in fluid milk sales in 2017 and 2018. In 2017, retail whole milk prices averaged under $3.30 per gallon in each of the last nine months of the year. More notably, retail whole milk prices in 2018 averaged under $3.00 per gallon every month of the year, the first time that happened since 2003. And sales still fell by more than 1.0 billion pounds from 2017.

Second, fluid milk will continue becoming less important in the US dairy industry generally and in the federal order program specifically. This isn’t necessarily an obvious conclusion, because the percentage of producer milk used as Class I has both risen and declined since fluid milk sales started their current downtrend in 2010.

But there are several reasons for those fluctuations that aren’t related to fluid milk sales declines. First, California joined the federal order program in November 2018; the following year, the volume of producer milk used as Class I jumped by almost 3.0 billion pounds, thanks entirely to California (5.3 billion pounds of milk was used in Class I on the California order in 2019, meaning that, without the new California order, the volume of milk used as Class I that year would have been around 38.6 billion pounds).

Also, depooling has helped to increase Class I utilization, even as Class I milk volumes continue to decline (at just under 41 billion pounds in 2022, Class I volume in the 11 federal orders was just 344 million pounds higher than it was in 2017, the last full year without the California federal order).

But after falling below 30 percent in both 2018 and 2019, Class I utilization in 2020 increased to 31.8 percent, thanks to massive volumes of Class III milk being depooled. Depooling also helped boost Class I utilization in 2021 and 2022.

By the time the final decision from the current proceeding is fully implemented, Class I volume could be well below 40 billion pounds, and utilization could be under 25 percent. Should fluid milk still be the bedrock of federal orders?

Is There A Better Way To Modernize Federal Orders?

The much-anticipated national federal milk marketing order hearing got underway last Wednesday in Carmel, IN, and the hearing is expected to continue for several more weeks. As anybody who’s attended this (or any previous) hearing, or listened in remotely for any length of time, can attest, these hearings aren’t necessarily the most captivating, enthralling endeavor.

Put bluntly, they’re kind of tedious and boring.

This got us wondering if perhaps there’s a better way to modernize federal orders. Does the industry really need to spend several weeks presenting testimony, cross-examination, etc., in order to satisfactorily reform federal orders?

Who knows? These far-reaching national hearings occur so infrequently that there’s really no way of knowing how some sort of alternate approach might work here in the 21st century.

But there is an approach that took place at the end of the 20th century that offers an example of an alternate approach for reforming federal orders. It’s not necessarily a superior approach, but it’s one worth reviewing while the hearing process continues in Carmel, IN.

These two processes were obviously very different, starting with their origins. The late-1990s order reform process was mandated by the 1996 farm bill, which required that the current federal orders be consolidated into between 10 to 14 orders by Apr. 4, 1999 (that deadline was later extended).

That farm bill also provided that USDA could address related federal order issues such as the utilization rates and multiple basing points for the pricing of fluid milk and the use of uniform multiple component pricing when developing one or more basic prices for manufacturing milk.

By comparison, the current round of federal order reforms got underway on Mar. 28, when both the International Dairy Foods Association and the Wisconsin Cheese Makers Association petitioned USDA to hold a hearing to update all make allowances in federal order pricing formulas.

But it could be said that the current process of modernizing federal orders started long before IDFA and WCMA submitted their petitions to USDA.
Just to cite one example: as Peter Vitaliano of National Milk Producers Federation noted in his hearing testimony last week, NMPF engaged in an almost two-year-long comprehensive study of needed updates to federal order pricing formula provisions.

So it’s safe to say that the origins of the current reform process date back to early 2021, if not earlier.

Based on timetables being discussed at the hearing and elsewhere, it will be late 2024 or thereabouts before federal orders are amended under the current process. That means roughly four years have been devoted to this current process.

It’s interesting to go back and read through a bit of USDA’s final order reform decision, which was published in the Federal Register of Apr. 2, 1999.

Early in that final decision, USDA noted that the 1996 farm bill specified that the agency use informal rulemaking to implement federal order reforms. The authorization of informal rulemaking to achieve the mandated reforms of the farm bill “has resulted in a rulemaking process that is substantially different from the formal rulemaking process required to promulgate or amend Federal orders,” the agency explained.

The plan of action to reform federal orders consisted of three phases, USDA explained. The first phase was the developmental phase, which allowed USDA to interact freely with the public to develop viable proposals that accomplished the farm bill mandates, as well as related reforms.

During that phase, USDA met with interested parties to discuss the reform process, assisted in developing ideas or provided data and analysis on various possibilities, issued program announcements, and requested public input on all aspects of the federal order program. The developmental phase began on Apr. 4, 1996, and concluded with the issuance of a proposed rule on Jan. 21, 1998.

The second phase of that reform process was the rulemaking phase, which began when the proposed rule was issued and ended when the final rule was issued. And the third and final phase of the reform process began after the final decision was published.

So was this process superior to the current formal rulemaking process? Timewise, the current process might be a little quicker, especially if you just limit the “current” process to the submission of petitions back in late March. But considering how long federal order reforms have been discussed prior to petitions being submitted, it’s hard to say the current process is going to end up being much quicker.

As far as comprehensiveness is concerned, it’s probably safe to say the order reform process was superior. The current process is limited, as evidenced by USDA’s denial of almost as many proposals as it accepted for the hearing, and the hearing’s focus on pricing formulas.

It’s too late now, but had Congress mandated order reforms in the 2018 farm bill, the process would have been more comprehensive and, perhaps more important, finished by now.

Block Price Rebound Has Been Impressive, But Not Unique

Back on June 27th, the CME cash (spot) market price for 40-pound Cheddar blocks settled at $1.3100 per pound, down 5.25 cents from the previous day and the lowest CME block price in over three years. In fact, the block price was under $1.40 per pound for two full weeks in late June and early July, and it was beginning to look like the block price wasn’t in any hurry to rebound significantly.

Well, less than six weeks after settling at $1.3925 (on Friday, July 7), the block price topped $2.00 per pound on Tuesday, Aug. 15. That was the first time blocks were above $2.00 since March 28.

This got us wondering how this run-up to a $2.00 block price compares to previous run-ups. For this analysis, we’re not using 2020, because the COVID-19 pandemic resulted in the block price bottoming out at $1.00 per pound on April 15, then rebounding to $2.0475 on May 27, and reaching a record $3.00 per pound on July 13.

The circumstances of that price surge (and price plunge preceding the surge, for that matter) were unique to the pandemic, and likely (hopefully) won’t be seen again anytime soon.

That caveat aside, we went back to 2004, the first year in which the block price reached $2.00 per pound at the CME, and then looked at the other years in which blocks reached $2.00 a pound.

Back in 2004, blocks stood at $1.30 per pound on January 23, then increased almost every day, and finally broke the $2.00 mark on March 19. So that run-up took exactly eight weeks.

In 2007, the block price stood at $1.3950 on March 20, then gradually increased until settling at $2.00 on June 13. In that case, it took about 12 weeks for the block price to increase about 60 cents, to reach the $2.00 level.

Blocks also topped $2.00 a pound at various times in 2008, but that situation can’t really be compared to this year because, although blocks started the year above $2.00, they only fell as far as $1.6500 in the third and fourth weeks of January before rebounding to $2.05 on February 14.

After 2008, the block price didn’t reach $2.00 again until 2011 which, as it turned out, was the first of four consecutive years in which the block price reached $2.00 a pound. In 2011, the block price started off at $1.3425, then rose almost every day until reaching $2.00 a pound on March 2. That run-up took a little over eight weeks.

In 2012, blocks bottomed out at $1.46 per pound on March 5, stood at $1.50 per pound as late as May 23, and finally reached $2.00 a pound on September 21. Using March 5 as the starting point, it took over six months for blocks to reach $2.00.

The following year, blocks bottomed out at $1.55 per pound on March 5, but didn’t reach $2.00 per pound until December 20, a period of more than nine months.

If nothing else, 2013 was notable for its lack of block price volatility, with the price ranging just from $1.55 to $2.00 per pound. In the previous years, blocks not only reached $2.00 a pound, but also surpassed that mark.

Blocks actually started off the year 2014 above $2.00 per pound, and in fact stayed above that level for most of the year. So if anything, the 2014 block price run-up actually occurred in 2013.

After remaining below $2.00 per pound for four straight years (2015-18), blocks again reached that level in 2019. That year, the block market bottomed out at $1.37 on January 9, and didn’t reach $2.00 until September 9, a span of exactly eight months.

Finally, the block price reached $2.00 a pound in 2022, but that isn’t really comparable to the other years in which blocks reached $2.00. That’s because the block price ended 2021 at $1.98 a pound, and reached $2.0150 a pound on January 4.

So the run-up to the 2022 $2.00 block price actually took place over roughly the last seven months of 2021, after blocks bottomed out at $1.4575 on June 9.

So, what can we conclude from all of this? For one thing, we can conclude that a $2.00 block price isn’t necessarily all that common. Since the turn of the century, blocks have reached $2.00 in a total of 11 years, and have failed to reach $2.00 in a total of 13 years. So while a $2.00 block price isn’t exactly a rarity, it occurs slightly less than half the time.

As a caveat, four of the 13 years in which blocks failed to reach $2.00 a pound were 2000-2003, a period of generally depressed cheese prices (blocks averaged under $1.15 a pound in 2000, about $1.44 a pound in 2001, just over $1.18 a pound in 2002 and just under $1.32 a pound in 2003).

Throw out those four years, and blocks have reached $2.00 a pound in a majority of years.

Second, and more pertinent to this analysis, it would seem that the run-up to a $2.00 block price occurs more quickly when the price bottom is lower.

That is, in 2004, 2007, 2011 and again this year, blocks bottomed out below $1.40 and then took less than three months to reach $2.00. The exception was in 2019, when blocks bottomed out at $1.37 in early January and took eight months to get to $2.00.

All of this is a reminder of how volatile the block market has been over the past 20-plus years. Low prices don’t last forever, or even for very long.

 

A Farm Bill Without Dairy Hearings?

Congress is currently in recess until early September, which means it will have less than four weeks to finish its work on the 2023 farm bill. The current farm bill, which was passed by Congress back in 2018, expires at the end of September, so Congress is truly waiting until the last minute to pass a new farm bill.

There is also the very real possibility that the current farm bill will simply be extended for a few months, which will give Congress more time to come to an agreement on a new farm bill.

The agriculture community itself is obviously well aware that the farm bill expires in a few short weeks. Several weeks ago, 20 groups representing agricultural, environmental, forestry, wildlife, nutrition and hunger advocates launched the “Farm Bill for America’s Families: Sustaining Our Future” campaign to urge passage of the 2023 farm bill this year.

Both the House and Senate Agriculture Committees are also obviously aware of this situation. Both panels have been holding hearings on various aspects of the farm bill, but as of this week no actual legislation has emerged from either panel.

Speaking of farm bill hearings, when looking over the hearing schedules for both ag committees, we couldn’t help but notice that there hasn’t been a single hearing devoted to dairy policy this year. And that strikes us as a bit odd, given the importance of the dairy industry in the overall business of agriculture.

For its part, the House Ag Committee and its subcommittees have held roughly 19 hearings thus far in 2023. Several of these hearings have dealt with various aspects of the farm bill, including a couple hearings, both conducted by the subcommittee on conservation, research, and biotechnology, on Title VII of the farm bill (one of these hearings focused on USDA implementation of research programs; the other on university perspectives on research and extension programs).

The subcommittee on livestock, dairy, and poultry has held a couple of hearings this year, one of which reviewed USDA animal disease prevention and response efforts and the other of which reviewed animal agriculture stakeholder priorities.

That latter hearing included witnesses from the National Cattlemen’s Beef Association, National Pork Producers Association, National Turkey Federation, North American Meat Institute, American Sheep Industry Association, and Intertribal Agriculture Council.

Meanwhile, the Senate Ag Committee or its subcommittees have held roughly 15 hearings so far in 2023, and several of these hearings have focused on various aspects of the farm bill, including SNAP and other nutrition assistance, specialty crop producers, trade and horticulture, commodity programs, crop insurance, credit, and conservation and forestry programs.

Only at a May 4th subcommittee hearing entitled “Commodity Programs, Credit, and Crop Insurance — Part 1: Producer Perspectives on the Farm Safety Net,” was there a witness testifying specifically on dairy issues. That witness, Blake Gendebien, is a New York dairy farmer and vice chairman of Agri-Mark dairy cooperative; he testified on behalf of the National Milk Producers Federation.

There are at least a couple of caveats to this lack of dairy input at farm bill hearings. First, in addition to its formal hearings held in Washington, DC, the House Ag Committee has held several farm bill “listening sessions” around the US this year, including in California, Texas, New York, Florida, Oregon, Maine and Minnesota. Given the location of some of these hearings, it’s safe to say that the committee heard a fair amount of testimony about dairy policy at these hearings.

Also, while there have been no dairy-specific hearings here in 2023, and only limited testimony specifically on dairy issues, both ag committees have held hearings on dairy-related issues in the not-too-distant past. In June of 2022, the House Ag Committee held a hearing to review farm bill dairy provisions. And in September of 2021, the Senate Ag Committee held a hearing on milk pricing.

But there are at least a couple of problems with those hearings. First, the 2022 House Ag Committee hearing took place in June when, among other things, milk prices were at or close to record highs, and dairy exports were setting records almost on a monthly basis.

Needless to say, a lot has changed in the dairy markets since that hearing was held, and it’s possible, even likely, that testimony on the dairy safety net would be different today than it was back in June of 2022.

Also, both of these hearings took place long before the federal milk marketing order hearing activity here in 2023. The hearing that gets underway next week in Carmel, IN, will address a number of important federal order issues, but several issues, including such things as giving USDA the authority and funding to conduct regular, audited dairy product cost studies, need to be addressed by Congress, and the farm bill would seem to be the ideal opportunity to address such issues.

Regardless of whether Congress passes a farm bill yet this year, it seems like the dairy industry has been short-changed when it comes to providing input for that key legislation
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A Brief History Of US Casein Production (And Lack Thereof)

The news, reported on our front page last week, that Milk Specialties Global has completed its new production facility in Jerome, ID, that will produce acid casein and rennet casein products got us wondering: how long has it been since the US produced significant amounts of casein? The answer: quite a while.

For purposes of this column, the term “significant amounts” means enough volume for production to be reported by USDA’s National Agricultural Statistics Service (NASS). And there are a couple of ways to verify US casein production via NASS.

First, the NASS website has a feature called “Quick Stats,” which enables users to search for numerous statistics for dairy product production, such as cheese production dating back to 1919, and butter production, also dating back to 1919.

While “Quick Stats” has production statistics for dairy products ranging from butter to whey, and a whole lot more, it doesn’t have anything relating to casein production.

Meanwhile, NASS and its predecessors at USDA have been publishing annual dairy product production summaries for many years now. So, for example, the USDA Statistical Reporting Service report, Production of Manufactured Dairy Products, 1969, doesn’t include any production statistics for casein.

Nor have any of these annual reports published since 1970.

But a little more digging on the NASS website did find some information on US casein production from many years ago. Specifically, a report entitled Production of Manufactured Dairy Products, 1949, reports that US dry casein production was 18,348,000 pounds for 1949, showing a gain of 28 percent over 1948. A table included in that same report shows that there were 52 plants producing dry casein in the US back in 1949.

That report also includes another table showing dry casein production for every year from 1940 through 1949; that production ranged from a low of 12.3 million pounds in 1945 to a high of 47.3 million pounds in 1941.

A separate historical publication found on the NASS website includes a table listing US production of various dairy products from 1934 through 1941. Production of dried casein during that period peaked at 67.5 million pounds in 1937.

To put this in some perspective, the US back in 1937 produced just 13.5 million pounds of Italian-type cheese.
From all of this, we can conclude that the US for a number of years produced millions of pounds of casein, but hasn’t produced any significant amounts since at least the 1960s, if not the 1950s.

But while the US wasn’t producing any casein for many years, it was importing considerable volumes, and those volumes in turn generated plenty of controversy. And some additional historic information about US casein production, as well as import information, can be gleaned from some reports that address those controversies.

For example, back in December 1979, the US International Trade Commission released a report to the House Ways and Means Committee entitled “Casein and its Impact on the Domestic Dairy Industry.”

That USITC report noted that US production of casein “declined precipitously” in the early 1950s following the establishment of the dairy price support program under the Agricultural Act of 1949. Under this program, USDA established a purchase price for nonfat dry milk (as well as butter and Cheddar cheese), and as a result, the domestic supply of skim milk used for the production of casein was subsequently diverted to the production of nonfat dry milk.

“Since the late 1960’s imports of casein have been the sole source of US supply,” that 1979 USITC report noted.

So what was the impact of casein imports on the domestic dairy industry? That 1979 report found “virtually no relationship between imports of casein and mixtures of casein and purchases of nonfat dry milk under the price-support program in recent years. Likewise, no clear relationship is apparent between imports and domestic production or consumption of nonfat dry milk.”

A little over two years later, the USITC concluded that casein was not being imported into the US in such quantities as to materially interfere with, or render ineffective, the price-support program.

One thing these and other reports point out is that there is ongoing US demand for casein and caseinates, whether that demand is met by imported or domestic products. In 2022, the US imported 120.7 million pounds of casein and 52.3 million pounds of caseinates. The combined value of these imports was close to $800 million.

Much has changed in the US dairy industry in recent years, including, among other things, the dairy price support program being terminated.
That program was, after all, the main impetus for those USITC reports on casein, as well as a 2004 USITC report on imports of milk protein products, including casein.

It’s clear that demand for casein and caseinates isn’t going away anytime soon. But now, that demand will be met, in part, by MSG’s new Idaho plant
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Denied FMMO Hearing Proposals Not Likely To Just Go Away

No doubt about it, the US Department of Agriculture’s recent request for proposals to be considered at a possible hearing on the pricing provisions in all federal milk marketing orders revealed a pretty high level of dissatisfaction with the “status quo.”

In its recently issued hearing notice, USDA included a total of 21 proposals, not including Proposal 22, which was submitted by Dairy Program, Agricultural Marketing Service, USDA, and basically calls for making such changes “as may be necessary to make the respective marketing orders conform with any amendments thereto that may result from this hearing.”

Those 21 accepted proposals came from a total of eight entities, who submitted proposals that ranged anywhere from three to 183 pages in length (that 183-page proposal was a revised proposal submitted by the Milk Innovation Group; MIG’s original proposal ran 205 pages).

What the upcoming hearing will focus on is, of course, the proposals that are included in USDA’s hearing notice. And those proposals included a lot of detail about ongoing problems with the federal order program, ranging from a lack of updated make allowances to inadequacies in the products included in the protein price formula.

Suffice it to say that these proposals, and the problems they purport to address, will all get a significant “airing” at the upcoming hearing. After all, USDA’s schedule for submitting exhibits starts on Monday., Aug. 21, for the first set of hearing proposals (milk composition), but doesn’t end until Sept. 13 for the fifth and final set of hearing proposals (Class I and II differentials).

Based on that schedule, USDA obviously expects several days to be devoted to each set of proposals.

But what about the proposals that were denied? While USDA accepted 21 proposals to be considered at the hearing, it also denied a total of 18 proposals as well as a portion of a 19th proposal (USDA accepted a proposal from California Dairy Campaign to hear testimony on including Mozzarella cheese in the Class III price formula, but because the agency doesn’t currently have the legal authority to conduct a mandatory cost survey, that portion of the CDC’s proposal was denied).

So, what can be concluded about these denied proposals? For one thing, it’s probably safe to conclude that, although they won’t be included in the upcoming hearing, they all expose a problem or problems (real or perceived) that potentially could be addressed in the future, through various means.

For three specific proposals, USDA noted that amendments on the subject could be explored through the informal rulemaking process. Two of these proposals, one each from the American Farm Bureau Federation and Edge Dairy Farmer Cooperative, recommended providing dairy producers with additional market information by creating universal milk check transparency requirements.

The third proposal for which USDA recommended exploring the informal rulemaking process was a Farm Bureau proposal to extend the 30-day limit to 45 days for nonfat dry milk in the National Dairy Products Sales Report.

This USDA recommendation got us thinking about the informal rulemaking process, which isn’t used all that often but is certainly a simpler, shorter process than the formal rulemaking process.

As USDA explains on its federal order website (in a “brochure” entitled Federal Milk Marketing Order Program: Understanding the Milk Order Amendment Process), for federal order provisions that do not directly affect milk prices, USDA may elect to use informal rulemaking procedures to amend federal orders. Such procedures typically shorten the rulemaking process.

Informal rulemaking, USDA explained, is a three-step process in which: USDA recognizes that a regulation needs to be issued or changed; USDA publishes a proposed rule and provides time for public comment; and USDA considers the submitted comments and issues a final rule.

Looking around USDA’s federal order website, there don’t appear to be many examples of this informal rulemaking process being used. There was one recent request: back in June 2021, Lamers Dairy and several other small distributing plants requested an amendment to expand and clarify the regulatory exemption of small distributing plants through the informal rulemaking procedure.

But USDA denied that rulemaking request, stating that its preliminary economic analysis indicated that increasing the exempt plant limit could impact milk prices received by dairy farmers.

But given that both AFBF and Edge are interested in more milk check transparency, it seems likely that we’ll see at least one attempt in the not-too-distant future to alter federal order rules via the informal rulemaking process.

USDA denied the other proposals for a variety of reasons, which means at least some of these proposals could resurface in the future. And in at least some cases, that’s a positive for the dairy industry, because some of these denied proposals address federal order issues that aren’t going away any time soon
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Dairy Products Remain A Great Bargain For Consumers

The year 2023 is barely half over, but it’s probably safe to predict that “inflation” won’t end up being the word of the year, or anywhere close to it. That’s because, in categories ranging from food to energy, inflation is either non-existent, or nowhere near as bad as it was a year ago.

That’s especially true when it comes to dairy products.

To back up this line of thinking, we looked at the Consumer Price Index numbers from the US Bureau of Labor Statistics for the month, as well as some historical statistics, also from the BLS. The numbers are pretty convincing.

In June, as we reported last week, the CPI for all items was 305.1 (1982-84=100), up 0.3 percent from May and up 3.0 percent from June 2022. The CPI for food at home was 302.3, down 0.1 percent from May but up 4.7 percent from June 2022.

Within the food-at-home category, among other categories, the CPI for meats, poultry, fish, and eggs stood at 315.6 in June; the CPI for cereals and bakery products stood at 355.1; and the CPI for fruits and vegetables stood at 350.7.

What about dairy and related products? In June, the dairy CPI stood at 268.3, which, obviously, is considerably below several other key food-at-home categories.

It may be recalled (since it was so recent) that dairy price inflation was quite severe last year, and into the first part of this year. Specifically, the dairy CPI rose from 238.7 in January 2022 to 271.4 in December 2022, setting new record highs every month.

Dairy product price inflation continued at the beginning of this year, with the dairy CPI reaching 272.0 in January and then 272.3 in February.

But then inflation started to subside. The dairy CPI has now declined for four consecutive months, and has been below 270 for two straight months. June’s dairy CPI was only 2.7 percent higher than a year earlier.

Keep in mind that, in June of 2022, CME 40-pound Cheddar blocks averaged about $2.19 per pound, barrels averaged almost $2.21 per pound, and the Class III price was $24.33 per hundredweight. Couple that with ongoing supply chain problems, rising labor costs, record exports and other factors, and it was pretty logical to assume that retail dairy product prices were going to increase, and increase substantially, a year ago.

In June of this year, CME blocks averaged under $1.41 per pound, barrels averaged just over $1.50 per pound, and the Class III price was $14.91 per hundred. Suffice it to say that there’s far less inflationary pressure in the dairy industry than there was a year ago.

In addition to the CPI figures, these lower cheese and milk prices are being reflected, albeit more slowly than a lot of folks would like, in average retail dairy product prices.

For example, in June, the average retail Cheddar cheese price, according to the BLS, was $5.68 per pound, down 16 cents from May, down almost 10 cents from June 2022 and the lowest average retail Cheddar price since May 2022.

Meanwhile, the average retail price for whole milk in June was $3.99 per gallon, down almost six cents from May and down almost 17 cents from June 2022. That’s the first time the average retail price for a gallon of whole milk has been under $4.00 since May of 2022.

Looking back at a decade of average retail prices, it’s eye-opening to see just how little inflation there has actually been when examining average retail Cheddar and whole milk prices. For example, in August of last year, the average retail Cheddar price set a new record high, at $6.00 per pound. The previous record $5.94 per pound, had been set way back in February of 2013.

Not only were average retail Cheddar prices under $5.94 per pound every month from March 2013 through July 2022, but there were actually under $5.00 per pound for almost an entire year during that period (November 2016 through August 2017).

And so we can see, for example, that the average retail Cheddar price is now (as of June) almost 10 cents lower than it was a year ago, and it’s also only about 12 cents higher than it was back in June of 2014. In fact, given current trends, in a couple of months we’ll probably see that average retail Cheddar prices are below where they were back in 2014.

Historical average retail whole milk prices are at least somewhat similar to Cheddar prices. Average retail whole milk prices had reached a record high of $3.86 per gallon back in November of 2014, and that record wasn’t broken until March of last year, when the price reached $3.92 per gallon.

Average retail whole milk prices actually averaged above $4.20 per gallon for three straight months (November 2022 through January 2023), but have been declining since then and are now under $4.00 per gallon. It’s probably safe to predict that, by around September, we’ll be able to say that retail whole milk prices are under where they were back in 2014 ($3.73 a gallon in September of that year).

Yes, if they fell as rapidly CME prices, retail dairy prices would be a lot lower than they are right now. But they’re slowly declining, and by pretty much any measure, dairy products remain a great bargain
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Dietary Advice Should Emphasize Full- Fat Dairy Products

The Dietary Guidelines for Americans, along with numerous other US and global dietary recommendations, have emphasized lowfat and fat-free dairy products for decades now. But evidence is mounting rapidly that full-fat dairy products actually pack more nutritional punch than the lower-fat varieties, and it seems logical to expect future dietary advice to stop focusing on reduced-fat dairy products.

Going back to 1980, the first edition of the Dietary Guidelines recommended that consumers avoid too much fat, saturated fat and cholesterol, and specifically advised that they limit intake of butter and cream.

And that advice continues to this day. Specifically for dairy, the 2020-2025 edition of the Dietary Guidelines states that most individuals would benefit by increasing intake of dairy in fat-free or low-fat forms, whether from milk yogurt, and cheese, or from fortified soy beverages or soy yogurt.

The most recent edition of the Dietary Guidelines also states that intake of saturated fat should be limited to less than 10 percent of calories per day by replacing them with unsaturated fats, particularly polyunsaturated fats.
Strategies to lower saturated fat intake include, among other things, choosing lower-fat forms of foods and beverages (e.g., fat-free or low-fat milk instead of 2 percent or whole milk), and selecting lower-fat cheese instead of full-fat cheese.

The impacts of these recommendations go beyond just simple booklets (as in the pre-internet days) or websites (dietaryguidelines.gov). These recommendations govern what’s emphasized on food labels and what can be served in child nutrition programs, among other things.

After all these years of recommending lower-fat dairy products over full-fat dairy products, what are the odds that the federal government will back off on its advice to limit saturated fat intake in the 2025-2030 edition of the Dietary Guidelines? Probably better than ever.

That’s because the evidence continues to mount that saturated fat in general and the fat found in milk in particular isn’t nearly as bad as experts have long thought.

For example, as we reported last week, new research found that diets emphasizing fruit, vegetables, dairy (mainly whole-fat), nuts, legumes and fish were linked with a lower risk of cardiovascular disease and premature death in all world regions.

Specifically, the study found that, given the low intake of fats and especially saturated fat (i.e., whole-fat dairy) among people with the lowest diet score, “current targeted dietary guidance limiting the consumption of saturated fat and dairy in many populations of the world may not be warranted.”

Animal foods such as dairy products and meats are a major source of saturated fats, which have been presumed to adversely affect blood lipids and increase CVD and mortality, noted the study, which was published in the European Heart Journal, a journal of the European Society of Cardiology. But recent data suggest that the effects on lipids and blood pressure are “much more modest” that previously thought.

Further, recent reviews of observational studies and the findings in this PURE (Prospective Urban Rural Epidemiology) study showed that dairy foods, especially whole-fat dairy, may be protective against risk of hypertension and metabolic syndrome. These foods “also contain potentially beneficial compounds including quality protein, milk fat globule phospholipids (mainly in whole-fat dairy), unsaturated and branched-chain fats, and numerous vitamins and minerals,” the study stated.

In an accompanying editorial, Dr. Dariush Mozaffarian of the Friedman School of Nutrition Science and Policy, Tufts University, said the study’s findings “provide further support that dairy foods, including whole-fat dairy, can be part of a healthy diet.” Prior literature suggests benefits of dairy consumption on lean body mass and protective associations for diabetes, hypertension, and metabolic syndrome, often most notable for yogurt and cheese, and with no consistent differences in these associations for reduced-fat versus whole-fat dairy products.

Biomarker studies of dairy fat intake, which avoid many of the pitfalls of self-reported diet, are supportive of these findings, Mozaffarian continued. “The new results in PURE, in combination with prior reports, call for a re-evaluation of unrelenting guidelines to avoid whole-fat dairy products.”

In its recent letter to the US Food and Drug Administration on Bored Cow’s “Animal-Free Dairy Milk” (covered on our front page two weeks ago and in this space last week), National Milk Producers Federation pointed out that the milkfat portion of milk contains approximately 400 different fatty acids.

And as a review published in the journal Nutrients three years ago noted, dairy fat contains a unique variety of bioactive fatty acids; of the repertoire of fatty acids in dairy fat, about 14 percent of them are unique dairy-derived fatty acids and several function as bioactive molecules, exerting beneficial properties that support health and well-being.
Dietary advice should stop villainizing dairy fat
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Some Thoughts On Cell-Based ‘Dairy’ Products

As controversy continues to swirl around plant-based milk and other dairy alternatives, there’s a new controversy arising: cell-based “dairy” products. This promises to be another difficult issue for regulators, mainly the US Food and Drug Administration, to navigate.

As reported on our front page last week, the National Milk Producers Federation wants FDA to end mislabeling by manufacturers of synthetic, cell-based “dairy” products that are in violation of federal standards of identity to prevent a repeat of the plant-based labeling “fiasco” that’s created confusion among consumers and regulatory headaches at FDA.

The labeling problems these synthetic, cell-based products raise “are already present — and it’s imperative that FDA take action now, before this situation spins out of control,” Jim Mulhern, NMPF’s president and CEO, noted in a letter to FDA Commissioner Robert M. Califf.

The complexity of this issue can be illustrated just by looking at how cell-based products are referred to. NMPF’s letter refers to “cell-based foods,” while Perfect Day, whose “animal-free milk protein” is used in Bored Cow’s “milk” products, refers to its flagship product as the world’s first “precision-fermented protein.”

Related to this nomenclature “battle,” last fall, the Good Food Institute APAC and APAC Society for Cellular Agriculture joined more than 30 other key industry stakeholders to announce what they described as a first-of-its-kind memorandum of understanding, aligning the APAC (Asia-Pacific) region on the term “cultivated” as the preferred English-language descriptor for food products grown directly from animal cells.

Signatories of this historic agreement include nearly every cultivated food startup in Asia Pacific, including those dedicated to dairy, meat, seafood, and even animal fat.

Also last fall, at an online meeting organized by the Food and Agriculture Organization of the United Nations, in collaboration with the World Health Organization, Dr. William Hallman from Rutgers University presented his work specifically conducted on nomenclature issues of cell-based fish products. Studies have concluded that while some different preferences exist among different sectors, the term “cell-based food” was found to be less confusing, conveniently over-arching and generally well-accepted by consumers.

How to describe these foods is just the beginning of the controversies that will be playing out in the months and years ahead in the US and around the world.

In his letter to Califf, NMPF’s Mulhern noted that, although Bored Cow is described as “Animal Free Dairy Milk,” the product “is clearly not milk,” as prescribed by FDA’s own standards of identity.

Bored Cow’s product takes water and adds what NMPF believes to be one unidentified, lab-engineered “whey protein,” along with “a highly processed concoction of food additives, preservatives, oil, sugar and several added vitamins,” Mulhern noted in his letter to FDA. He added that it “is baseless, preposterous and absurd” to call the resulting product “milk.”

Interestingly, Bored Cow’s “milk” is hitting the market at the same time there’s heightened interest in so-called “ultra-processed foods.” Ultra-processed foods are not necessarily easy to define, but one general rule of thumb seems to be that they contain more than one ingredient not commonly found in the average consumer’s kitchen.

Bored Cow’s ingredients include water, animal-free whey protein (from fermentation), sunflower oil, sugar, and less than 1 percent of: vitamin A, vitamin B12 (cyanocobalamin), vitamin D2, riboflavin, citrus fiber, salt, dipotassium phosphate, acacia, gellan gum, mixed tocopherols (antioxidant), calcium potassium phosphate citrate, and natural flavor.

If nothing else, Bored Cow has a far longer ingredient statement than the real milk products with which it is competing.

As an aside, we find it rather amusing that Bored Cow is being launched by a retailer with the name Sprouts Farmers Market (emphasis added). With the exceptions of the sunflower oil and sugar, it seems that there’s very little farming involved in the production of Bored Cow.

It’s worth noting that Bored Cow is a relatively simple product in the emerging cell-based food market. A more complex product is what is described as the world’s first animal-free, dairy Mozzarella.

This “Mozzarella” comes from New Culture, which combines fermentation technology and food science to replace casein with an animal-free version that the company produces using precision fermentation.

On its website, New Culture explains how it makes its cheese: “We use traditional cheesemaking techniques that have been perfected over thousands of years. Beginning with our mozzarella, we mix our animal-free casein with water, plant-based fats, salt, a touch of sugar, vitamins, and minerals.”

Hmmm. Depending on its nutrient content, this sounds like imitation Mozzarella.

FDA has some serious issues to deal with as more and more of these “animal-free dairy products” hit the market (or at least attempt to hit the market)
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Drought, Wildfire Smoke, And US Milk Production Prospects

It’s just the end of June, so it’s too early to accurately predict how the 2023 US growing season is going to turn out, but at this point it seems like we’re hearing more about serious drought-related concerns than we’ve heard in several years.

Meanwhile, various areas in the US that aren’t accustomed to coping with smoke from distant wildfires are having to deal with air quality problems that they haven’t had to deal with, well, maybe ever.

These two situations can’t help but make us wonder what might happen with US milk production in the months ahead. Obviously it’s too early to know for sure, but it’s certainly not too early for drought and smoky air to start factoring into dairy outlooks.

Let’s begin with drought. According to USDA’s Economic Research Service, drought can adversely affect many aspects of the US agricultural sector. In regions that rely on rainfall for agricultural production, drought can diminish crop and livestock outputs and may severely affect farm profitability. Drought also reduces the quantity of snowpack and streamflow available for diversions to irrigated agricultural land.

These impacts can reverberate throughout the local, regional, and national economies, ERS noted. Locally, droughts can reduce farm income and negatively impact food processing and agricultural service sectors, while food prices may increase at the regional and the national levels.

The last time the US was hit by widespread drought was back in 2012. According to an article published in the journal Weather and Climate Extremes in 2015, the drought of 2012 “was a multi-billion dollar agricultural disaster in the United States.” It was on par with the drought of 1988 which, according to the National Centers for Environmental Information, caused $40 billion in mostly agricultural losses.

So what impact did the 2012 and 1988 droughts have on the US dairy industry? Interestingly, milk production set new records in both years, reaching 145 billion pounds in 1988 and totaling 200.6 billion pounds in 2012.

But the years following those droughts were when the real impact appears to have been felt. In 2013, US milk production set another new record but, at 201.3 billion pounds, it was up only 618 million pounds from 2012. By comparison, 2012’s milk production had been up about 4.4 billion pounds from 2011, and 2014 output ended up being up 4.8 billion pounds from 2013.

Following 1988’s record, milk production in 1989 actually dropped by 1.14 billion pounds, to 143.9 billion pounds. By comparison, 1988 milk production had been up 2.3 billion pounds from 1987, and then 1990 milk production was up 3.8 billion pounds from 1989.

According to the US Drought Monitor — which is produced through a partnership between the National Drought Mitigation Center at the University of Nebraska-Lincoln, the US Department of Agriculture and the National Oceanic and Atmospheric Administration — as of Tuesday, June 27, much of the Midwest region saw conditions stay the same or worsen over the past week, especially in central Indiana, Illinois, Missouri, southwest Wisconsin, southeast Minnesota and southeast Iowa.

And while much of the Great Plains received widespread precipitation, conditions continued to worsen in southeast Nebraska, northeast Kansas and the Kansas City area.

With this in mind, we can conclude that, if there is a widespread drought in 2023 that seriously impacts crop yields and prices, US milk production could struggle to increase next year (if not later this year).

What about smoke? Let’s face it, when pondering what to be concerned about at the beginning of 2023, not many folks in the dairy industry were likely thinking about the impacts of smoke from Canadian wildfires.

But here at the end of June, that wildfire smoke is creating some issues for the general population in states ranging from Wisconsin to New York (to mention two of the top five milk-producing states). And dairy producers in these states aren’t necessarily accustomed to dealing with the hazards of wildfire smoke.

So what are the potential hazards of that smoke? According to a study published in the Journal of Dairy Science last year, dairy cow exposure to elevated fine particulate matter from wildfire smoke “resulted in lower milk yield during exposure” and for seven days after last exposure.

That study was authored by Ashly Anderson, Pedram Rezamand and Amy L. Skibiel of the Department of Animal, Veterinary and Food Sciences at the University of Idaho. They noted that the frequency and size of wildfires has been increasing steadily over the past several decades, and that wildfires are “particularly prevalent” in the Western states, which are home to more than 2 million dairy cattle that produce more than a quarter of the nation’s milk.

And now dairy producers in numerous additional states (home to several million dairy cattle) will be dealing with the impacts of wildfire smoke on milk production and animal health this summer.

Forecasting milk production and prices is never easy. It gets that much more difficult when you add in drought and smoke.

Congress Has Key Role To Play In Updating Federal Orders

Based on the proposals it has received to update federal milk marketing orders, USDA’s Agricultural Marketing Service will have its hands full over the next year or so. But AMS won’t be the only federal entity that’s going to be heavily involved.

That’s because, for better or worse, Congress is also going to have to be involved in this process, probably via the 2023 farm bill. That legislation can’t be overlooked when it comes to not only updating federal orders, but making the updates more predictable in the future.

This expectation of congressional involvement in updating federal orders dates back to the two original proposals AMS received back in late March to update make allowances. Both the International Dairy Foods Association and the Wisconsin Cheese Makers Association stated that they are “aware and supportive” of USDA and industry efforts for USDA itself to have the authority and funding to conduct regular, audited dairy product cost studies.

A long-term solution would be to have such studies “efficiently update” make allowances on a regular basis, but this requires congressional action both to authorize and fund the audits, IDFA and WCMA noted. It will likely take at least another year or two, if not longer, before legislation authorizes the initiation of such audited cost studies.

Several weeks after IDFA and WCMA submitted their make allowance proposals, the National Milk Producers Federation submitted its plan for modernizing federal orders to AMS, and that plan included five separate proposals, one of which would also increase make allowances.

In its proposal, NMPF said there is “clearly a need to establish a more regular and systematic method for updating the make allowances,” as well as the yield factors, in federal order component price formulas.

This will require providing USDA with the authority to conduct periodic manufacturing cost surveys that can supply this necessary information, and NMPF said it is “engaged with the Congress to accomplish this.”

Under such authority, manufacturers of the commodity dairy products referenced in these price formulas would be mandated to provide auditable cost and product yield data. NMPF said it will be seeking the enactment of such authority in the upcoming farm bill.

Speaking of the farm bill, NMPF’s board of directors earlier this month approved a suite of farm bill policy priorities, including the aforementioned requirement for USDA to conduct mandatory plant cost studies every two years to provide better data to inform future make allowance reviews.

Also, the NMPF board voted to pursue restoring the previous “higher of” Class I mover in the most expeditious manner possible, either administratively via the federal order process or legislatively through the farm bill.

NMPF isn’t the only entity seeking a change in how the Class I mover is calculated, and it’s not the only entity supporting using the farm bill as the vehicle to do so. For example, the American Dairy Coalition, like NMPF, supports a return to the “higher of” method for the Class I mover.

“We believe the farm bill should be used as the vehicle to expeditiously return the Class I mover to the ‘higher of’ method,” Laurie Fischer, ADC CEO, said earlier this year (before any federal order proposals had been submitted to USDA).

In its proposal submitted to USDA last week, the American Farm Bureau Federation said it also supports a return of the Class I mover to the “higher of” Class III or Class IV formula.

Earlier this year, in testimony before the House Agriculture Committee, Zippy Duvall, AFBF’s president, said switching back to the “higher of” Class I formula “in the most expedient manner possible” is necessary to provide dairy farmers with more price certainty.

Speaking of Farm Bureau, one of that organization’s proposals submitted to AMS last week is to adjust yields (along with make allowances) based on the same mandatory and audited survey. In both that proposal and in its support of NMPF’s proposal to adjust make allowances, Farm Bureau notes that, while the funding challenges of conducting and auditing a mandatory survey may be an “appropriate administrative concern” for USDA, the fundamental legal authority to conduct such a survey exists, and so consideration should be allowed within the scope of a proposed federal order hearing.

And therein lies another function of Congress in this entire process (and outside of the next farm bill): funding. Will Congress regularly approve adequate funding to carry out the mandatory surveys and plant cost studies being advocated by various entities?

Finally, while it wasn’t part of its proposal submitted last week, Farm Bureau’s 2023 dairy-related farm bill policy priorities include a couple of federal order-related provisions: modified bloc voting flexibility within cooperatives; and eliminating provisions on a “no” vote on a referendum causing elimination of the entire federal order.

It appears that both USDA and Congress will have their hands full with federal order modernization
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30 Years Of The ‘Modern’ Dairy Futures

It’s kind of hard to believe, but it’s now been 30 years since the “modern” dairy futures were launched in New York City. And by almost any measure, these modern dairy futures have been mighty successful.

First, a bit of background on why these are referred to (at least by us) as the “modern” dairy futures. The Chicago Mercantile Exchange was established back in 1898 as the Butter and Egg Board, then was reorganized as the CME in 1919, and late that year butter and egg futures were first traded.

Butter futures were actively traded for a number of years at the CME. By 1925, for example, butter futures volume reached 28,436 contracts, and in 1930, butter futures volume reached 35,343 contracts. But the last time more than 200 butter futures were traded was in 1966, and the last time any butter futures at all were traded was in 1976; volume that year was 22 contracts.

Meanwhile, the CME introduced cheese futures in the late 1920s, but there was very little activity. Annual volume peaked at just 153 contracts in 1935, and the last year there were any cheese futures traded was in 1941, when a total of 91 cheese futures contracts were traded.

From 1976 through 1992, dairy futures activity was non-existent. Notably, in March of 1989, University of Wisconsin-Madison agricultural economists Ed Jesse and Gerald Campbell authored a “Marketing and Policy Briefing Paper” entitled A Futures Contract for Cheese — Could It Work?

In that paper, Jesse and Campbell noted that Cheddar cheese “possesses many of the characteristics common to agricultural commodities that are actively traded on futures markets,” but the “major potential obstacle to a successful futures contract for cheddar cheese is the presence of the Commodity Credit Corporation.” The CCC, it may be recalled, purchased surplus cheese, butter and nonfat dry milk under the dairy price support program, which was finally terminated in 2014.

Historically, market prices for Cheddar cheese have been “tied closely” to the CCC purchase price, which “diminishes price variability and the associated opportunities for speculative gain that are critical to promoting speculative interest in futures trading,” Jesse and Campbell stated.
“However, there is persuasive evidence that the CCC purchase price for cheddar cheese will be less important in determining market prices in the future.”

Keep in mind that that observation was made 25 years before the price support program was terminated.

A little over four years after that paper was released, the New York City-based Coffee, Sugar & Cocoa Exchange (CSCE) launched Cheddar cheese and nonfat dry milk futures. Those contracts were officially launched 30 years ago this week, on June 15, 1993. A week later, options trading in Cheddar and nonfat dry milk began.

If nothing else, the 1990s saw quite a bit of “creativity” in the dairy futures markets. Following the CSCE’s launch of Cheddar cheese and nonfat dry milk futures, either the CSCE or the CME (or both) launched futures contracts in milk, butter, and cash-settled Cheddar (the original CSCE cheese futures contract called for the delivery of 40,000 pounds of Cheddar in 40-pound blocks; both Cheddar and NDM futures were traded for February, May, July, September and December delivery).

Trading was pretty light in these dairy futures and options contracts in the early days. For example, in October of 1993, the CSCE reported that trading in Cheddar cheese futures totaled 459 contracts (from their launch in mid-June through Sept. 30, 1993), while nonfat dry milk futures traded 812 contracts to-date.

Now, 30 years after the modern dairy futures were launched at the CSCE, the futures markets appear to have succeeded perhaps beyond anyone’s wildest dreams back in the 1990s. Today, the CME trades futures and options for cash-settled cheese, block cheese, butter, nonfat dry milk, dry whey, Class III milk and Class IV milk.

Trading in these futures and options contracts is pretty brisk, to put it mildly. Just to cite a couple of examples: as of last Friday, open interest on cash-settled cheese futures stood at 25,074 contracts, while open interest on Class III milk futures stood at 27,492 contracts.

There are at least a couple of additional indications of just how popular and successful dairy futures and options have become in recent years.

First, dairy futures have become “institutionalized.” That is, two federal risk management programs available to dairy farmers use futures prices.
Those programs, both available through USDA’s Risk Management Agency, are Dairy Revenue Protection (Dairy-RP) and Livestock Gross Margin Insurance for Dairy (LGM-Dairy).

Second, while the US stood alone in the dairy futures business 30 and even 20 years ago, today there are dairy futures and options contracts offered by the European Energy Exchange as well as by New Zealand’s Exchange (NZX) and Singapore Exchange (SGX).

Dairy futures experienced some success roughly a century ago, then faded away. They were reintroduced 30 years ago, and it looks like they’ll be here, and be successful, for years to come
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The Fall And Rise Of South Dakota’s Cheese Industry

South Dakota’s cheese industry has seen its share of ups and downs over the years, but recent statistics show that the state’s cheese business is clearly on the upswing. It’s an impressive comeback after years of stagnation and even contraction.

As reported in our Dairy Production Extra supplement a couple of weeks ago, South Dakota ranked seventh in the US in cheese production last year; the state’s output was a record 533.2 million pounds.

Notably, the “US Geographic Regions” graphic on the first page of Dairy Production Extra not only lists South Dakota as seventh among the Top 10 Cheese States in 2022 but also 10th among the Top 10 Cheese States back in 1992. So has South Dakota’s cheese industry really “come back” from anything, given that it was a Top 10 state 30 years ago and remains a Top 10 state now?

Yes, it has. And this can be seen by, among other things, examining South Dakota’s cheese production trends over the past 30-plus years.

Back in 1992, South Dakota produced about 143 million pounds of cheese, good enough to place the state 10th nationally in cheese production. But the state’s cheese output wasn’t growing; rather, it was relatively stable within a fairly narrow range, with 1992’s 143 million pounds somewhere around a midpoint for a number of years.

More specifically, South Dakota actually set new cheese production records for four straight years from 1987 through 1990, when its output rose from 134.1 million pounds to 156.5 million pounds. But then it fell for two straight years, and its level in 1992 was its lowest level since 1988.

South Dakota’s cheese production then rebounded in 1993, to a record 159.2 million pounds, but it wouldn’t top 150 million pounds again until 2002. In fact, South Dakota’s cheese output was under 140 million pounds for four straight years, from 1996 through 1999. And that record set in 1993, 159.2 million pounds, wasn’t broken until 2004.

After that, South Dakota’s cheese production started a period of steady growth, to a then-record 271.9 million pounds in 2011. That was about 113 million pounds higher than the state’s 2004 production.

South Dakota’s cheese output then went through another period of stagnation, declining for three straight years before breaking the 2011 record in 2015, then declining again in 2016. But by 2018, the state’s cheese production was approaching 300 million pounds.

That’s when South Dakota’s cheese output really took off. It reached 347.7 million pounds in 2019, up an eye-opening 54.2 million pounds from 2018. That’s eye-opening because it’s greater than the state’s cheese production growth over the entire 2008-2015 period.

USDA’s National Ag Statistics Service (NASS) didn’t publish a figure for South Dakota cheese production in 2020, but it did publish a 2021 figure: 518.9 million pounds. Remarkably, that is 171 million pounds higher than its 2019 output, and is more than twice the output back in 2010.

Cheese production growth in South Dakota continued in 2022, when output reached 533.2 million pounds, which is actually more than twice the output in 2014. Yes, that’s correct: South Dakota’s cheese production has more than doubled since 2014.

More cheese requires more milk, and in the area of milk production, South Dakota’s story is similar to cheese production. Back in 1983, South Dakota milk production reached 1.77 billion pounds, its highest level since 1943 (1.8 billion pounds. Astonishingly, that 1983 level of milk production wasn’t reached for another quarter of a century; the state’s milk output finally reached 1.8 billion pounds again in 2008.

During that period, South Dakota’s milk production fell below 1.5 billion pounds for an entire decade, from 1996 through 2005, including a low of 1.289 billion pounds in 2002. That was the state’s lowest level of milk production since...well, it was its lowest level ever, according to NASS statistics dating back to 1924. The previous low, 1.297 billion pounds, was in 1952.

Interestingly, South Dakota’s milk production topped the 2.0 billion pound mark for six straight years from 1928 through 1933, including a record high of 2.2 billion pounds in 1930 (back then, most of South Dakota’s milk was used to make butter). South Dakota’s milk production was under 2.0 billion pounds every year from 1934 through 2013, and that 1930 record didn’t get broken until 2015.

But over the past decade, South Dakota’s milk production has actually increased more consistently than its cheese production. A small decline in 2011 was followed by 11 straight years of growth, including new records being set every year from 2015 through 2022, the 3.0-billion-pound mark being topped in 2020 and the 4.0-billion-pound mark being topped in 2022.

South Dakota’s milk production growth continued in the first quarter of this year, with output of 1.06 billion pounds up 8.1 percent from the first quarter of last year, and milk cow numbers up 15,000 head over that period.

South Dakota’s comeback in cheese and milk production has been mighty impressive, and doesn’t appear to be slowing down anytime soon.

 

Hispanic Cheese Output Just Keeps Growing And Growing

In an expanding market such as cheese, where production hasn’t declined in over three decades, it’s pretty easy to find successful
“niches,” ranging from Mozzarella and Parmesan to Feta and Gouda.

But there seems to be one cheese category that exceeds all others when it comes to consistent production growth, year after year. That category is Hispanic cheeses.

As reported last week in our Dairy Production Extra supplement, Hispanic cheese production in 2022 totaled a record 386.3 million pounds, up an impressive 9.8 percent from 2021. That marked the 10th straight year in which Hispanic cheese production set a new record.

There are several ways to put the growth in Hispanic cheese production into proper perspective. First, USDA’s National Ag Statistics Service first started tracking Hispanic cheese production back in 1996. Output that year totaled 67.4 million pounds, or about 319 million pounds less than last year.

Since 1996, Hispanic cheese production has declined exactly once: that was in 2012, when output of 223.9 million pounds was down about half a million pounds from 2011. Other than that, Hispanic cheese output has increased every year since 1996.

By comparison, for the four cheese categories noted above, Mozzarella output has declined three times since 1996, most recently in 2020, and Parmesan output has declined six times, most recently in 2019.

NASS has only been tracking Feta and Gouda production since 2010; since then, Feta output has declined three times, most recently just last year; and Gouda production has fallen four times, most recently in 2020.

These comparisons aren’t meant to downplay these other categories; rather, they illustrate just how consistent the growth in Hispanic cheese production has been over the past 27 years, and how rare that consistent growth really is in the expanding cheese industry.

Another way to look at the growth in Hispanic cheese production is to look at plant numbers. The number of plants producing Hispanic cheese has risen from 28 in 1996 to 62 in 2022.

There has, in fact, been an increase in the overall number of cheese plants in the US since 1996, from 423 that year to 515 last year, but not many categories can boast a more than doubling of plant numbers over that period (although it should be noted that the number of plants producing Gouda has risen from 39 in 2010 to 89 in 2022).

Related to this, Cacique Foods — which describes itself as the maker of the number one brand of authentic Mexican-style cheeses in the US — just opened a new dairy processing facility in Amarillo, TX, a few weeks ago. It’s probably safe to describe this new Cacique plant as one of the largest Hispanic cheese plants in the US.

Another way to illustrate the growth of Hispanic cheese production is to look at cheese contest categories over the years. Back in 1997, for example, there were no classes for Hispanic-style cheeses in the United States Championship Cheese Contest.

This year, that contest featured three classes for Latin American style cheeses, one for fresh cheeses, one for melting cheeses and one for hard cheeses.

The many entries in those classes help illustrate how the growth in Hispanic cheese production has evolved. Companies entering Latin American style cheeses in that contest generally fell into two categories: companies that are largely or completely devoted to producing Hispanic cheeses; and companies that have added Hispanic cheeses to their product portfolio in recent years.

So, will Hispanic cheese production continue to grow in the years ahead? It would certainly seem likely, for at least a couple of reasons.

First, with Cacique’s new Texas plant opening this year, it’s probably a safe bet that Hispanic cheese production will get a nice “bump” just from that plant’s output, for eight-plus months here in 2023 and then for a full year in 2024.

Related to that point, another major player in the Hispanic cheese business, V&V Supremo Foods, last year announced the acquisition of Mill Creek Cheese of Arena, WI, which produces both Hispanic cheeses such as Queso Quesadilla and Queso Blanco as well as Brick and Muenster. That purchase will allow V&V Supremo to increase production to meet the growing demand for its products, the announcement noted.

V&V Supremo also recently received a Dairy Processor Grant from the Wisconsin Department of Agriculture, Trade and Consumer Protection to invest in a modernization project at its plant in Browntown, WI.

Suffice it to say that two of the largest players in the Hispanic cheese business are in expansion mode.

Finally, a quick check of pretty much any listing of the top US restaurant chains finds at least a few chains focusing on Mexican-style or similar cuisines, ranging from Taco Bell and Chipotle to El Pollo Loco and Del Taco. These chains don’t necessarily use Hispanic cheeses, but they help illustrate the popularity of Mexican and related cuisines.

And that popularity points to further growth in Hispanic cheese production
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Central Region’s Cheese Production Is Growing Impressively

Back in 1994, when we started publishing our annual Dairy Production Extra supplement, the overriding theme was that the US dairy industry was shifting to the West. That is, milk production was rising rapidly in the western states, and those states were also significantly boosting their production of cheese, butter and nonfat dry milk, among other dairy products.

That growth trend has continued for a number of years now, but has recently been matched, at least in the case of cheese production, by a different region rapidly growing its output: the Central region.

As reported this week in our Dairy Production Extra supplement, the Central region’s cheese production has grown by 1 billion pounds since 2017 and by more than 2 billion pounds since 2011. At 6.86 billion pounds, the Central region’s share of US cheese production last year was 48.8 percent, up from 44.3 percent in 2010.

To put the Central region’s cheese production growth in some historical perspective, we went back to 1991, when USDA’s National Ag Statistics Service first started reporting cheese and other dairy product production on a regional basis.

Back then, there were actually three “Central” regions: East North Central, West North Central and South Central. And in 1991, those three “Central” regions produced 3.9 billion pounds, or 64.9 percent of the nation’s total cheese output.

NASS continued to report those three regions separately through 2004, then combined them into the Central region in 2005. And in 2005, the Central region’s cheese production totaled just under 4.0 billion pounds, or all of 66.9 million pounds higher than in 1991.

In other words, over the 1991-2005 period, cheese production in the Central region grew by an average of less than 5 million pounds annually.
By contrast, the West region (which has remained unchanged since 1991) increased its cheese production from about 1.2 billion pounds in 1991 to 3.9 billion pounds in 2005, an increase of almost 2.7 billion pounds.

As might be expected, the West’s share of US cheese production grew significantly during that period, from 19.8 percent in 1991 to 42.3 percent in 2005. Meanwhile, the Central region’s share of US cheese output had fallen to 43.7 percent by 2005, a drop of over 20 percentage points since 1991.

But cheese production trends have changed over the past 15-plus years. Interestingly, both the Central and West regions first topped 4.0 billion pounds of cheese production in 2006, and that was also the first year in which the West topped the Central region in cheese production: the West’s cheese output that year totaled 4.19 billion pounds, while the Central’s cheese production totaled 4.03 billion pounds.

The West remained the leading cheese-producing regions in 2006 and 2007, but the Central moved back into the top spot in 2008 and has remained there ever since.

There are a couple of reasons for this statistical shift. First, after growing consistently and impressively from 1991 through 2007, the West’s cheese production actually declined in both 2008 and 2009, by a total of about 104 million pounds. The West’s cheese production didn’t decline again until 2020, but by then the Central has expanded its lead to over 700 million pounds

That’s because the Central region’s cheese production started to increase fairly rapidly starting in 2008, and has only posted one decline since 2005; that was in 2019, when output of just under 6.0 billion pounds was down less than 1 million pounds from 2018.

The Central region’s cheese production growth was particularly impressive in 2021, when output increased by about 480 million pounds from 2020. And last year’s growth was also pretty impressive, at 210 million pounds.

All of this is not to downplay the growth in the West’s cheese production. After all, as also noted in Dairy Production Extra this week, the West’s cheese production has grown by more than 1 billion pounds since 2011, and by more than 2 billion pounds since 2003.

The West’s cheese production last year, at 5.56 billion pounds, is more than the entire US produced back in 1987.

It’s also worth remembering that the West is home to three of the nation’s four leading cheese-producing states: California, Idaho and New Mexico ranked second, third and fourth, respectively, in cheese production last year.

But the cheese production growth experienced in the Central region in the past decade-plus is mighty impressive. And the region should see some further impressive growth in the years ahead.

That’s because of the cheese plants that have opened, or are expected to open, in the next couple of years in Texas and Kansas. These projects are too numerous to mention in this space, but when you add those new plants to all the plant expansions taking place in states such as Wisconsin and South Dakota, it’s not all that difficult to project that the Central region will be producing over 8 billion pounds of cheese annually by 2025.

Not bad for a region that barely grew its cheese output from 1991 to 2005
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In A Declining Fluid Milk Business, fairlife Continues To Grow

One of the few near-certainties in today’s rapidly changing US dairy industry is that fluid milk sales will continue to decline.

This is a relatively easy observation to make, based on recent history.
That’s because, after reaching 55.4 billion pounds in 2009, fluid milk sales have declined every year since, to 44.5 billion pounds in 2021 (the most recent year for which statistics are available).

At 44.5 billion pounds, fluid milk sales in 2021 were at their lowest level since 1955, when there were about 161 million people living in the US, or about 174 million fewer consumers than there are today.

But while the overall picture for fluid milk sales isn’t very bright, there is at least one example of where sales are actually increasing, and increasing at an impressive rate.

Specifically, as reported on our front page just last week, fairlife, a wholly owned subsidiary of The Coca-Cola Company, is planning to build a new $650 million production facility in New York state. This new fairlife plant is expected to be operational by the fourth quarter of 2025.

There are a few points worth noting about this new fairlife plant. First, and perhaps most important, fairlife is a company, a brand and a product that didn’t exist until 11 years ago. So the fact that a relatively young company is planning to build a new 745,000-square-foot facility in New York state tells you that there’s pretty healthy demand for fairlife’s products, which include fairlife® ultrafiltered milk, Core Power® protein shakes, and fairlife Nutrition Plan® meal replacement shakes.

Did we mention that fairlife is a wholly owned subsidiary of The Coca-Cola Company? Yes, the same company that’s been around for almost 140 years now and is best known for products other than milk (or products that compete with milk, and have competed rather successfully over the years).

Notably, fairlife in 2021 became Coca-Cola’s newest $1 billion brand. Again, that’s just since 2012, and that growth occurred during a period in which two very well-known and large fluid milk companies, Dean Foods and Borden Dairy, filed for bankruptcy.

Also, this new plant in New York is a continuation of a recent expansion trend for fairlife. The company opened a new, 300,000-square-foot production plant in Arizona just a couple of years ago. And fairlife opened a plant in Ontario, Canada, in 2020. Those plants joined the existing fairlife plants in Coopersville, MI, and Dexter, NM.

This is pretty impressive growth for a company that’s only been around for 11 years, and does business in a category that by pretty much every measure isn’t growing, and in fact is actually shrinking.
fairlife is a value-added fluid milk product, and it has at least two attributes that most other fluid milk products don’t have. First, fairlife products are produced using ultrafiltration. The flagship product even uses the term “ultra-filtered milk” right on the front of the container. As a result of that ultrafiltration process, fairlife contains more protein that conventional milk, and a lot more protein than some plant-based alternatives.

fairlife is also lactose-free. The filtration process used to produce the product removes most of the lactose and the remaining lactose is converted by adding lactase enzyme to ensure that fairlife products are lactose-free, according to the company’s website.

Finally, fairlife products have much longer shelf lives than conventional fluid milk products. For example, thanks to “ultra-pasteurization,” 52-ounce fairlife ultrafiltered milk has a longer shelf life than conventional milk; while unopened and refrigerated, it lasts up to 110 days, the company’s website explains.

If nothing else, this can eliminate some of those trips to the store to pick up some milk, since fairlife can be bought in bulk (relatively speaking) and kept in the refrigerator for over three months before opening.

Meanwhile, fairlife’s Core Power protein shakes are shelf-stable, as are fairlife Nutrition Plan meal replacement shakes.

It’s also worth mentioning that fairlife’s products aren’t sold in traditional size configurations. For example, fairlife ultrafiltered milk comes in a 52-ounce bottle, which means it’s somewhere between a quart (32 fluid ounces) and a half-gallon (64 fluid ounces).

And these 52-ounce bottles are far more colorful than most conventional fluid milk products (comparing them to half-gallon plastic containers). fairlife whole milk, for example, comes in a bright red plastic bottle, while reduced fat milk comes in a blue plastic bottle. In a dairy department with seemingly endless clear plastic gallons and half-gallons, fairlife’s products certainly stand out (and tend to look more like some plant-based milk alternatives than conventional milk products).

So fairlife’s “model” for selling fluid milk products is considerably different from conventional fluid milk products, in every respect from how it’s produced to how it’s packaged and the product’s shelf life and nutritional profile.

This specific model isn’t for everyone, but it certainly seems to be working for The Coca-Cola Company.

Mission Accomplished For Wisconsin Specialty Cheese Institute

Roughly 30 years ago, a group of Wisconsin specialty cheese manufacturers, plus representatives from the Wisconsin Cheese Makers Association and the Wisconsin Milk Marketing Board (now Dairy Farmers of Wisconsin), formed an alliance to further the growth and development of the specialty cheese industry in Wisconsin.

Foreseeing strong growth for high quality, natural specialty cheese varieties, this group looked at ways to capitalize on the state cheese industry’s strengths and to find ways to work collectively to address the industry’s weaknesses at the time.

In January 1994, under the banner Wisconsin Specialty Cheese Institute, or WSCI, this steering group formed a non-profit association with the single mission: “To promote the development in Wisconsin of a profitable specialty cheese industry recognized as producing the best quality and largest varieties of specialty cheeses in the world.”

As we reported last week, WSCI’s board of directors has decided to dissolve the organization, effective June 30, 2023. And while it’s usually a sad occasion to see a trade organization be terminated, in this case it’s cause for recognition of how much the specialty cheese industry has progressed in the three decades since the seeds for WSCI were first sewn.

First, though, a little background about the era in which the WSCI was established. Back in 1988, Wisconsin’s milk production reached a then-record high of 25.0 billion pounds, and the state’s cheese production reached a then-record 1.9 billion pounds.

But all was not well in America’s Dairyland back then. The state’s milk production fell below 25.0 billion pounds in 1989, and didn’t top that level again until 2009. Wisconsin was actually surpassed in total milk production by California in 1993 and, after reaching 1.9 billion pounds in 1988, Wisconsin’s cheese production actually fell in 1989, 1993 and 1994. Wisconsin’s cheese production in 1994, 2.024 billion pounds, was only about 123 million pounds above its 1988 output.

So how have things progressed since WSCI was formed in 1994? Just in general, Wisconsin’s milk production totaled a record 31.9 billion pounds in 2022, and has set new record highs every year since 2009, when it finally broke the 1988 record. And the state’s cheese production reached a record high of 3.52 billion pounds last year, and has declined just twice this century (in 2001 and in 2020).

Specifically regarding specialty cheese, it’s worth noting that Wisconsin has been tracking specialty cheese production since 1993. That year, Wisconsin produced a total of 83.1 million pounds of specialty cheese, and 44 of the state’s 158 cheese plants produced one or more specialty cheeses. Specialty cheese accounted for about 4 percent of the state’s total cheese output.

In 2022, Wisconsin’s specialty cheese production reached a record high of 928.2 million pounds, produced by 94 of the state’s 118 cheese plants. Specialty cheese accounted for 26 percent of Wisconsin’s total cheese production last year.

Here’s one more illustration of how much the state’s specialty cheese production has grown over the past three decades. In 1993, specialty cheese production was reported for 10 categories, ranging from Asiago to Romano, plus a category for all other; a footnote explained that the “all other” category included 14 additional cheeses.

In 2022, specialty cheese production is also reported for 11 categories, one of which is all other; and the footnote explaining what “all other” is lists 35 additional cheeses. The vast majority of these “other” cheeses weren’t being produced in Wisconsin 30 years ago.

Beyond statistics, there are several ways of looking at how the specialty cheese industry has grown and evolved over the past three decades. For example, in 1993, there were no Wisconsin Master Cheesemakers. The Wisconsin Master Cheesemaker program was introduced in 1994, and the first class graduated in 1997. Today, there are more than 70 active Wisconsin Master Cheesemakers, at least some of whom are certified in cheeses — such as Havarti, Feta, Asiago and Gouda — that have been appearing on the list of Wisconsin-produced specialty cheeses since the very first report on specialty cheese production.

The Wisconsin Master Cheesemaker program is administered by the Wisconsin Center for Dairy Research, and the CDR illustrates another major change in the Wisconsin specialty cheese industry over the past 30 years. The newly reopened and renovated CDR and Babcock Hall on the University of Wisconsin-Madison campus includes, among other things, 10 rooms for specialty cheese ripening, as well as space for the processing and handling of various other specialty cheeses.

And, as the WSCI board pointed out, the WCMA has increased and enhanced its educational and networking opportunities, including through the Dairy Business Innovation Alliance, a partnership between the WCMA and CDR.

In its announcement, the WSCI board stated: “With a strong specialty cheese support structure in place within the state of Wisconsin, WSCI has served its purpose.” Indeed it has.

Food Labeling Modernization Act Is Unnecessary

Several Democrats in the US House and Senate last week introduced the Food Labeling Modernization Act of 2023, which prompted us to wonder: Do food labels really need to be modernized? And if so, is the Food Labeling Modernization Act really the way to accomplish that updating?

As reported on our front page last week, the Food Labeling Modernization Act would, among other things, mandate a single, standard front-of-package nutrition labeling system for all food products required to bear nutrition labels.

The legislation includes more than a dozen other sections, dealing with everything from health-related and nutrient content claims to the format of the ingredient list on packaged food products and the use of specific terms, including “natural” and “healthy.”

The key point to remember about this sweeping legislation is this: there is no way this measure makes it to President Biden’s desk. We make this rather bold prediction for two reasons.

First, the legislation is sponsored by Democrats in both the House and the Senate. The Senate is controlled (barely) by Democrats, but the House is controlled by Republicans. Since this isn’t one of those bills that can be described as “bipartisan,” it would seem to have little chance of passing in the Senate, let alone in the House.

Second, if the Food Labeling Modernization Act sounds familiar, that’s because it’s been introduced before (and maybe because it sounds a little like the Food Safety Modernization Act). Specifically, the Food Labeling Modernization Act was introduced in Congress in 2013, 2015, 2018, 2021 and now in 2023.

Needless to say, if the legislation failed to pass four times already, it seems unlikely, especially given the current makeup of Congress, that the fifth time will be a charm.

One additional reason this legislation seems doomed to die in committee is that it doesn’t really fill a pressing need. We were reminded of this point when reading the comment of US Sen. Cory Booker of New Jersey, one of the bill’s Senate co-sponsors, who claimed that deceptive tactics are “often used” to market ultra-processed foods, “by making them seem healthy or by obscuring high levels of added sugars and salts. Companies should have to be transparent about what is in ultra-processed foods, and consumers should be warned when there are excess sugars or salts in a given product.”

Well, we’re not sure how exactly it is that companies go about “obscuring” high levels of added sugars and salts (or even what “high levels” means). After all, the Nutrition Facts label was updated a few years ago to include a line for “Added Sugars,” and sodium has been part of the Nutrition Facts label since those labels became mandatory almost 30 years ago.

Oh, and sodium content is listed near the top of the Nutrition Facts label, and is also required to be in boldface.

On top of that, sugar and salt are both required to be listed along with other ingredients.

So it’s hard to understand how food companies are “obscuring” this information, unless “obscuring” means putting the information on the back or side of a package, instead of the front.

Speaking of the front of packages, front-of-package labeling remains a key focus of the Food Labeling Modernization Act, and that’s arguably the most disturbing part of this legislation. Obviously, there are a lot of folks who are interested in mandatory front-of-package food labels, including some members of Congress as well as organizations such as the Center for Science in the Public Interest, which, along with two other groups, petitioned FDA last August to implement a standardized front-of-package nutrition labeling system that is mandatory, nutrient-specific, includes calories, and is “interpretive” with respect to the levels of saturated fat, sodium, and added sugars per serving.

Last month, a number of consumer, health and related organizations endorsed the petition from CSPI. And FDA has received more than 5,000 comments in response to that CSPI petition.

Evidence of the support for front-of-package labeling comes from this quote, from US Rep. Rosa DeLauro, one of the House sponsors of the Food Safety Modernization Act: “Front-of-package labels are the future, and a welcomed change that will better consumer knowledge of what is in the food they buy.”

Hmmm. We’re not convinced that a symbol on the front of a food package — one that is oriented towards added sugars, sodium and saturated fat — will better consumer knowledge of what’s in the food they buy. There’s a heck of a lot more information included in the Nutrition Facts label and the ingredient statement than can ever be included in some simplistic front-of-package label.

The Food Safety Modernization Act doesn’t appear to have any chance of being passed by Congress and signed into law over the next couple of years, but various sections of the bill will continue to garner attention and support. That includes, most significantly, the idea of mandating front-of-package nutrition labels on foods. This bad idea isn’t going away anytime soon.

 

ADPI’s Evolution Reflects Dairy Industry’s Evolution

The American Dairy Products Institute is celebrating its 100th anniversary this year, and this marks a great time to review how ADPI’s growth and evolution over the past century really reflects the growth and evolution of the dairy industry as a whole.

ADPI actually got its start back in 1923, when the Evaporated Milk Association was established. This might prompt some folks in the dairy industry to wonder why there was ever a trade association devoted just to the evaporated milk industry.

That’s because, in 2021, there were only eight plants producing canned evaporated and condensed and whole and skim milk in the US. Production of evaporated and condensed whole milk totaled 534 million pounds, while output of canned evaporated skim milk totaled just 15 million pounds.

But digging through some old NASS dairy product annual summaries, we found that, in 1949, there were 132 plants producing evaporated milk in the US, and production that year totaled 2.8 billion pounds. And digging a bit further, we found that, in the 1940s, evaporated milk production ranged from 2.5 billion pounds in 1940 to 3.8 billion pounds in 1945.

To put these figures in some historical perspective, in 1949, US cheese production totaled 1.2 billion pounds, and there were 2,208 cheese plants in the US; and butter output totaled 1.4 billion pounds, and there were 3,140 US butter plants.

Two years after the Evaporated Milk Association was formed, the American Dry Milk Institute was established. Here, NASS statistics (at least in some cases) date back further than for evaporated milk.

So we can see, for example, that 10 years after ADMI was formed, the US produced over 185 million pounds of nonfat dry milk. Interestingly, NASS has production statistics for dry whole milk dating back to 1920, when output of that product totaled 10.3 million pounds.

NASS statistics for dry milk plant numbers date back just to 1950, when there 75 US plants producing dry whole milk and 459 plants producing nonfat dry milk (NDM output that year totaled 881 million pounds, while dry whole milk production totaled 125 million pounds).

Needless to say, the dry milk industry has grown since ADMI was founded. For example, the US now, at least occasionally, exports more nonfat dry milk in a single month than it produced back in 1935. And the US now produces more dry whole milk in a single month than it produced in all of 1920.

Further, the US dry milk business has diversified considerably in recent years. For example, NASS just started tracking production of skim milk powder back in 2005, and production has grown from 323 million pounds that year to 698 million pounds in 2021. NASS has only been tracking production of milk protein concentrate since 2008, and output has grown from 75 million pounds that year to 197 million pounds in 2021.

Finally, the newest constituent organization in ADPI is the Whey Products Institute, which was established in 1971. If nothing else, WPI might hold a record for the dairy trade association with the shortest life, since it merged with ADMI in 1986, just 15 years after it was founded, to form ADPI (the EMA joined ADPI in 1987).

But it’s arguably on the whey side that the dairy industry has truly shown growth and diversification over the years. Again going back to some old NASS statistics, the agency reported that US dry whey production in 1949 reached a record high of almost 159 million pounds.

That was the only whey product being tracked by NASS at that time (unless you count milk sugar; in 1949, production of “crude” milk sugar totaled 24 million pounds, while output of refined milk sugar, technical grade, totaled 4.5 million pounds, and production of refined milk sugar, USP grade, was 8.6 million pounds).

Today, of course, NASS tracks the production of a wide variety of whey products, ranging from dry whey to whey protein isolate. And, as ADPI itself reported in its most recent Dairy Products Production and Utilization Trends report, in 2021, total USDA reported production of whey-based dairy ingredients for 2021 was 3.9 billion pounds (including 987.8 million pounds of whey permeate).

Suffice it to say that the whey products industry has grown considerably, in pretty much every way imaginable, since the WPI was founded back in 1971.

One other indication of how the dairy ingredients business evolved over the years is to look over the growing list of ADPI Dairy Product Standards. From alpha-lactalbumin to galacto-oligosaccharides, it’s safe to say that the dairy industry continues to grow the list of ingredients it derives from milk. And it’s safe to say the founders of EMA, ADMI and even WPI wouldn’t recognize some of the ingredients on this standards list.

What’s the future hold for ADPI in general and dairy ingredients in particular? More growth, and more changes, to put it simply. Milk production continues to grow, and as Blake Anderson, ADPI’s president and CEO, noted at this week’s ADPI/ABI annual conference, dairy ingredients and products play an ever-increasing role in the growing dairy industry
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Pondering A Competitive Pay Price For Federal Orders

As noted in this space last week, USDA’s Dairy Industry Advisory Committee, in its final report released in 2011, recommended (in a section regarding existing programs and authorities) that the elimination of end product pricing in federal milk marketing orders be “strongly” considered, and that alternative measures to the current end product pricing system, such as competitive pricing and mandatory price reporting, be explored.

More than 12 years after the DIAC finalized its report, we’re wondering if it’s time to take up the DIAC’s recommendation to eliminate end product (or product formula) pricing and explore competitive pricing specifically.

This leads to at least two questions. First, why eliminate end product pricing?

Perhaps the best way to answer that question is to look at what aspects of federal orders are being included in order reform proposals. For example, the board of directors of National Milk Producers Federation last month unanimously approved a proposal to modernize the federal order system, and the majority of the proposals adopted have something to do with end product pricing.

Specifically, those proposals include discontinuing the use of barrel cheese in the protein component price formula; extending the current 30-day reporting limit to 45 days on forward priced sales of nonfat dry milk and dry whey; updating the milk component factors for protein, nonfat solids, and other solids in the Class III and Class IV skim price formulas; developing a process to ensure make allowances are reviewed more frequently; and providing an interim update to current make allowances.

Meanwhile, the Wisconsin Cheese Makers Association’s board of directors last fall endorsed six proposals to improve and reform federal order pricing provisions. One of those proposals deals with make allowances, while another deals with the volatility between block and barrel cheese prices used to value protein in Class III milk.

And a third proposal calls for USDA collaboration with the dairy industry to develop a new value for other solids in the Class III milk price formula.
The current value uses the price of dry whey, a product produced only at a “small percentage” of dairy manufacturing sites in the US, the WCMA noted.

To put this proposal in a bit of historical perspective, back in 2000, the first year that federal order reforms were in effect, there were 46 plants in the US producing dry whey (human), production of which totaled 1.1 billion pounds. In 2021 (the most recent year for which statistics are available), there were 26 plants producing dry whey (human), production of which totaled 911.5 million pounds.

In short, eliminating end product pricing also eliminates a series of controversial issues, ranging from make allowances and the block-barrel spread to determining the value for other solids in the Class III formula.

The second question raised by the DIAC’s final report deals with competitive pricing. By way of brief background, during the federal order reform process, of the more than 1,600 comments received relative to the basic formula price in response to a May 1996 invitation to comment on federal order restructuring, most favored one or more of five categories of alternatives to the then-current Basic Formula Price; those five alternatives were economic formulas, futures markets, cost of production, competitive pay price, and product price and component formulas.

After publication of the proposed rule in January 1998, nearly 600 comments were received relating to some aspect of the basic formula price replacement. For the most part, comments that related specifically to the proposal supported the use of product price formulas and the use of surveyed product prices to calculate component prices in determining the value of milk.

The only alternative previously considered that retained considerable support from producer organizations, USDA noted, was a competitive pay price. Some commenters expressed the view that a competitive pay price is the best indicator of the national supply and demand for milk, and that continuing to use such a price would provide a simple, economically defensible method of calculating the true value of milk used in manufactured dairy products.

But USDA concluded, in the 1999 order reform final rule, that identification of a competitive pay price, “in today’s dairy industry, where 70 percent of the milk is currently covered under Federal milk marketing orders, appears to be an unsurmountable challenge.”

More recently, during USDA hearings in 2007 regarding Class III and Class IV pricing formulas, the Maine Dairy Industry Association offered a proposal that sought to amend the Class III and Class IV product-price formulas by incorporating a factor to account for any monthly spread between component price calculations for milk and a competitive pay price for equivalent Grade A milk. USDA rejected that proposal.

MDIA in 2010 outlined a competitive pay proposal to USDA’s DIAC, and DIAC’s final report suggested that such a proposal be explored. Given that issues surrounding product price formulas will be forever controversial, exploring alternatives today seems like a good idea
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Farm Bill Will Contain Significant Federal Order Provisions

Over the past roughly four decades, farm bills have included a wide variety of provisions related to the federal milk marketing order program.
These provisions range from relatively minor to highly significant.

Heading up that latter category, of course, would be the 1996 farm bill, which called for significant reforms to the federal order program.
Specifically, Section 143 of that farm bill required USDA to, among other things, limit the number of federal orders to not less than 10 and not more than 14 orders.

Also, among the issues USDA was authorized to implement as part of federal order consolidation were the following: the use of utilization rates and multiple basing points for the pricing of fluid milk; and the use of uniform multiple component pricing when developing one or more basic formula prices for manufacturing milk.

That section of the 1996 farm bill led to federal order reforms that were implemented at the beginning of 2000. And those reforms, for better or worse, are still with us today.

As far as that former category is concerned (minor provisions), perhaps the 2014 farm bill would qualify. There were just a couple of sections of that legislation that involved the federal order program: one section repealed the Federal Milk Marketing Order Review Commission, which had been part of the 2008 farm bill but was never established; and another section extended the Dairy Forward Pricing Program, which allows dairy producers to voluntarily enter into forward price contracts with handlers for pooled milk used for manufacturing (Classes II, III, or IV) under the federal order program. The program allows handlers regulated under federal orders to pay producers in accordance with the terms of a forward contract rather than the minimum federal order blend price.

The 2018 farm bill included one significant section on federal order policy. Section 1403 of that legislation changed how the Class I mover is calculated. Starting in 2000, the Class I mover was based on the “higher of” the Class III or Class IV skim milk price, but Section 1403 of the 2018 farm bill changed that to the average of those two prices, plus 74 cents.

Well, that didn’t work quite as well as intended, which is why National Milk Producers Federation and other dairy organizations support switching back to the “higher of” formula. And the 2023 farm bill is viewed as the fastest way to accomplish this.

Meanwhile, pretty much every dairy organization that backs reforms to the federal order program believes changes need to be made to make allowances. While there is general recognition that make allowances need to be updated (increased), there is also general recognition that there needs to be some mechanism to ensure that make allowances are adjusted regularly because manufacturing costs change regularly.

So, for example, the Wisconsin Cheese Makers Association recommends mandatory USDA staff audits at dairy plants at regular intervals to determine costs to produce dairy products surveyed in the National Dairy Products Sales Report. These USDA audits would be supplemented by make allowance price adjustors, which would automatically adjust make allowance values.

The International Dairy Foods Association supports USDA and industry efforts for USDA to have the authority and funding to conduct regular, audited dairy product cost studies, but notes that this would require congressional action both to authorize and fund the audits.

Suffice it to say that the 2023 farm bill will, or at least should, contain a significant section on federal order make allowances.

These all-but-guaranteed provisions of the 2023 farm bill (details yet to be determined) have led us to wonder if maybe the 2018 farm bill shouldn’t have included a broader look at the federal order program, and perhaps a full overhaul of that program. There are at least a couple of reasons for this opinion.

First, by the time the 2018 farm bill was signed into law, federal order reforms were almost two decades old. If another round of reforms had been mandated in that farm bill, the previous reforms would have been at least two decades old before they were amended.

And it’s not like USDA and Congress didn’t know there was considerable dissatisfaction with the federal order program, by the time the 2018 farm bill was written. There were at least two “formal” indications of this dissatisfaction.

First, USDA in 2009 convened a Dairy Industry Advisory Committee, which made at least two federal order-related recommendations in its final report: review federal milk marketing orders, and strongly consider the elimination of end product pricing.

Second, USDA in 2015 conducted a review of the federal order program using the criteria contained in the Regulatory Flexibility Act. Several comments suggested changes to the program, with IDFA urging USDA to begin a process to “modernize and reform” the current federal order system. That process could have been included in the 2018 farm bill, but wasn’t.

The 2023 farm bill will include significant federal order changes, but not nearly as many changes as the program really needs
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Dietary Guidance Statements Of Little Value To Dairy, Consumers

Late last month, the US Food and Drug Administration issued draft guidance to provide the food industry with the agency’s current thinking about how and when to use Dietary Guidance Statements on food labels, and to ensure that these statements promote good nutrition and nutritious dietary practices.

Unfortunately, it doesn’t appear that these Dietary Guidance Statements will be of much value to dairy product marketers and, therefore, they won’t be of much value to consumers, either.

For the purposes of FDA’s draft guidance, Dietary Guidance Statements are written or graphic material, based on key or principal recommendations from a consensus report, in food labeling that represent or suggest that a food or a food group may contribute to or help maintain a nutritious dietary pattern.

From that, it might be concluded that these Dietary Guidance Statements are a nice development for the dairy industry. After all, dairy products provide 13 essential nutrients, ranging from calcium and protein to potassium and zinc.

The problem is the part of the guidance that states that these statements have to be “based on key or principal recommendations from a consensus report.”

So just what is a “consensus report?” It’s a report that represents the consensus produced by a group of qualified experts whose bias and conflicts of interest have been minimized and that are convened to study a specific issue, according to the guidance. The consensus report conveys agreed-upon recommendations that reflect widely accepted, objective views of current scientific evidence.

FDA’s guidance recommends that consensus reports used as the basis for Dietary Guidance Statements be published, for example, by federal government agencies or US scientific bodies or US health organizations outside the federal government.

This would include the federal government’s Dietary Guidelines for Americans.

And FDA’s guidance goes on to state that the key or principal recommendations of a consensus report are easily identifiable because they are typically emphasized in some way, such as enclosed in a box or highlighted in the executive summary.

For example, the Dietary Guidelines, 2020-2025, includes several key recommendations that are set off in a box within the executive summary, such as “the core elements that make up a healthy dietary pattern include fat-free or low-fat milk, yogurt, and cheese, and/or lactose-free versions and fortified soy beverages and yogurts as alternatives.”

So when explaining what a Dietary Guidance Statement is, the guidance includes the following example “choose fat-free or low-fat dairy products instead of full-fat dairy options.”

And therein lies the uselessness of these Dietary Guidance Statements from a dairy product perspective. It’s safe to say that the vast majority of cheese products won’t be able to use these statements.

As far as fluid milk is concerned, in 2021, sales of whole, reduced-fat (2 percent), lowfat (1 percent) and skim milk totaled 38.6 billion pounds, of which 30.4 billion pounds, or about 79 percent, was whole or reduced-fat milk. So almost 80 percent of the unflavored milk sold in the US appears to not qualify for a Dietary Guidance Statement, under FDA’s guidance.

In addition to containing a meaningful amount of a recommended food or food group (in dairy’s case, this meaningful amount would be three-quarter cup equivalent), FDA said it’s important that food products bearing Dietary Guidance Statements not exceed certain nutrient levels that are inconsistent with healthy dietary patterns. So, under the agency’s draft guidance, products bearing a Dietary Guidance Statement should not exceed certain levels for saturated fat, sodium, and added sugars.

Needless to say, a lot of dairy products would exceed levels for at least one of these nutrients.

In situations where a food is recommended by a consensus report as part of a nutritious diet and the food has a nutrient profile that exceeds the recommended nutrient levels in FDA’s guidance, the agency continues to find it appropriate for such a product to bear a Dietary Guidance Statement. But the agency recommends that these products bear a disclosure statement about the recommended nutrient level(s) it exceeds.

The draft guidance offers a yogurt example. A yogurt product that bears a Dietary Guidance Statement such as “Eat yogurt as part of a nutritious dietary pattern,” but contains 20 percent of the Daily Value of added sugars should also bear a disclosure statement, such as “This product contains 10g (20% Daily Value) of Added Sugars per serving.”

FDA recommends placing the disclosure statement on the label near and visually connected to the Dietary Guidance Statement. Because FDA’s guidance documents, in general, do not establish legally enforceable responsibilities, it’s hard to imagine yogurt products ever containing such a disclosure.

Finally, it’s worth noting that this guidance is just a draft. Comments should be submitted by June 26, 2023, to ensure that FDA consider them.
Comments may be submitted at www.regulations.gov.; the docket number is FDA-2023-D-1027.

Salt Substitutes: What’s The Potential For Their Use In Cheese?

The US Food and Drug Administration last Friday announced that it will soon propose to amend its standards of identity to permit the use of salt substitutes in foods for which salt is a required or optional ingredient.

As reported on our front page last week, FDA believes the proposed rule will provide manufacturers with flexibility and facilitate innovation to reduce sodium in standardized foods, including numerous cheese and other dairy products.

But we can’t help but wonder, how much of this flexibility will cheese and other dairy product manufacturers actually be able to take advantage of, and how much industry innovation will this actually lead to?

The simple answer is, that’s hard to say, for the simple reason that salt substitutes haven’t been allowed in standardized dairy products up to this point, so there hasn’t really been all that much research and development devoted to the use of salt substitutes in dairy products. What’s the point of doing the R&D if these substitutes aren’t permitted?

But that’s going to change sometime down the road. How soon is anybody’s guess. Here, the dairy industry has earned the right to be a bit cynical about the timeline to a final FDA rule on salt substitutes, given the recent (and not-so-recent) history of FDA’s foot-dragging on amending the yogurt standards and allowing the use of ultrafiltered milk in standardized cheeses, to name just a couple of examples of FDA taking way too long to finalize a proposed rule.

Beyond that, the dairy industry generally, and the cheese industry specifically, have had numerous opportunities in recent years to offer their views to FDA on sodium reduction and, to a lesser extent, the naming and use of salt substitutes.

Regarding that latter point, it may be recalled that FDA issued guidance back in December 2020 stating that the agency intends to exercise enforcement discretion for declaration of the name “potassium salt” in the ingredient statement on food labels as an alternative to the common or usual name “potassium chloride.”

FDA said it intends to exercise this enforcement discretion to provide industry with greater flexibility when labeling their food products, and said this enforcement discretion may result in manufacturers using potassium chloride as a substitute ingredient for some sodium chloride.

But it’s not as simple as allowing this and other salt substitutes in standardized foods. For example, back in October 2016, Sargento Foods noted, in comments submitted to FDA on the agency’s voluntary sodium reduction goals, that, in certain natural cheeses, it may be possible to replace 30 percent of the sodium content with potassium from a functional standpoint; however, “even this partial replacement still causes increased bitterness and a metallic taste.”

Specific to Cheddar cheese, Sargento noted that researchers reported back in 1985 that a 50 percent replacement of sodium with potassium resulted in unacceptable crumbly texture, and that replacement of sodium with potassium also resulted in excessive bitterness. And similar results were obtained from Cheddar cheeses made with potassium, magnesium and calcium chloride, resulting in unacceptable properties such as bitter, metallic and rancid flavors as well as a crumbly texture.

Also in comments submitted to FDA back in October 2016, the International Dairy Foods Association and National Milk Producers Federation noted that non-sodium salt substitutes “typically impart metallic or bitter tastes, limiting their use and creating severe hurdles to consumer acceptance.”

And the National Dairy Council, in comments submitted to FDA in September 2019 regarding the use of the name “potassium chloride salt” in food labeling, noted that potassium chloride remains “the most viable sodium substitute” for cheesemaking, but cost “remains an important barrier to implementation.” Potassium chloride “also presents a barrier to successful adoption due to sensory characteristics,” NDC added.
What about internationally? Specifically, what do Codex standards have to say regarding the use of salt substitutes in cheeses that have a Codex standard?

Codex has two types of cheese standards. The “General Standard for Cheese” lists, as a permitted ingredient, sodium chloride “and potassium chloride as a salt substitute.”

However, that general standard notes that standards for individual varieties of cheese, or groups of varieties of cheese, may contain provisions which are more specific than those in the general standard and, in those cases, those specific provisions apply.

So, for example, the “Group Standard for Cheeses in Brine” lists sodium chloride as a permitted ingredient, but not potassium chloride. But standards for Cheddar and Havarti, among others, do list potassium chloride as a permitted ingredient.

If nothing else, FDA’s proposed rule to allow the use of salt substitutes might jump-start R&D efforts to find out if these substitutes can be used in standardized dairy products. Maybe their best use will be in flavored cheeses, such as pepper-flavored varieties.

Dairy Price Inflation Will Be Almost Non-Existent This Year

In February, the Consumer Price Index for dairy and related products stood at a record 272.3 (1982-84=100), up 0.1 percent from January and up an eye-opening 12.3 percent from February 2022, according to the US Bureau of Labor Statistics.

But while that year-over-year comparison is indeed eye-opening, it’s that month-to-month change that’s hopefully going to be opening some consumers’ eyes, and wallets, this year.

Notably, February’s 0.1-percent increase in the dairy CPI followed a 0.2-percent rise in January. That’s two straight months in which the dairy CPI barely increased from the previous month.

Also worth remembering: December’s dairy CPI was up just slightly from November.

Of course, these comparisons just reflect one month of retail price movements. But another way of looking at these number is as follows: the dairy CPI was 271.3 back in November, and increased to just 272.3 as of last month.

But going back to the beginning of 2022, the dairy CPI rose from 238.7 in January 2022 to 271.3 in November. Over that period, dairy CPI increases included 1.6 percent in February (from 238.7 in January to 242.4 in February), 1.2 percent in March (to 245.3), 2.4 percent in April (to 251.0), 2.6 percent in May (to 257.7), 1.4 percent in June (to 261.3), 1.7 percent in July (to 265.6), and 0.7 percent in August (to 267.5).

These were astounding increases in the context of recent, and for that matter historic, dairy price inflation. Over the 2003-22, the dairy CPI increased by an average of 2.3 percent annually, according to USDA’s Economic Research Service. So there were two month-to-month increases in the dairy CPI last year that were greater than the annual average increase in the dairy CPI over the 20-year period 2003-22.

Also, going back to 2015, there were three years in which the dairy CPI actually declined (2015, 2016 and 2018), one year in which the dairy CPI increased by just 0.1 percent (2017), and one year in which the dairy CPI rose by 1.0 percent (2019).

In 2022, there were several month-to-month increases in the dairy CPI that exceeded the entire increase in the dairy CPI over the 2015-19 period.

But most of those large dairy CPI increases in 2022 came during the first eight months of the year. The dairy CPI rose 0.5 percent in September (to 268.8), 0.2 percent in October (to 269.4), 0.7 percent in November (to 271.3), and then just a slight increase in December (to 271.4).

These small dairy CPI increases are continuing here in 2023, with no end in sight. And while very small increases in the dairy CPI should certainly be welcomed by consumers, what’s obviously more noticeable is what’s happening with retail dairy product prices.

And those prices provide further evidence of the lack of dairy price inflation here in 2023. For example, in February, the average retail price for Cheddar cheese was $5.85 per pound, according to the BLS.

That’s the fifth straight month in which the average retail Cheddar price was under $6.00 per pound. It had reached a record high of $6.08 per pound last September; that’s the only time the average retail Cheddar price has ever topped $6.00 a pound.

Going back a bit further, BLS statistics show that the average retail Cheddar price was $5.86 a pound in July 2022, meaning that, after a couple of increases, retail Cheddar prices are right where they were last July. And unlike then, retail Cheddar prices are trending down, not up.

Meanwhile, the average retail price for whole milk was $4.16 a gallon in February, down almost four cents from January and the lowest price since July 2022, when it was also $4.16 a pound. Average retail whole milk prices have now declined three months in a row.

What’s also interesting about these average retail dairy product prices is how little they’ve actually increased over the medium term (going back a decade). For example, the average retail Cheddar price in February, $5.85 a pound, was actually almost nine cents lower than the average retail price back in February of 2013.

Granted, that February 2013 price set a record that didn’t get broken until August of last year. But when you can go back a decade and find multiple months in which retail Cheddar prices aren’t all that different than they are today, well, that tells us that short-term dairy inflation has been impressive, but long-term inflation hasn’t really been all that bad.

Part of the problem was the “in-between,” when, for example, the average retail Cheddar price fell below $5.00 a pound back in February of 2017. Compared to six years ago, retail Cheddar prices have skyrocketed, but compared to a decade ago, they’re actually a bit lower.

Future retail dairy price prospects look to be steady to maybe down a bit.
After all, CME spot market prices for blocks, barrels and butter are all well below where they were a year ago, and milk prices are similarly lower than they were a year ago.

Inflation will continue to garner headlines here in 2023, but as far as dairy price inflation is concerned, it will be almost non-existent.

100 Years Ago, Congress Defined Butter. And Then...

It was 100 years ago this month, in March of 1923, that Congress passed, and President Warren G. Harding signed into law, legislation that defined butter. Since then, butter has seen more than its share of ups and downs, to put it mildly.

Under that century-old law, butter is defined as “the food product usually known as butter, and which is made exclusively from milk or cream, or both, with or without common salt, and with or without additional coloring matter, and containing not less than 80 per centum by weight of milk fat, all tolerances having been allowed for.”

To put this in just a bit of historical perspective, there’s a short item in the Congressional Record of Mar. 4, 1923 (for the House of Representatives) that explains that, upon the recommendation of the US Department of Agriculture “and with the indorsement of the trade the legislative standard of 80 per cent has now been enacted by the Congress, thus furnishing a common standard for all interstate traffic in butter, eliminating the confusion heretofore existing, and placing all dairy interests manufacturing butter upon an equal competitive basis.”

So, what’s been happening with butter over the past century? We’ll take a brief look at just three points: butter production, butter consumption, and overall perceptions of butter.

Production-wise, back in 1923, US butter production totaled 1.33 billion pounds, according to statistics from USDA’s National Ag Statistics Service.
Notably, the NASS butter production figures only date back to 1919, when butter output totaled 939 million pounds. Butter production first topped 1.0 billion pounds in 1921.

Butter production followed a general upward trend for the next couple of decades, reaching a then-record 1.87 billion pounds in 1941.But then it started to decline, to under 1.2 billion pounds in 1946, right around 1.2 billion pounds in both 1951 and 1952, and generally between 1.2 and 1.5 billion pounds through about 1968.

Then butter production really started to fall, dropping to 919 million pounds in 1973 and remaining under 1.0 billion pounds through 1979, with the exception of 1977, when it totaled just under 1.1 billion pounds.

Starting in 1980, butter production was consistently above 1.1 billion pounds, but was also consistently below 1.5 billion pounds, for more than two decades.

Then butter production started to grow, reaching 1.5 billion pounds in 2007, the first time it had been that high since 1962. In 2011, butter production topped 1.8 billion pounds for the first time since 1941. Butter production finally broke the 1941 record in 2018, reaching 1.97 billion pounds, and then broke the 2.0-billion-pound mark in 2020, at a record 2.15 billion pounds.

That record still stands; butter production in 2021 totaled 2.07 billion pounds, and 2022 production has been estimated at 2.06 billion pounds.

One final note on butter production over the past century: NASS statistics show that, in 1936 (the earliest NASS figure available), there were 4,558 plants producing butter in the US (butter production that year totaled 1.67 billion pounds); as of 2021, there were 97 plants producing butter in the US.

As far as butter consumption is concerned, as the production statistics indicate, per capita butter consumption was pretty impressive a century ago, and through roughly the first half of the 1940s. Specifically, per capita butter consumption in 1919, the first year production figures are available, totaled 15.3 pounds.

From 1920 through 1944, per capita butter consumption was never below 13 pounds, and for several years (1931 through 1934) it was above 18 pounds. And in 1923, when Congress passed the law defining butter, per capita consumption was 17.9 pounds.

But per capita consumption fell below 12 pounds in 1945, when it was 11.7 pounds, and then dropped below 10 pounds in 1951, at 9.7 pounds. Per capita consumption remained above seven pounds through 1964, but fell below that mark in 1965, at 6.8 pounds. And by 1973 it had fallen below five pounds, at 4.8 pounds.

And per capita butter consumption remained below five pounds every year from 1973 through 2007, with the exception of 1984, when it totaled 5.0 pounds. But then, in 2008, per capita butter consumption started to increase, and reached 6.0 pounds in 2018 and then 6.5 pounds in 2021.

Finally, in the area that we earlier referred to as “perceptions of butter,” it seems that, reflecting production and consumption, perceptions of butter have had their ups and downs over the past century.

One way to look at this is to look at butter’s longtime arch-rival, margarine (also known as oleomargarine). For years, margarine was believed to be the nutritionally smarter choice for consumers, because it didn’t contain saturated fat. That era roughly corresponded with when butter production and per capita consumption were at historically low levels.

Margarine’s “glory days” are long gone, and in fact partially hydrogenated vegetable oils, the main ingredient in many margarines, are no longer considered generally recognized as safe (GRAS).

Maybe the best way to illustrate the overall perception of butter is by using the old saying, imitation is the sincerest form of flattery. From margarine to so-called vegan and plant-based “butter,” there’s no shortage of imitators trying to cash in on butter’s good name.

Why? Because, for over 100 years, butter has been the gold standard. And it will remain so...

FDA’s Plant-Based Milk Guidance Of No Help To Consumers

The US Food and Drug Administration last week issued a long-awaited draft guidance document on the labeling of plant-based milk alternatives and, frankly, this guidance doesn’t really change anything. And it’s certainly not going to be helpful to consumers.

As reported on our front page last week, under FDA’s draft guidance, a plant-based milk alternative may be labeled with the term “milk,” “beverage” or “drink.” Thus, plant-based milk alternatives can continue to besmirch the good name of milk.

There are several points to keep in mind when looking over FDA’s guidance. First, this is draft guidance. FDA is accepting comments on this draft guidance through Apr. 23, 2023. Electronic comments may be submitted at www.regulations.gov; the docket number is FDA-2023-D-0451.

Also, the purpose of the draft guidance is to provide FDA’s current view on the naming of plant-based foods that are marketed and sold as alternatives for milk. The contents of the draft guidance document don’t have the force and effect of law; the guidance is intended only to provide clarity to the public regarding existing requirements under the law. FDA guidance documents should be viewed only as recommendations.

In other words, the plant-based industry can feel free to ignore everything in this guidance document, even after it becomes final.

Why is this important? There are at least a couple of points made in the guidance that would actually be meaningful if FDA had any plans to enforce them. Unfortunately, that’s not the case.

For example, FDA recommends that plant-based milk alternatives that use the term “milk” in their name (such as “almond milk”), and have a nutrient composition that is different than milk, bear an additional nutrient statement on the product label describing how it is nutritionally different.

Specifically, FDA recommends that plant-based milk alternatives that use the term “milk” and have a nutrient composition that is different than milk bear a voluntary nutrient statement on the product label about the nutrient levels compared to milk, such as “Contains lower amounts of [nutrient name(s)] than milk.”

As the guidance notes, the use of these statements is voluntary. So our guess is that the number of marketers of plant-based milk alternatives who include a descriptor that acknowledges the nutritional inferiority of their products (if they are in fact nutritionally inferior) will be zero. No company will voluntarily acknowledge such a fact.

This is a bummer for consumers. After all, earlier in its guidance document, FDA noted that several consumer studies submitted in response to a notice issued several years ago indicate that consumers do not understand the nutritional differences between milk and plant-based milk alternatives.

For example, one survey found that more than half of its respondents believe that plant-based milk alternatives labeled with the term “milk” in their name have a nutritional content similar to milk.

So FDA’s response to this information is to allow marketers of plant-based milk alternatives to continue to use the term “milk” on their packages, and ask companies to voluntarily acknowledge the nutritional inferiority of those products, if that’s the case.

Also, the voluntary nutrient statement recommendations pertain only to plant-based milk alternatives, not other plant-based dairy alternatives such as plant-based cheese or plant-based yogurt. But it seems logical to assume that this guidance will eventually apply to those plant-based products as well.

Regarding the use of the term “plant-based” or “plant” to describe a plant-based milk alternative, FDA does not recommend using only these terms in the name of the food. Instead, the term “milk” should be qualified by the plant source of the food.

“Plant-based milk” is not the common or usual name of plant-based milk alternatives, FDA stated, while noting that the nature or source of the characterizing or predominant ingredients is important information for consumers and should be included in the name or statement of identity.

But here again, FDA notes that, in focus groups conducted by FDA with consumers of plant-based milk alternatives, frequent mentions were made that plant-based milk alternatives may be healthier than milk because they are lower in fat and cholesterol, and do not contain animal ingredients.

So we again have to wonder, will marketers of plant-based milk alternatives stop using or highlighting phrases such as “plant-based” because FDA’s voluntary guidance doesn’t think it’s a good idea? We have our doubts.

FDA’s draft guidance also notes that the agency has defined an imitation food as one that substitutes for and resembles another food and is nutritionally inferior to that food. Not all plant-based milk alternatives meet the definition of “imitation milk,” but to the extent they do, based on
FDA’s current understanding, the agency intends to exercise enforcement discretion with respect to its definition of an imitation food. In other words, don’t expect to see any of these plant-based “milks” bearing the term “imitation” on their label any time soon, if ever.

Maybe most upsetting about FDA’s guidance is the headline on FDA’s news release: “FDA Provides Draft Labeling Recommendations for Plant-based Milk Alternatives to Inform Consumers.” Seems like FDA’s recommendations are more likely to allow plant-based milk alternative marketers to continue to misinform consumers
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FDA’s Extremely Flawed ‘Healthy’ Labeling Proposal

The comment period for the US Food and Drug Administration’s proposed rule on the definition of the nutrient content claim “healthy” closed on Feb. 16 and, as reported on our front page last week, that proposal came under a fair amount of criticism from various dairy industry organizations and companies. And for good reasons.

This FDA rulemaking has a pretty lengthy history. Back in September of 2016, the agency announced that it had started a public process to redefine the “healthy” nutrient content claim. The agency received several hundred comments in response to its initial 2016 undertaking (which was announced as the establishment of a docket to receive information and comments on the use of the term “healthy”).

Six years later, FDA released its proposed rule, which emphasizes the food groups and subgroups identified in the Dietary Guidelines for Americans 2020-2025; and also maintains sodium and saturated fat as nutrients to limit, while adding a newly proposed limit on added sugars.

So what’s wrong with FDA’s proposal? It’s difficult to know where to begin, but here goes: just the agency’s proposed reference amounts customarily consumed (RACCs) drew criticism from over 60 commenters, including a number of dairy industry representatives.

For example, the International Dairy Foods Association noted that, in FDA’s proposed rule, the food group equivalent for dairy products was based on the recommended three servings of dairy per day divided between four eating occasions per day, for a requirement of three-quarters cup dairy equivalent per RACC. But FDA’s food group equivalent (FGE) approach appears to preempt the use of a “healthy” claim by dairy foods with small RACCs, such as natural cheese.

Sargento Foods also made this point, noting that, using the required three-quarters cup dairy equivalent, all natural cheese, including fat-free or lowfat forms, would not be able to bear the “healthy” claim, because the RACC doesn’t meet the three-quarters cup dairy equivalent by miniscule amounts.

And the Cheese Importers Association of America said the proposed three-quarter cup equivalent “provides less easily actionable information to consumers” because it doesn’t equate to a recommended serving as provided in the Dietary Guidelines. Due to the “extremely confusing nature” of the three-quarters cup equivalent basis and the “extremely high burden this proposal places on businesses,” the CIAA said FDA needs to revisit the three-quarter cup equivalent or consider a basis that is specific to certain types of dairy foods or the RACC.

What’s the point of focusing on RACC criticisms? It simply points out that FDA’s proposed rule is so flawed that the agency didn’t even get something so seemingly mundane as RACCs right. And the agency didn’t get much else right in its proposed rule, either.

Indeed, reflecting that point, dairy industry representatives didn’t really have all that much positive to say about FDA’s overall proposal. That’s due at least in part to the fact that, under the proposal, not all that many dairy products will be able to bear the “healthy” claim, even though dairy products are among the most nutrient-dense products available to consumers.

Part of the problem is that, as numerous comments have pointed out (both during the 2016-17 comment period and the recently ended comment period), food is more than just a sum of its individual components.

As Dairy Council of California noted, the food matrix concept “embraces the importance of considering whole foods, alongside the individual components they contain, which is particularly important in relation to public health policy. Dietary guidance should be based on an evaluation of the health effects of whole foods, including dairy, not just single nutrients such as sugar, sodium and fat.”

And specifically regarding saturated fat, the dairy food matrix “is increasingly viewed as having properties that distinguish dairy fats from other sources of saturated fat,” National Milk Producers Federation noted in its comments.

For the record, FDA’s extremely detailed proposed rule on the use of the “healthy” claim makes no mention of the term “matrix.”

Two other points bear mentioning regarding FDA’s flawed proposal. First, the proposal is based on the 2020-2025 Dietary Guidelines, but the process of writing the next edition of the Dietary Guidelines is already underway, meaning that the basis for FDA’s proposal could be altered by the time the agency publishes a final rule.

As NMPF pointed out, past editions of the Dietary Guidelines “badly missed their mark by placing strong emphasis on total fat, whereas we now know that total fat is not a relevant parameter, and more recent editions have not included recommendations on total fat.”

Notably, like FDA’s proposed rule, the most recent edition of the Dietary Guidelines (which runs 164 pages) also makes no mention of the term “matrix.”

Finally, it’s worth remembering that FDA is also researching a symbol that food companies could use on the front of their packages to show that their product meets the definition of the “healthy” claim. But as the American Cheese Society pointed out, such a symbol can lead to consumers assuming that all products without this symbol are “unhealthy.”

That’s really what FDA’s proposal is: unhealthy.

 

US Dairy Imports Growing, Controversies Have Disappeared

The United States has been a significant importer of cheese and other dairy products for many, many years now, and for many years, those significant imports generated significant controversies. Lately, however, as dairy imports regularly set new records, the controversies generated by those imports seem to have pretty much disappeared.

First, a little background is in order. As far as US dairy imports are concerned, looking back half a century, the US in 1973 imported over 220 million pounds of cheese, as well as, most significantly, around 113 million pounds of casein. Meanwhile, US dairy exports back in 1973 were valued at less than $60 million.

More recently, dairy imports have reached new record highs for four straight years, including $4.7 billion in 2022.

As far as dairy import-related controversies are concerned, well, there have been too many over the years to list in this space, so we’ll just mention a couple. First, back in the late 1970s and into the first half of the 1980s, casein imports generated considerable controversy, and were the subject of at least two separate investigations by the US International Trade Commission, as well as at least a couple of detailed reports from USDA’s Economic Research Service.

In its investigation that concluded in early 1982, the USITC concluded that casein imports were not materially interfering with the dairy price support program.

A couple of decades later, imports of milk protein concentrate generated considerable controversy, and were the subject of, among other things, a USITC investigation and a report from the US General Accounting Office (now known as the Government Accountability Office).

That USITC investigation concluded (in a report released in May 2004), among other things, that the dairy price support program appeared to be an important factor creating a disincentive to manufacture milk protein concentrate in the US, and that, on a protein basis, imports of MPC, casein, and caseinates may have displaced 318 million pounds of US-produced milk proteins between 1998 and 2002.

So, while dairy imports are setting new record highs on a regular basis, the controversies surrounding those imports have largely disappeared. Why is that?

Three points come to mind. First, and perhaps most obvious, there is no longer a dairy price support program; it was terminated under the 2014 farm bill. Since there’s no longer a dairy price support program, there’s no way US imports of casein, MPCs or any other dairy product can interfere with that program.

Second, for many years, the US ran a significant dairy trade deficit. Back in 2000, for example, when MPC imports were starting to generate controversy, US dairy imports were valued at $1.5 billion, while dairy exports were valued at slightly less than $1.0 billion, for a dairy trade deficit of over half a billion dollars.

But the US hasn’t run a dairy trade deficit since 2006, when dairy exports were valued at $1.8 billion and dairy imports were valued at $2.3 billion, for a deficit that was still around half a billion dollars. The following year, exports were valued at $3.0 billion and imports were valued at $2.5 billion, for a trade surplus of $500 million.

And the US dairy trade surplus has grown pretty impressively in recent years, to $2.9 billion in 2019, $3.4 billion in 2020, just under $4.0 billion in 2021 and $4.85 billion in 2022. It just seems like dairy imports aren’t as controversial when the US is running such a large dairy trade surplus.

There is one small caveat here: that is, these figures are values, rather than volumes. But there are at least a couple of reasons why, even on a volume basis, US dairy imports aren’t generating much if any controversy these days.

First, on a volume basis, dairy imports in recent years are similar to or even lower than they were in the past. For example, US cheese imports actually reached a record high back in 2002, at 474.6 million pounds.

Over the last six years (2017-2022), cheese imports averaged around 396 million pounds per year.

Second, in its 2004 report, the USITC noted that US production of milk protein concentrate was generally confined to a few firms that produced blended MPC using imported and domestically produced milk proteins, and one facility that produced MPC using ultrafiltration.

As of 2021, there were 13 plants producing MPCs in the US, and total production was around 197 million pounds.

One final reason why US dairy imports aren’t generating all that much controversy these days is because dairy importers are paying into the National Dairy Promotion and Research Program.

It may be recalled that the dairy import assessment was first included in the 2002 farm bill, and then was included again (via some clarifying language) in the 2008 farm bill. Dairy product importers have paid assessments to the Dairy Research and Promotion Program since August 2011.

The mission of the National Dairy Board is to coordinate a promotion and research program that maintains and expands domestic and foreign markets for fluid milk and dairy products. The original mission of the dairy promotion and research program was to maintain and expand domestic and foreign markets for fluid milk and dairy products produced in the United States, but that last part was dropped under language included in the 2002 farm bill.

So if nothing else, rising dairy imports are a testament to the success of the dairy checkoff program
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Another Very Impressive Year For US Dairy Exports

The final 2022 US dairy export numbers are in, from USDA’s Foreign Ag Service, and they show that 2022 was a mighty impressive year for dairy exports. It was a record-breaking year in many ways, but it might be more accurate to call it a record-shattering year.

For starters, overall US dairy exports last year reached $9.5 billion in value. That was up 25 percent, or $1.9 billion, from 2021’s record value of $7.6 billion.

To put this in some historical perspective, we simply have to look at previous milestones achieved by US dairy export values. Just to mention a few: US dairy exports first topped $1 billion in value in 2001, first exceeded $5 billion in value in 2012, and first topped $7 billion in value in 2014.

What about $8 billion? Well, it turns out that US dairy exports completely skipped that milestone. After reaching $7.08 billion in 2014, US dairy exports fell below that level every year from 2015 through 2020, then reached a then-record $7.6 billion in 2021 before jumping to a record $9.5 billion last year.

That’s another way to illustrate the significant of 2022’s record dairy export value. That is, since dairy exports first topped $1 billion in value back in 2001, there have been six years in which dairy exports increased by more than $1 billion from the previous year.

Prior to 2022, the biggest jump in dairy export values occurred in 2013, when exports were valued at $6.7 billion, up almost $1.6 billion from 2012. So last year’s $1.9-billion increase was the largest on record.

One other point on this: 2022 was actually the second straight year in which dairy exports increased by more than $1 billion from the previous year. Since 2020, US dairy exports have in fact risen by $3.06 billion.
That’s pretty impressive growth over a two-year period.

Beyond dairy exports as a whole, US cheese exports also set a couple of new records last year, and set them in pretty impressive fashion.

For starters, US cheese exports last year reached a record 993 million pounds, up 12 percent, or almost 108 million pounds, from 2021’s record high. This of course means US cheese exports are extremely close to breaking the billion-pound mark.

There are several ways of looking at this impressive level of cheese exports. First, way back in 2020, the US exported 782.1 million pounds of cheese. Exports rose to 885.4 million pounds in 2021 and then 993 million pounds in 2022, meaning that US cheese exports have risen by over 100 million pounds in each of the last two years.

Second, US cheese exports were impressive pretty much every month last year. They started off at a relatively modest level of 64.8 million pounds in January, which was in fact their lowest level in a year, but by June had risen to 96.6 million pounds, a new record high for a single month.

For all of 2022, US cheese exports averaged roughly 82.8 million pounds per month, including that January low and June high. We looked back at some cheese export history, and found that, in 1997, US cheese exports totaled 82.6 million pounds for the entire year. Now the US exports that much cheese, on average, every month.

Finally, it may be recalled that, for many years, the US was a net cheese importer, and the gap between cheese imports and exports was quite wide. For example, back in 2000, the US exported 105 million pounds of cheese and imported 415 million pounds of cheese, for a cheese trade deficit of 310 million pounds.

That cheese trade deficit continued through 2008. In 2009, the US ran its first cheese trade surplus in many years, exporting 356 million pounds and importing 239 million pounds, for a trade surplus of 117 million pounds.

That trend has continued, although the gap between exports and imports has varied over the years. Last year, the gap was an impressive 578 million pounds, up from 472 million pounds in 2021. In fact, for the past three years, the US has exported more than twice as much cheese as it has imported. Considering that the US ran a significant cheese trade deficit until 2009, that’s pretty impressive.

One final note on US cheese export volumes: in 2022, the US had three markets that imported more than 100 million pounds of US cheese (Mexico, South Korea and Japan); a total of 17 markets that imported more than 10 million pounds of US cheese; and 42 markets that imported more than 1 million pounds of US cheese.

US cheese exports also set a record last year on a value basis, reaching $2.27 billion. That’s the first time ever that the US exported more than $2 billion worth of cheese in a single year.

Again to put this in some historical perspective, as recently as 2009, US dairy exports as a whole were valued at $2.27 billion. Now just cheese exports have that high a value.

One other dairy export record is worth noting here: US lactose exports last year totaled a record 997.6 million pounds, up 16 percent, or 138 million pounds, from 2021 and up 133 million pounds from the previous record, set in 2018.

Interestingly, the US produced 1.17 billion pounds of lactose last year, according to preliminary figures from USDA’s National Ag Statistics Service, meaning the US exports about 85 percent of all the lactose it produces.

A year ago, in this space, we wrote about how 2021 was a memorable year for dairy exports. We’re now writing about 2022. Will 2023 dairy exports be as noteworthy?

Price Volatility Off To A Good Start In 2023

Price volatility has been a fact of life in the dairy industry for more than 30 years now (depending on how you define “volatility”), but it has also varied widely from year to year. And from month to month, week to week, and day to day, for that matter.

For the sake of discussion, we’ll define “volatility” as any period in which the price for 40-pound Cheddar blocks varies by six cents or more. We use that figure because, 40 years ago, the block price (or “Market Opinion”) at the old National Cheese Exchange ranged from a low of $1.3100 per pound to a high of $1.3675 per pound, or a difference of 5.75 cents.


There are, of course, some major differences between cash dairy markets here in 2023 and back in 1983, including the obvious point that trading at the NCE took place just once a week, while the CME’s cash market trades five days a week.

But even with trading taking place just once a week at the old NCE, there were all of four changes to the block price in 1983, and three of those were for less than one cent. The big change occurred on Dec. 2, 1983, when the block price dropped from $1.3650 per pound to $1.3100 per pound. That was big-time volatility back then.

One final note about that era at the NCE: 1983 volatility was pretty “normal” for that period; there were also only four changes in the block price in both 1981 and 1982 (when the block price ranged from $1.3525 to $1.3700 per pound and from $1.3525 to $1.3725 per pound, respectively).

So how does block price volatility back in the 1982-84 period compare to, say, 2022 or 2021? Well, in 2022, the block price ranged from a low of $1.7150 per pound on Aug. 29 to a high of $2.3975 on Apr. 18, a range of 68.25 cents.

Monthly average prices smoothed out that volatility somewhat; in 2022, the monthly average block price ranged from a low of $1.8104 per pound in August to a high of $2.3399 per pound in April, a range of 52.95 cents.

In 2021, the block price had ranged from a low of $1.4575 to a high of $1.9800 per pound, or a range of 52.25 cents, while the monthly block price average ranged from a low of $1.4978 to a high of $1.8930 per pound, a range of 39.52 cents per pound.

Obviously, prices are far more volatile today than they were 40 years ago, whether you’re looking at the annual range from low to high or the range of monthly averages.

And then there’s the day-to-day price changes. Using our earlier definition of volatility (when the block price varies by six cents or more), there was considerable volatility in the block market last year, with a total of 22 trading sessions in which the block price changed by six cents or more.

In 2021, when the block price range was lower, there were a total of 21 trading sessions in which the block price changed by six cents or more.
So how is cheese price volatility looking one month into 2023? Pretty volatile, compared with 2022 and 2021, and especially compared with 1983, 1982 and 1981.

Specifically, just during the 20 CME spot (cash) market trading sessions in January, there were a total of 10 sessions in which the block market changed by six cents or more. That’s close to half of all the trading sessions in all of 2021 that saw block price changes of six cents or more, and also almost half of all the 2022 trading sessions that saw such changes.

These January sessions were sprinkled throughout the month: there were two during the first week of the month, three during the second week, two during the third week, two during the fourth week and one during the two-day fifth week (this week).

Also, some of this volatility here in early 2023 has been pretty extreme. Specifically, of those 10 block price changes of six cents or more, four were changes of more than 10 cents. By comparison, of the 22 price changes of six cents or more last year, just two were changes of more than 10 cents.

The CME barrel price has also seen some extreme volatility thus far in 2023, with a total of five price changes of six cents or more during January, two of which were by 10 cents or more.

Only the CME butter market has been the picture of calm thus far in 2023; in January, there were eight trading sessions with no change in the butter price, and just one session in which the price changed by more than six cents.

That’s a big contrast to 2022’s CME butter market, where the price varied from a low of $2.38 to a high of $3.2675 per pound, or a range of 88.75 cents per pound; the monthly butter price average ranged from a low of $2.6196 to a high of $3.1792 per pound, a range of 55.96 cents per pound; and there were 29 changes of six cents or more.

What does this brief analysis say about price volatility for the remainder of 2023? Potentially, not all that much. Last year, there were two block price changes in January of six cents or more, none of which were for more than 10 cents; and another 20 during the next 11 months, including the two of more than 10 cents.

But in January of 2021, there were six changes of six cents or more in the block price, two of which were of more than 10 cents; and another 15 during the next 11 months, none of which were more than 10 cents.

From this, we can reach at least two conclusions: first, that cheese prices are far more volatile today than they were 40 years ago; and second, January’s extreme volatility won’t necessarily continue throughout 2023.

 

Time To Get Engaged In Dietary Guidelines Process

Two federal agencies have officially kicked off the process of writing the next edition of the Dietary Guidelines for Americans and, at the 2023 Dairy Forum in Orlando, FL, this week, former US Secretary of Agriculture Dan Glickman had this piece of advice for the dairy industry: “Get engaged.”


For the dairy industry, the Dietary Guidelines are “as important as any legislative item” that Congress deals with, Glickman noted. The Dietary Guidelines are a way to inform the American public about what they should eat. The Dietary Guidelines not only impact school meals and federal programs, but they impact “what an average person who buys food thinks about when they go out and buy that food.”

So if the Dietary Guidelines aren’t science-based, or if they reflect a political bias, “it’s going to hurt you,” Glickman told his dairy industry audience. At the same time, the dairy industry has to come out with “well-documented, good evidence” about the impact of what it produces.

It’s “very hard to lobby the guidelines in the classical sense because it’s a science-based group, but every food group does try to influence those guidelines and you should be no different than anybody else,” Glickman said. With all the issues regarding food labeling and other information consumers get before they buy food, the Dietary Guidelines “are really important.”

Glickman’s comments are particularly timely considering that, just last week, the secretaries of the US Departments of Agriculture and Health and Human Services announced the appointment of 20 scientists to serve on the 2025 Dietary Guidelines Advisory Committee (for more details, please see the story on page 17 of last week’s issue).

To be clear, the DGAC does not write the next edition of the Dietary Guidelines; rather, the DGAC is tasked with reviewing the current body of nutrition science and developing a scientific report that includes its independent, science-based advice for USDA and HHS to consider as they develop the next edition of the Dietary Guidelines.

The first meeting of the Dietary Guidelines Advisory Committee will be held Feb. 9-10, and will be open to the public virtually.

Also, and more important for those who wish to take Glickman’s advice and “get engaged,” a public comment period for submitting comments to the DGAC has been opened, and comments may be submitted at www.regulations.gov; the docket number is HHS-OASH-2022-0021.

Notably, this isn’t just a “standard” comment period, which typically runs maybe 90 days and might be extended for another couple of months if deemed necessary. Rather, USDA and HHS said the comment period will remain open until late 2024, throughout the DGAC’s deliberations. That’s almost two years for the dairy industry to provide input to the committee.

So, how does the DGAC’s process work? Well, the 2020 Dietary Guidelines Advisory Committee was appointed in February 2019, and released its report in the summer of 2020, or roughly six months before the 2020 edition of the Dietary Guidelines for Americans was released.

If nothing else, the 2020 DGAC’s report was pretty detailed; it ran some 835 pages. Near the end of that lengthy report (starting on page 817), the report discusses the public comments it received during the course of its deliberations.

Notices published in the Federal Register alerted the public to written comment collection and their right to provide oral comments during two of five DGAC meetings the committee held, the DGAC’s report explained.
All DGAC meetings were open to the public; the meetings were made accessible in person and by webcast.

In addition, USDA and HHS updated the DietaryGuidelines.gov website, sent out GovDelivery notices, and posted social media messages on a steady basis to notify the public of opportunities for engagement throughout the DGAC’s work.

Partly due to these expanded efforts to involve the public, comments increased more than 60-fold from 2015 to 2020. Specifically, an eye-opening total of 62,339 comments were posted from Mar. 12, 2019, through June 10, 2020. Of these, 3,961 were unique and 58,378 were form letters.

Also, just during the initial comment collection period, which spanned Mar. 12 through June 17, 2019, 515 unique comments and 6,222 form letters were submitted, for a total of 6,737 comments. During the next phase of comment collection, which occurred from June 18, 2019, through June 10, 2020, 3,446 unique comments and 52,156 form letters were submitted, for a total of 55,602 comments.

And there was an opportunity to provide oral comments in person at two of the full DGAC meetings in 2019; about 125 people provided comments at those two meetings.

What happened with all those comments? As the DGAC’s report explained, all comment submissions were reviewed by trained federal staff and after being posted were viewable on regulations.gov. Committee members were regularly sent comment summaries organized by topic area and were given instructions for searching and reading the full comments on regulations.gov.

Once again, comments may be submitted at regulations.gov; the docket number is HHS-OASH-2022-0021. As Dan Glickman noted, every food group will be involved in this process; dairy needs to be involved as well
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Future Of Food, Including Dairy, Explored At CES 2023

The city of Las Vegas, NV, is hosting two food-related shows this month.
One of these shows is the Winter Fancy Food Show, which is sponsored by the Specialty Food Association and will take place Jan. 15-17 at the Las Vegas Convention Center.

The other food-related show in Las Vegas this month was CES 2023, formerly known as the Consumer Electronics Show. CES 2023 took place earlier this month.

CES, which is owned and produced by the Consumer Technology Association, is billed as “the most influential tech event in the world — the proving ground for breakthrough technologies and global innovators.” CES “is where the world’s biggest brands do business and meet new partners, and the sharpest innovators hit the stage,” according to the CTA.

CES also features every aspect of the tech sector, including, as it turns out, food, or, more specifically, food technology. Reflecting this, one of the “Partner Tracks” at CES 2023 was “The Spoon: Food Tech Conference,” which was presented by The Spoon, which describes itself as the “go-to source for food tech execs.”

Sessions at the Food Tech Conference had the following titles:
“Reinventing the Food System for a 10 Billion Person Planet”; “The Future of Farming”; “Scaling Towards a Trillion Dollar Alternative Protein Industry”; “The Tech-Powered Restaurant”; “From Food Replicators to Robots: The Kitchen of the Future”; and “Meals on Mars: The Race to Create Food in Space.”

In addition to various conference tracks and keynote speakers, CES 2023 also featured a trade show that’s described as “the largest tech show on the planet, showcasing exhibiting companies that represent the entire consumer technology ecosystem.”

And once again, this included food technology. Indeed, searching for “food tech” exhibitors brought forth a large number of companies, ranging from AgriBluTec Limited to Yo-Kai Express Inc.

A few of these exhibitors grabbed our attention, thanks in part to the pre-CES news releases they issued touting their presence at CES 2023, and also thanks in part to the fact that they are working in the dairy space, or at least the dairy alternative space.

For example, alternative protein development company Armored Fresh Technologies said it has developed its own technology that can produce alternative proteins that replicate casein. The company has applied its alternative protein to plant-based materials to create plant-based emulsifying proteins.

AFT said its focus is on developing plant materials that can function like animal protein using 100 percent plant-based raw ingredients, with the ultimate goal of replacing animal proteins with plant-based materials.
According to AFT, this technology that can be used to replace casein emphasizes the theory that “it is possible to produce substitutes for all kinds of animal dairy products, such as cheese, ice cream, and yogurt, on Mars by using only oxygen and water.”

Another CES 2023 exhibitor was Armored Fresh, which introduced a newly developed product called “Almond Milk American Slices.” Armored Fresh previously launched plant-based cheese cubes at CES 2022, and said those cubes “are receiving such a sensational response that the product is currently being sold at more than 200 stores in New York.”

The plant-based American slices that Armored Fresh introduced at feature “a soft and chewy texture, and high-quality flavor,” the company noted in a pre-show news release. The company had a goal of attracting 10,000 visitors during its time at CES 2023, “which was easily achieved as the enthusiastic response by the attendees spread at the event,” the company noted in a post-show news release. Even though Armored Fresh thought 2,000 samples a day would be enough to satisfy those coming to its stand, each day the grilled cheese was gone in the early afternoon.

Just out of curiosity, we visited the Armored Fresh website to check out the specifics of its American Slices. The product includes the following ingredients: fermented almond beverage (water, plant lactic acid culture, almond), coconut oil, modified starch mix (modified corn starch, modified starch mix), filtered water, carrageenan, salt, almond protein powder, citric acid, trisodium citrate, and oleoresin paprika for color.

Nutritionally speaking, the American Slices contain one gram of protein per 100-gram serving, along with 20 grams of fat, 14 grams of which are saturated fat, and 700 milligrams of sodium. The Armored Fresh website doesn’t include information on the product’s calcium content.

Finally at CES 2023, SK Group and its global partners showed what they called the “present and future of some of the world’s top eco-friendly carbon reduction technologies.” SK Group, which is building a diverse set of carbon-reduction technologies across different industries, displayed more than 40 related new technologies and products.

Featured technologies included: SK Inc. operated outdoor food trucks with “sustainable food.” The trucks offered visitors “eco-friendly foods” such as SK-Bingsu (Sustainable Korea-Bingsu), a Korean shaved ice cream dessert, using alternative milk protein from Perfect Day, and alternative protein cream cheese from Nature’s Fynd, both of which the company has invested in.

Based on CES 2023, it seems safe to conclude that future CES events will feature more and more tech companies looking to upend the “traditional” dairy industry
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117th Congress Left A Lot On The Table

The 117th Congress ended its work a couple of weeks ago and, if nothing else, this Congress can’t really be described as a “do-nothing” Congress.

For better or worse, lawmakers approved a number of significant pieces of legislation, including a bipartisan infrastructure bill and a massive, $1.7 trillion omnibus government spending bill, among many others.

But while the 117th Congress will be remembered in part for what it accomplished, it will also be remembered in part for what it didn’t accomplish. Arguably the most significant issue that Congress failed to address, at least from the standpoint of US agriculture, was immigration reform.

Almost two years ago, it appeared that the 117th Congress would actually successfully tackle the immigration reform issue, when the House passed the Farm Workforce Modernization Act with a bipartisan 247-174 vote.
Over 300 dairy, farm, food, business interest, and other organizations supported the Farm Workforce Modernization Act, and over the last half of 2022, pressure mounted on the Senate to address immigration reform.
But the push from agriculture and other groups was to no avail, as immigration reform failed to make it across the finish line.

This is an astonishing failure by Congress in general and the Senate in particular. And it doesn’t appear that the 118th Congress will pass any sort of immigration reform legislation, meaning it will likely be 2025 at the earliest before this issue is addressed.

That’s not the only dairy- and ag-related issue that Congress failed to address over the past two years. Back in April of 2021, bipartisan legislation was introduced in both the House and Senate that would prohibit the sale of any food that uses the market name of a dairy product (such as milk, yogurt, or cheese) unless the food: is the milk of a hooved animal; is derived from such milk; or contains such milk as a primary ingredient.

Alas, the Defending Against Imitations and Replacements of Yogurt, milk and cheese to Promote Regular Intake of Dairy Everyday Act (DAIRY PRIDE Act) failed to make it out of committee in either the House or the Senate.

However, this issue was addressed, somewhat, in the omnibus spending bill approved late last month. That budget deal expresses concern about the proliferation of products marketed using standards of identity for dairy products that do not contain dairy ingredients, and directs FDA to implement an updated enforcement approach to enforce against imitation dairy products.

Speaking of FDA, as noted in this space a couple of times over the past several months, 2022 wasn’t a very good year for that agency’s food safety efforts, to put it mildly.

With that in mind, legislation was introduced in both the House and Senate back in July to establish the Food Safety Administration, a single food safety agency that would incorporate the existing food programs within FDA, including the Center for Food Safety and Applied Nutrition, Center for Veterinary Medicine, and Office of Regulatory Affairs, into a separate agency.

Interestingly, the independent expert panel that issued an evaluation of FDA’s Human Foods Program examined FDA’s structure, and supported some sort of structural change to address the challenges facing that program.

One of the options suggested was to create a new operating division within the Department of Health and Human Services: a Federal Food Administration that is separate from a Federal Drug Administration, each with a commissioner reporting directly to the HHS secretary.

Such a change would likely require statutory change, which, it seems, would have been addressed by the Food Safety Administration Act. But that legislation failed to make it out of committee in either the House or the Senate. Given that the bill was sponsored only by Democrats in the House, and Republicans will control that chamber for the next two years, it’s safe to say the Food Safety Administration Act won’t see the light of day until 2025 at the earliest.

In late 2021, bipartisan legislation introduced in both the House and Senate, the Food Date Labeling Act, would have established what its sponsors call an easily understood food date labeling system. Specifically, under that bill, “BEST If Used By” would communicate to consumers that the quality of food products may begin to deteriorate after the date, while “USE By” would communicate the end of the estimated shelf life, after which the product should not be consumed.

Like the Food Safety Administration Act, the Food Date Labeling Act failed to make it out of committee in either the House or the Senate.

Finally, legislation was introduced in the House in March of 2021 that revises requirements for milk provided by the National School Lunch Program. USDA regulations require milk to be fat-free or low-fat and allow only fat-free or lowfat milk to be flavored. The Whole Milk for Healthy Kids Act of 2021 would have removed these restrictions and instead permit schools to offer students whole, reduced-fat, lowfat, and fat-free flavored and unflavored milk.

The legislation failed to make it out of committee, but its sponsor, US Rep. Glenn “GT” Thompson, is now the chairman of the House Ag Committee, so this bill’s chances of passage may improve over the next couple of years.

Congress can accomplish quite a bit in the dairy and food arena just by addressing bills that failed to pass in the 117th Congress
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Some Things The Dairy Industry Can Expect In 2023

Making predictions in the dairy industry, or any other industry for that matter, is always a bit perilous, but there are at least a few things the dairy industry can expect to happen in 2023.

First, but not necessarily foremost, is the passing of a new farm bill. This is a relatively easy prediction to make, given that the current farm bill expires at the end of September 2023.

What this piece of legislation will include for the dairy industry is still unknown, of course, but at least some general ideas can be gleaned from the 2018 farm bill. Specifically, that legislation created the Dairy Margin Coverage program, which replaced the Margin Protection Program that had been created under the 2014 farm bill; altered how the Class I skim milk price was calculated for the federal order program; and created the Milk Donation Program.

That was just the dairy title in the 2018 farm bill. Elsewhere in that legislation, the Dairy Business Innovation Initiatives was established; and the Healthy Fluid Milk Incentive Projects program was created.

In the 2023 farm bill, we would expect to see the Dairy Margin Coverage program continued and possibly tweaked a bit; and the Milk Donation Program, Dairy Business Innovation Initiatives and Healthy Fluid Milk Incentive Projects programs also continued, possibly with additional funding.

As far as the Class I skim milk price calculation is concerned, that leads to another prediction for what the dairy industry can expect in 2023: USDA will hold a national federal order hearing.

This expectation is based on at least a couple of things. First, it’s difficult if not impossible to find any dairy industry organization that doesn’t think federal order reforms are long overdue. And many of these organizations have formally approved proposals to update federal order rules.

Second, at the conclusion of an October 2022 industry-wide Federal Milk Marketing Order Forum organized by the American Farm Bureau Federation, AFBF and National Milk Producers Federation agreed on a joint statement regarding the need for federal order improvements.
Among other things, their statement said the following: “We anticipate the prospect of a hearing conducted by USDA in 2023 that would address FMMO price formulas, including all four Classes, as well as the Class I price surface.”

Not only is it pretty easy to predict a national federal order hearing in 2023, it’s also easy to make another federal order-related prediction: any final decision resulting from that hearing won’t be implemented until 2024 at the earliest.

As anxious as the dairy industry might be for federal order reforms, there is simply no getting around the fact that the process for amending federal orders is a mighty long one. USDA has a “brochure” on its federal order website that details the steps for amending a federal order under formal rulemaking procedures; there are 12 steps in all, starting with USDA receiving a proposal and ending with USDA holding a referendum and implementing the amendments.

It’s safe to say that, assuming that we reach at least Step 5 in this process (which is USDA holding a public hearing) sometime next year, there’s no way we then also reach Step 12, which would require USDA to issue both a recommended decision and a final decision. This will simply be far too complicated a proceeding for that to all happen in a single year.

So here’s an early prediction for 2024: USDA will issue a final decision stemming from its 2023 national federal order hearing. Whether dairy producers approve the federal order(s) as amended, or reject the proposed changes, effectively terminating the federal order(s), remains to be seen.

In 2023, we could also see some pretty significant changes at the US Food and Drug Administration. As noted in this space in our Sept. 30th issue, the year 2022 has been “especially difficult” for FDA.

Earlier this month, an external evaluation of FDA’s Human Foods Program was released; that report addressed that program’s culture, structure/leadership, resources and authorities, and provided recommendations that would equip FDA to fulfill its regulatory responsibilities, strengthen its relationships with state and local governments, and secure the US food supply for the future.

FDA Commissioner Robert M. Califf, who has been heading up the agency for less than a year (he also served as FDA chief for most of 2016 and early 2017), said the work of the independent evaluators will help inform a new vision for the FDA Human Foods Program, and that the agency is committed to providing a public update on the new vision at the end of January 2023 and additional public updates by the end of February 2023, including the planned leadership structure and any changes to key internal processes and procedures.

So quite possibly by the end of 2023 we’ll see a new structure in place for the FDA Human Foods Program. That will hopefully be a good thing, given how dysfunctional the Human Foods Program is currently, as evidenced by, among other things, how long it took FDA to issue a final rule to amend the federal standard of identity for yogurt.

Speaking of standards of identity, maybe 2023 will be the year in which the dairy industry finally sees a final rule that amends FDA’s regulations to provide for the use of fluid ultrafiltered milk in the manufacture of standardized cheeses and related cheese products.

The beginning of a new year brings renewed optimism for such things as long-overdue final rules..

FDA Evaluation Hits Home For Dairy Industry

The US Food and Drug Administration last week released an external evaluation of the agency’s Human Foods Program and, as reported on our front page last week, the evaluation found quite a few problems, to put it mildly.

In some ways, these findings are not really news to the dairy industry, which has had to deal with at least some of the problems identified in the evaluation for a number of years now.

One specific part of the evaluation sounded particularly, and frustratingly, familiar. In the section evaluating FDA’s culture, the report noted that the Human Foods Program approach of relying on consensus has “significant drawbacks for making decisions about taking regulatory action.”

The report continued: “In the absence of a collaborative, problem-solving posture enabled by a clear process supporting timely decisions, the scales can be tipped in favor of inaction, minimizing risk, and maintaining the status quo. This culture creates an environment where decision-making is unacceptably slow.”

It’s pretty easy to come with a couple of dairy-specific examples of where FDA’s decision-making has been “unacceptably slow” in recent years. In fact, in one case, it’s been non-existent.

First, it was 23 years ago this month that FDA was initially petitioned, by the American Dairy Products Institute, to provide for the use of fluid ultrafiltered milk in the manufacture of standardized cheeses and related cheese products. Shortly thereafter, FDA received a second, related petition to allow the use of filtered milk in standardized cheeses and related cheese products.

After receiving that second petition, it took more than five years for FDA to publish a proposed rule to provide for the use of fluid UF milk in the manufacture of standardized cheeses and related cheese products.

But as it turns out, that was the just the beginning of many delays on this proposed rule. More than two years after publishing that proposed rule, FDA, in February of 2008 reopened the comment period to seek further comment only on two specific issues raised by the comments concerning the proposed ingredient declaration.

That activity was followed by almost nothing for more than nine years. Then in August of 2017, FDA issued guidance to industry stating that it will exercise enforcement discretion regarding the use and labeling of fluid UF milk to make standardized cheeses and related cheese products.
That guidance was followed by almost three more years of inaction, followed, incredibly, by the reopening, yet again, of the comment period on the use of UF milk to make standardized cheeses and related products.

That comment period finally closed on Aug. 13, 2020.

The dairy industry continues to await a final rule on this issue, more than 23 years after the original petition was filed with FDA.
Meanwhile, about two months after ADPI submitted that initial UF milk petition, the National Yogurt Association petitioned FDA to amend the standards of identity for yogurt.

This rulemaking also moved at a snail’s pace. More than three years after receiving the NYA’s petition, FDA published an advance notice of proposed rulemaking that, in part, announced that FDA had received the NYA petition, and also asked for comments on the ANPRM. Roughly five years later, FDA published a proposed rule to amend the yogurt standards.

Technically, the process of updating the yogurt standards of identity dates back to 1981, when FDA published a final rule establishing standards of identity for yogurt. A number of objections were filed to that final rule, many of which requested a hearing, which prompted FDA to stay the effective date for certain provisions of the final rule.

In its 2009 proposed rule, FDA noted that, to date (that is, as of January of 2009), “due to competing priorities and limited resources, FDA has not held a public hearing to resolve these issues and the effective date for these provisions remains stayed.”

Finally, FDA published a final rule amending the yogurt standards in June of 2021, but the International Dairy Foods Association and Chobani objected and requested a hearing on several provisions of that final rule. Earlier this year, FDA clarified that the effectiveness of certain provisions of that final rule had been stayed, due to those objections.

And now, as reported on our front page this week, FDA announced that it is denying the requests for a public hearing and modifying the final rule in response to the objections, and lifted the stay of the effectiveness of the final regulation. The compliance date of the final rule is Jan. 1, 2024.

More than 40 years after it issued the original final yogurt standards rule, the external evaluation released last week found that FDA’s Human Foods Program is “significantly under-resourced” and additional resources “are critical to future success.”

More specifically, the Human Foods Program “urgently” needs additional personnel, financial, and information technology resources to perform its congressional mandate more effectively, the evaluation stated.
Changes at the FDA Human Foods Program are long overdue, and the external evaluation provides numerous helpful recommendations for improving the agency’s performance.

Let’s hope changes are made at FDA in a lot less time than it’s taken the agency to act on some recent, or rather not-so-recent, dairy industry petitions
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Monthly Cheese Statistics Resemble Previous Annual Numbers

There are quite a few familiar-looking statistics when looking over the cheese production figures contained in the monthly “Dairy Products” report published by USDA’s National Ag Statistics Service. And that’s a good thing, because it reflects how much the cheese industry has grown in recent decades.

For starters, the “Dairy Products” report includes cumulative cheese production statistics, and these figures each represent a milestone in US cheese production — as do the monthly cheese production statistics.

In October, for example, US cheese production totaled 1.17 billion pounds. In fact, the last time the US produced less than a billion pounds of cheese in a single month was in February 2018.

Historically, the first time the US produced more than 1.0 billion pounds in an entire year was in 1942, when cheese output reached a record 1.1 billion pounds. It then fell below a billion pounds in 1943, but has been above the billion-pound mark ever since. That includes 1947, when cheese production reached a record high of 1.18 billion pounds, or about 15 million pounds more than the US produced just in October of this year.

Cumulatively, just looking at quarterly cheese production, during the first quarter of 2022, US cheese production totaled 3.5 billion pounds, which was just slightly below cheese production for all of 1978; cheese production during the first half of 2022 totaled just under 7.0 billion pounds, which was just slightly above cheese output for all of 1995; and cheese production during the first three quarters of 2022 totaled 10.4 billion pounds, which is roughly the same as cheese production for all of 2010.

The largest cheese category, Italian-type cheese, also helps illustrate this statistical trend. In October, the US produced 495.4 million pounds of Italian cheese, which is about 42 million pounds more than was produced in the entire year of 1971.

Italian cheese production during the first quarter of this year totaled just under 1.5 billion pounds, or slightly less than was produced in all of 1985. During the first half of this year, Italian cheese production totaled 2.95 billion pounds, or slightly more than was produced in all of 1997. And Italian cheese output during the first three quarters of 2022 totaled 4.4 billion pounds, or exactly the same volume as was produced in all of 2010.

And through October, Italian cheese production totaled 4.91 billion pounds, slightly less than was produced in all of 2014.

Within the Italian cheese category, Mozzarella production during October totaled about 387 million pounds, or about 12 million pounds more than was produced in all of 1974.

Cumulatively, Mozzarella production during the first quarter of 2022 totaled 1.16 billion pounds, or slightly more than was produced in all of 1985; Mozz output during the first half of this year totaled 2.3 billion pounds, or slightly less than was produced in all of 1998; and production during the first three quarters of 2022 totaled 3.5 billion pounds, or exactly the same volume as was produced in all of 2010.

Through October, Mozzarella production totaled 3.9 billion pounds, slightly below production for all of 2014.

Also within the Italian cheese category, the US in October produced 42.4 million pounds of Parmesan, or about 3.2 million more pounds than in all of 1971.

Just during the first three months of 2022, US Parmesan production totaled 134.3 million pounds, about 4.0 million more pounds than was produced in all of 2004. Parm output during the first half of this year totaled 248.5 million pounds, or about 15 million more pounds than was produced in all of 2010. And Parm production during the first three quarters of 2022 totaled 366.7 million pounds, or almost 28 million pounds more than was produced in all of 2015.

Monthly and cumulative cheese export statistics also help illustrate how much cheese exports have grown over the years. For example, in October, US cheese exports totaled 81.3 million pounds, or about half a million more pounds than was exported in all of 1998.

During the first quarter of this year, US cheese exports totaled 229 million pounds, or about 10 million pounds more than exports totaled in all of 2007. Cheese exports during the first half of 2022 totaled about 505 million pounds, or about 10 million pounds more than exports totaled in all of 2011.

And cheese exports during the first three quarters of 2022 totaled 750 million pounds, or slightly more than was exported during all of 2017.
On a value basis, US cheese exports during October were valued at $194.6 million, or about $3 million less than the value of cheese exports for all of 2004.

The value of cheese exports during the first quarter of 2022 was $481 million, or about $51 million higher than in all of 2009. During the first half of this year, cheese exports were valued at $1.1 billion, roughly the same as for all of 2012. And during the first three quarters of 2022, cheese exports were valued at about $1.7 billion, or about $105 million more than in all of 2020.

Oh, and through October, cheese exports were valued at $1.9 billion, breaking the previous record for an entire year, $1.8 billion, which was just set last year.

Cheese production and cheese export milestones are being passed on an almost monthly basis these days, which serves as yet another reminder of just how much they’ve both grown, and set new records, over the past several decades
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Hard To Understate Importance Of Cheese To US Dairy Industry

USDA’s Economic Research Service recently released updated data on the supply and allocation of milkfat and skim solids by dairy product and, as reported on our front page last week, this data serves as yet another reminder of just how important cheese has become to the US dairy industry.

Specifically, according to the ERS figures, 42.1 percent of the US milkfat supply and 19.0 percent of the US skim-solids supply were used in cheese last year. Cheese is by far the leading user of milkfat, and is currently the second-leading user of skim-solids.

As far as milkfat use is concerned, cheese has been the leading user for as long as ERS has been tracking the supply and allocation of milkfat by product (the ERS figures date back to 2000). Indeed, since 2000, more than one-third of the US milkfat supply has been used in cheese, and since 2009, more than 40 percent of the US milkfat supply has been used in cheese.

Last year was the fifth time in the last seven years that 42.0 percent or more of the US milkfat supply was used in cheese.
While 20th-century statistics aren’t available, it’s a pretty safe bet that cheese wasn’t always such a significant user of the US milkfat supply.
There are a couple of ways to illustrate this point.

First, for a number of years from roughly the mid-1920s to the mid-1940s, per capita US dairy consumption on a milk equivalent, milkfat basis topped 800 pounds per year. During that period, per capita fluid milk consumption averaged around 300 pounds per year (more than twice the level it is today), and almost all of that fluid milk was whole milk.

Also during that period, per capita butter consumption ranged from somewhere around 16 pounds to over 18 pounds annually, while per capita cheese consumption ranged from about four to about 6.5 pounds.

Second, also during that era, US butter production greatly exceeded cheese production. For example, butter production in 1941 reached a record 1.87 billion pounds, a record that wasn’t broken until 2018. Cheese production in 1941 totaled 956 million pounds, or just slightly more than half the level of butter production.

What these historic figures tell us is that, as far as milkfat use goes, cheese is far more important today than it was 80 or more years ago.

And while the percentage of the milkfat supply used in cheese varies somewhat from year to year, it’s safe to say that its lead over the next-largest users, butter and fluid milk, isn’t going to shrink significantly in the near future.

That’s due to the facts that fluid milk sales continue to decline, which helps explain why fluid milk used 18.0 percent of the milkfat supply in 2000 and just 10.6 percent of the milkfat supply in 2021; and butter production, even though it’s topped 2.0 billion pounds for two consecutive years, actually declined in 2021 and is on pace to decline again in 2022.

Cheese production, meanwhile, continues to set new records every year, ensuring that it will remain by far the leading user of milkfat in the future.

As far as skim solids are concerned, as noted earlier, cheese is currently the second-leading user, behind only fluid milk. But there are a couple of points worth noting here.

First, the gap between skim-solids use in fluid milk and cheese continues to shrink. Back in 2000, fluid milk used over one-third of the US skim-solids supply (33.6 percent of the supply, to be exact), more than twice as much as cheese did (15.5 percent).

But that gap has narrowed slowly and steadily over the past two decades, and is now just over 1 percent (20.1 percent for fluid milk, 19.0 percent for cheese). Considering that the gap was over 4.0 percent as recently as 2017 (22.9 percent for fluid milk, 18.6 percent for cheese), it’s pretty safe to conclude that cheese will, in the next year or two, surpass fluid milk and become the leading user of skim solids.

Second, the number three user of skim solids is whey products, at 16.4 percent last year. That means that the “cheese complex” — cheese plus whey products — uses over 35 percent of the total skim solids supply.

And as is the case with cheese, whey products are using a higher percentage of the skim-solids supply than they were two decades ago. In fact, as recently as 2011, whey products used less than 13 percent of the skim-solids supply. Since 2012, however, whey products have used more than 15 percent of the skim-solids supply, including a record high of 18.8 percent back in 2014.

One other point worth mentioning: the US supply of both milkfat and skim solids continues to increase, pretty much every year. This is because US milk production increases pretty much every year (it last declined in 2009), and also, at least in the case of milkfat, because the average milkfat content of the US milk supply has risen impressively in recent years, from 3.66 percent as recently as 2010 to 4.01 percent in 2021.

Most if not all reputable projections point to continued increases in US milk production in the future, meaning that cheese production increases will be needed to keep pace with additional milkfat and skim-solids production.

Granted, there are other dairy products using growing volumes of milkfat and skim solids — sour cream, in the case of milkfat, and yogurt, in the case of skim solids, just to cite two examples — but these and other categories combined can’t match the importance of cheese when it comes to the use of rising volumes of milkfat and skim solids
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‘Science-Based’ Is Sometimes In The Eye Of The Beholder

USDA’s Food and Nutrition Service late last week released a proposed rule to revise regulations governing food packages provided under the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).

Although we didn’t mention it in our front-page story last week on these proposed WIC changes, USDA claimed, in the headline of the press release announcing the proposal, that the agency is proposing “Science-Driven Updates” to foods provided through WIC. The second sentence in USDA’s press release referred to “science-based revisions”

US Ag Secretary Tom Vilsack also mentioned science, noting that the proposed changes will ensure that WIC provides foods that “reflect the latest nutrition science to support healthy eating and bright futures.” The third paragraph of USDA’s press release also mentioned “the latest nutrition science.”

A similar phrase, “the latest nutritional science,” was also included in the summary of the proposed rule as it appeared in the Federal Register on Monday, Nov. 21. The summary specifically stated that the proposed changes are intended to provide WIC participants “with a wider variety of foods that align with the latest nutritional science...”

All of this talk about science got us thinking about the role of science in this specific rulemaking, and more generally in how the choice of which science to follow can influence such things as proposed and final rules.

USDA’s proposed rule explains how it developed the WIC food package revisions. Some eight years ago, USDA’s FNS contracted with the National Academies of Sciences, Engineering and Medicine (NASEM) to conduct a review of the WIC food packages, in accordance with the Healthy, Hunger-Free Kids Act of 2010, which required USDA to conduct a scientific review of the WIC food packages at least every 10 years.

NASEM’s review process included a review and analysis of available scientific evidence, including, among other things, the 2015-2020 Dietary Guidelines. NASEM released its review of WIC food packages in 2017.

Because NASEM’s review and recommendations were based on the 2015-2020 DGA, to ensure continued alignment with the current DGA (the 2020-2025 DGA was published in December 2020), FNS incorporated relevant updates into the proposed changes to the WIC food packages.

From this background, we can conclude that a fair amount of the “science” that went into the updated WIC food package proposal is based on the Dietary Guidelines for Americans (both the current edition as well as the previous edition). And those guidelines, as we’ve noted previously in this space, are flawed.

Part of the problem with the current Dietary Guidelines is timing. They were released at the end of 2020, which means they were largely written in 2020 and earlier. And in fact the process of developing the next edition of the Dietary Guidelines is already underway; USDA and the US Department of Health and Human Services USDA requested nominations from the public for the 2025 Committee June 15 through July 15, 2022, and aim to appoint the 2025 Dietary Guidelines Advisory Committee early in 2023.

If the 2020 DGAC timetable is followed by the 2025 DGAC, there will be several committee meetings in 2023 and then a final report will be released sometime around mid-2024. From there, USDA and HHS will develop the next edition of the Dietary Guidelines.

USDA is accepting comments on its proposed updates to WIC food packages until Feb. 21, 2023, or before the Dietary Guidelines Advisory Committee holds its first meeting, let alone releases its final report. When USDA previously updated the WIC food packages, it published a proposed rule in August 2006 and an interim rule in December 2007 that implemented revised food packages. A final rule was published in March 2014.

In other words, it would appear that USDA will possibly issue a final rule revising the WIC food packages well before the next edition of the Dietary Guidelines is released, meaning the final WIC food package rule will be based on the “latest” science that’s already several years old (the 2020-2025 DGA).

Then there’s the problem of what’s in the 2020-2025 DGA. Among other things, it’s recommended to limit intake of saturated fat to less than 10 percent of calories per day, a recommendation that has not only been roundly criticized by numerous scientists, researchers, nutritionists, journalists and others, but has also been refuted, or at least called into question, by numerous studies that have been conducted and published in recent years.

Interestingly, one of the questions that will be addressed by the Dietary Guidelines Advisory Committee is as follows: “What is the relationship between food sources of saturated fat consumed and risk of cardiovascular disease?”

Meanwhile, USDA is proposing a total of nine changes to milk and milk substitutions in the WIC food packages. Among the changes: remove cheese from the fully breastfeeding food package, which aligns with the DGA recommendation for reducing saturated fat consumption.

The bottom line on this WIC proposed rule is that USDA is using old and questionable science to reduce access to dairy products for WIC participants, while also acknowledging that it’s unsure about the relationship between food sources of saturated fat and health risks
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Class II Milk Also Being Depooled In 2022

Over the last three years or so, the dairy industry has gained considerable experience in the “art” (or is it science?) of depooling milk in federal milk marketing orders. While much of this depooling (and our reporting of such depooling) has focused on Class III and Class IV milk, as it turns out, a fair amount of Class II milk is also being depooled here in 2022.

Depooling has taken place in federal orders since the early years of the reformed federal orders (it may be recalled that federal order reforms mandated by the 1996 farm bill became effective on Jan. 1, 2000). In fact, by 2006, no fewer than five federal orders had conducted proceedings on their pooling provisions.

More recently, the California federal order has provided an interesting example of depooling on a monthly basis. Since the California order became effective in November 2018, the state has never produced less than 3.2 billion pounds of milk in a single month, nor has it ever had more than 2.6 billion pounds of milk pooled in a single month (the closest it came was in May of 2019, when the volume of milk pooled on the order totaled 2.58 billion pounds).

Obviously, there’s a lot of milk being depooled in California every month.
And still more recently, large volumes of milk have been depooled in Class III and Class IV in a majority of the federal orders. Just looking at some “general” statistics, in 2019, federal order Class III volume totaled 64.2 billion pounds, was above 5.0 billion pounds every month through August, and was only under 3.0 billion pounds in the final three months of the year.

In 2020, Class III volume was never above 5.0 billion pounds in a single month, and was under 2.0 billion pounds for six straight months (June-November). Class III volume that year totaled 32.9 billion pounds.
In 2021, Class III volume was under 2.0 billion pounds for five straight months (January-May), but rebounded during most of the second half of the year and peaked at almost 6.3 billion pounds in December. Class III volume for the entire year totaled 37.6 billion pounds.

Thus far in 2022, Class III volume has never dipped below 4.5 billion pounds, and has topped 7.0 billion pounds in four months (March, August, September and October). For the entire year, Class III volume will easily surpass the 2019 total (which was the first full year of the California order).

Meanwhile, Class IV volume totaled 30.5 billion pounds in 2019, and was below 2.0 billion pounds in just three months (January, February and March). Class IV volume rose to 41.5 billion pounds in 2020, and never dropped below 3.0 billion pounds in a single month.

Then in 2021, Class IV volume remained strong for the first 10 months of the year, dipping below 3.0 billion pounds just twice (in August and September), before dropping to just 1.5 billion pounds in November and then 1.2 billion pounds in December. For all of 2021, Class IV volume totaled 37.3 billion pounds.

That was a sign of things to come for Class IV volumes. Thus far in 2022, Class IV volume has only been above 2.0 billion pounds once (it reached 3.2 billion pounds in May) and was below 1.0 billion pounds in August, September and October.

This brings us to Class II, volumes of which have been far more stable in recent years than Class III and Class IV volumes have been. Specifically, Class II volumes between 2012 and 2021 ranged from a low of 14.7 billion pounds in 2014 to a high of 19.9 billion pounds in 2021 (keep in mind that there was no California order over the 2012-2017 period and 2018 only included the new California order for the final two months of the year).

In that record year of 2021, Class II volume never fell below 1.5 billion pounds except in December, when it fell to 1.3 billion pounds, and never reached 1.9 billion pounds in a single month (the high was 1.87 billion pounds in May).

Thus far in 2022, Class II volume has never been above 1.5 billion pounds (it peaked at 1.47 billion pounds in May), and fell as low as 1.1 billion pounds in September. For the entire year, it’s on pace to total maybe 15.0 billion pounds, probably somewhat lower, which would be far lower than the three years that included the California order and also close to its recent low of 14.7 billion pounds in 2014.

And what these lower Class II volumes have resulted in is lower Class II utilization overall. Specifically, through the first nine months of this year, Class II utilization was 9.72 percent, with a high of 11.6 percent in May and a low of 8.85 percent in September.

Historically, since 2012, Class II utilization ranged from 11.4 percent in 2014 to 13.9 percent in 2015, and then rose to 14.2 percent in 2020 and 14.5 percent in 2021, when large volumes of Class III milk were depooled (and when the California order was in effect, although in 2019, the first full year of the California order, Class II utilization was 11.5 percent).

Notably, Class II volumes would be a lot lower were it not for the Northeast order. That order is, by far, the largest Class II market, accounting for roughly one-third of the federal order Class II volume over the 2019-2021 period.

But this year, with large volumes of Class II milk being depooled in orders other than the Northeast, the Northeast is accounting for close to 45 percent of the federal order Class II volume.

Add Class II to the list of reasons why depooling will be addressed in the next round of order reforms
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Easy Math: US Cheese Exports On Billion-Pound Pace

There are times when interpreting dairy industry statistics can be pretty difficult, and then there are times, albeit much rarer, when interpreting these statistics can be downright easy. A great example of this latter case can be seen in the latest US cheese export statistics.

As reported in our lead story last week, US cheese exports during the January-September 2022 period totaled 750.5 million pounds, up 13 percent from the same period last year.

Put another way: cheese exports through the first three quarters of 2022 totaled exactly three-quarters of a billion pounds. Using some pretty basic math, we can conclude that US cheese exports for the entire year will total...1.0 billion pounds.

If only things were that simple. While there are certainly reasons to believe that US cheese exports will indeed reach 1.0 billion pounds this year, it would be a stretch to reach that conclusion simply based on what happened during the first three quarters of this year.

There are at least a couple of reasons for that. First, it’s sort of a statistical coincidence that cumulative cheese exports just happened to total three-quarters of a billion pounds through the first three quarters of this year.
After all, cheese exports during the first quarter of 2022 didn’t total 250 million pounds (they totaled 229.0 million pounds), nor did they total 500 million pounds during the first half of the year (although they were close, at 505.5 million pounds).

The obvious point here being that cheese exports fluctuate from month to month, and certainly also fluctuate from quarter to quarter.

Second, what are the odds that cheese exports during the fourth quarter will total exactly 250 million pounds? Not all that great — but not impossible, either.

Going back to 2013 (when cheese exports reached a then-record 695.6 million pounds), cheese export volumes have peaked in the fourth quarter twice: in 2013 and in 2016. For the other years, cheese exports peaked in the first quarter in 2014, 2015 and 2019; peaked in the second quarter in 2017, 2018 and 2020; and peaked in the third quarter in 2021.

Meanwhile, cheese export volumes also reached their quarterly lows in the fourth quarter twice: in 2014 and in 2020. For the other years, cheese exports reached their low in the first quarter in 2013, 2017 and 2021; reached their low in the second quarter in 2016; and reached their low in the third quarter in 2015, 2018 and 2019.

Thus far in 2022, cheese exports peaked at 276.5 million pounds in the second quarter, were at their lowest level at 229.0 million pounds in the first quarter, and were in between those volumes in the third quarter, at 245.0 million pounds.

From these statistics, we can conclude that cheese exports could potentially hit exactly 1.0 billion pounds this year, could fall just a bit short of that mark, or could surpass that level by a bit.

Why is it so difficult to predict what will happen with cheese export volumes in the fourth quarter of this year (or any quarter of any year, for that matter)? Because, in part, there are so many unpredictable factors impacting dairy trade.

For example, prior to reaching a record 885.4 million pounds last year, the US cheese export record had been 810.0 million pounds, set back in 2014.
Since then, it’s safe to say that all heck has broken loose in the global dairy market.

In the middle of 2014, Russia announced that it was banning the importation of cheese and other dairy product imports from the European Union, Australia, the US, Canada and Norway. Russia in 2013 had been the EU’s number one cheese export market, meaning the EU had to find other markets for its cheese exports. Not coincidentally, US cheese exports during 2014’s fourth quarter were at their lowest level since the first quarter of 2013, and then 2015 US cheese exports declined more than 110 million pounds from 2014’s record high.

Speaking of the EU, it was in 2015 that the EU lifted its long-time milk production quotas. As a result, EU cheese production rose impressively over the 2015-17 period, with cheese exports dipping slightly in 2015 before making a major leap in 2016. Again not coincidentally, US cheese exports fell another 67 million pounds in 2016, to about 630 million pounds, their lowest level since 2012.

The 2017-2020 period for US dairy trade was characterized by, among other things, tariff wars breaking out between the US and various other countries for various reasons. Also, the US in early 2017 withdrew from the Trans-Pacific Partnership agreement, which was expected to help boost US cheese and other dairy exports to countries such as Japan and Canada.

US cheese exports did post an impressive increase in 2017, reaching almost 750 million pounds, but then increased only slowly through 2020, when they reached 782 million pounds, still short of the 2014 record. Of course, there was a global pandemic in 2020, which helped contribute to a small decline in cheese exports that year, compared to 2019.

These are just a few of the factors that contributed to the volatility in US cheese exports over the past decade. On top of these issues, there have been factors ranging from exchange rates to supply chain problems contributing to trade volatility and unpredictability.

But US cheese exports have nonetheless grown impressively over the past couple of years, and will likely reach close to a billion pounds this year.
And exports of a billion pounds would help make for some easy statistical comparisons in the futur
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Do Dairy Product Prices Have A Long-Term Ceiling?

The CME cash market price for butter fell below the $3.00-per-pound mark on Monday, Oct. 31, ending a rather remarkable streak of 50 consecutive (business) days in which the butter price was $3.00 or higher, including a record $3.2675 per pound back on Oct. 6.

On top of that, butter became the first, and thus far only, dairy commodity sold on the CME cash markets to post an average monthly price above $3.00 per pound — and it did so twice. Specifically, the CME butter price averaged $3.1483 per pound in September and a record $3.1792 per pound in October.

But in stepping back and looking at the “big picture,” we have to wonder if these record-high butter prices are really that “remarkable,” or if they’re just part of ongoing price volatility and represent the most recent price peak — a peak that isn’t that much higher than the one reached several years ago.

It may be recalled that this isn’t the first time CME butter prices topped $3.00 per pound. The first time was back in 2014, when the CME butter price first reached $3.00 a pound on Sept. 12, hit $3.0600 per pound two days later, and then fell below $3.00 a pound the following Monday, Sept. 29, when it dropped to $2.9600 a pound.

For that entire month of September 2014, the CME butter market averaged a remarkable $2.9740 per pound. That was remarkable both because it was so much higher than the previous record-high monthly average butter price ($2.5913 per pound, set one month earlier) and because it was so much higher than a year earlier (the CME butter price had averaged $1.5244 a pound in September 2013).

The CME butter price topped $3.00 a pound again in 2015, for a total of four CME trading sessions, and reached a record high of $3.1350 a pound on Sept. 25. For the entire month of September 2015, the CME butter price averaged $2.6690 a pound, which not only was well below the previous September’s average but also ended up being well below the average two months later ($2.8779 per pound, in November 2015).

The point of this short history of recent butter price peaks is that the current peak, while impressive in the context of the last couple of years, is somewhat less impressive in the context of the last eight years.
Specifically, the new CME monthly butter price record of $3.1792 per pound is roughly 20.5 cents higher than the previous record, which was set some eight years ago. And the new CME daily butter price record of $3.2675 is 13.25 cents higher than the previous record, set seven years ago.

Meanwhile, CME cash cheese market prices have been above $2.00 per pound for significant periods of time this year. Blocks averaged above $2.00 a pound for five straight months (March-July), while barrels have averaged above $2.00 a pound for seven of the last eight months.

On a daily basis, the block price reached a 2022 high of $2.3975 back on Apr. 18. That was the highest block price since July 28, 2020, when blocks were falling from their record high of $3.00 per pound, which had been reached on July 13 (the block price on July 28, 2020, was $2.4400 per pound). And the barrel price reached a 2022 high of $2.4500 per pound back on May 17-18, which didn’t break the record high of $2.5300 per pound, set in late October of 2020, nor was it as high as the pre-2020 record of $2.4900 per pound, set in September of 2014.

So what’s the point of all these price statistics? It seems like, with the exception of 2020’s pandemic-related extreme block price volatility, there is sort of a “ceiling” on dairy product prices.

Granted, that ceiling is kind of “soft,” because prices do still set records from time to time, but generally speaking, it doesn’t seem like butter is likely to trade above, say, $3.30 a pound, nor are the block and barrel markets going to trade much above $2.50 a pound.

Keep in mind what’s been going on this year in the dairy industry. During the first half of 2022, milk production was down 1.0 percent in the first quarter compared to 2021’s first quarter, and then down 0.5 percent in the second quarter compared to a year earlier.

When was the last time that happened? We had to do some digging to come up with the answer to that question; it was actually in 2004 when milk production fell in both the first quarter (down 0.9 percent) and in the second quarter (down 0.6 percent) of the year.

So what else happened back in 2004? Well, that was the first year in which the CME block price topped $2.00. Specifically, blocks hit $2.0050 a pound on March 19 and eventually reached $2.2000 a pound over a period of about a week and a half in April.

That sort of puts this all in perspective. For all the volatility that the dairy industry has seen this century (and certainly before this century as well), with the exception of the anomaly of 2020’s $3.00 price record, the block price has only risen more than 20 cents above that 2004 record in four years: in November of 2007, when it reached $2.2025 a pound; in 2008, when it reached $2.2850 a pound; in 2014, when it reached $2.36 a pound in February, $2.4225 a pound in April and $2.45 a pound in September; and in September of 2019, when it reached $2.2375 a pound.

So when folks start talking about how, for example, the block price has increased by more than a dollar pound since early 2019 (which is true; the block price was $1.3700 a pound on Jan. 9, 2019), it can be pointed out that the block price peak this year was less than 20 cents higher than its 2004 peak.

Dairy prices seem to have a ceiling, and seldom exceed it
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Consensus On Federal Order Reforms Shouldn’t Be Necessary

The American Farm Bureau Federation convened a Federal Milk Marketing Order Forum in Kansas City, MO, on Oct. 14-16, at which the AFBF was joined by representatives of the National Milk Producers Federation, dairy cooperatives, processors, state dairy associations and dairy farmers from across the US.

The event, Farm Bureau noted, provided a platform for farmers’ voices to be heard while also answering the call from US Ag Secretary Tom Vilsack to bring the dairy producer community together to discuss federal order modernization.

While the event was termed “successful” by Farm Bureau, we have to wonder why such an event had to be held in the first place. Credit Farm Bureau for convening the national gathering, but it seems like Vilsack did the dairy industry no favors by calling on the dairy industry to “get in a room” and work collaboratively to build consensus and find solutions to federal order shortcomings. Vilsack specified that “the only way this works for the industry is to do the hard job of listening to one another,” according to Farm Bureau.

There are at least two major problems with Vilsack’s comments. First, they were made last December, or roughly 10 months ago. That was about three months after the Senate Ag Committee held a hearing focusing on the need to modernize federal orders.

More importantly, Vilsack’s comments were made long after pretty much everybody in the dairy industry had acknowledged the need to reform, or modernize, federal orders, if for no other reason than the massive depooling and Class I pricing issues experienced in 2020.

But under a best-case scenario, USDA will finally convene a federal order hearing sometime in 2023, with any changes stemming from such a proceeding unlikely to take effect until 2024. In a world that’s changing more rapidly than ever before, the snail-like pace of recognizing the need for change in 2020 or earlier but not implementing those changes until 2024 or later is a bit hard to take.

Another problem with Vilsack calling for industry consensus is that such consensus isn’t required before a federal order hearing can be called. That’s according to no less an authority than the US Department of Agriculture itself.

USDA’s Ag Marketing Service posts a handy “brochure” on its federal order website explaining the federal order amendment process. Nowhere in that brochure does it mention any need for industry “consensus.”

Instead, the brochure explains that any producer, handler, or other interested party “may submit a proposal for consideration and request a hearing to establish a new Federal order or amend one or more provisions of an existing Federal order.”

Once USDA receives a proposal, the agency has 30 days to issue an “action plan” to complete the hearing within 120 days, request additional information from proponent(s), or deny a request.

So, for example, USDA back in January of 2009 received petitions from National Milk Producers Federation and International Dairy Foods Association to: end the special treatment of so-called “producer-handlers”, and expand and clarify the regulatory exemption of small distributing plants.

A week after receiving those petitions, USDA announced that it was providing an opportunity for interested parties to submit additional proposals regarding the elimination of the producer-handler provision and the revision of the exempt plant provision. The agency received a number of additional proposals, as well as a fair number of comments opposing the IDFA-NMPF proposal, all by Mar. 16, 2009.

USDA did hold a hearing on those petitions, in May of 2009, then issued a recommended decision in October 2009, a final decision in March 2010 and a final rule in April 2010. That final rule became effective on June 1, 2010, or roughly 16 months after it received the initial petitions from IDFA and NMPF.

That proceeding was, of course, relatively uncomplicated in the world of federal order policy. What the dairy industry is likely looking at with this next national hearing is something even more complex and controversial than the make allowance proceeding, which got underway in September of 2005 with a proposal and hearing request from Agri-Mark, included a reconvened hearing, and finally ended with a final rule that became effective Oct. 1, 2008.

And, technically, that initial proceeding ended up being terminated, and the updated make allowances adopted in 2008 were part of a separate proceeding.

The point of this very brief history is that the process of amending federal orders is mighty complicated, but has been accomplished by USDA before and will be accomplished by USDA again, even without industry consensus prior to a hearing request.

And USDA makes clear how this process works, starting with the agency receiving a proposal, holding a public hearing, issuing a recommended decision, accepting comments and exceptions to that recommended decision, issuing a final decision, and then holding a referendum and implementing the amendments. In any recommended or final decision, USDA outlines the testimony received and then decides the outcome.

USDA already has some consensus on this issue: the entire industry agrees that changes are needed. What’s not needed is further delay while waiting for consensus on what those specific changes should be
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An Unhealthy FDA Proposal On Definition Of ‘Healthy’

The US Food and Drug Administration late last month released a proposed rule that would update the definition for the implied nutrient content claim “healthy,” and frankly, we find the proposal a bit sickening, for a number of reasons.

As reported on our front page two weeks ago, the updated “healthy” criteria emphasize the food groups and subgroups identified in the Dietary Guidelines, 2020-2025, as part of a healthy dietary pattern. This includes dairy, which is certainly good news. Under FDA’s proposed, updated criteria, food products would need to contain a certain amount of a “food group equivalent” from at least one of the recommended food groups or subgroups to be labeled “healthy.”

FDA is also proposing that foods continue to adhere to criteria regarding nutrients to limit to be labeled “healthy.” The agency wants to maintain sodium and saturated fat as nutrients to limit (which are already included in the current criteria), along with adding a limit on added sugars.

So what’s wrong with this proposal? For starters, it continues to single out all saturated fat as unhealthy, despite mounting evidence to the contrary.

Yes, FDA is proposing to increase the saturated fat limit for dairy products. Under the baseline saturated fat limit of 5 percent of the Daily Value, lowfat dairy (such as 1 percent milk) would not meet the criteria for bearing the “healthy” claim. FDA is proposing to revise the saturated fat limit for dairy to 10 percent DV or less of saturated fat per Reference Amount Customarily Consumed to allow lowfat dairy to bear the “healthy” claim, provided the other proposed criteria are met.

But of course that means traditional, full-fat dairy products won’t be able to bear the “healthy” claim, nor will reduced-fat dairy products. This despite the fact that, according to FDA’s own proposed rule, nutrients provided by foods in the dairy food group include calcium, phosphorus, vitamin A, vitamin D, riboflavin, vitamin B12, protein, potassium, zinc, choline, magnesium, and selenium; and the fact that about 90 percent of the US population does not meet dairy recommendations.

Also, regarding the science on saturated fat, the long-held view by the federal government, and many health “experts,” to limit saturated fat intake is simply not supported by recent research. Just to cite one example (and we could cite many), according to a review published two years ago in the Journal of the American College of Cardiology, there is “no robust evidence” that current arbitrary upper limits on saturated fat consumption in the US will prevent cardiovascular disease or reduce mortality.

Related to that point, that same JACC review noted that the healthfulness of fats is not a simple function of their saturated fatty acid content, but rather “is a result of the various components in the food, often referred to as the ‘food matrix’.” Indeed, we are hearing more and more about this “food matrix,” which basically means that food is more than simply the sum of its nutrients.

Perhaps the best way to look at the food matrix, at least when it comes to cheese, was described as follows by Dr. John Lucey and Rebekah McBride, of the Wisconsin Center for Dairy Research, in comments submitted to FDA in an earlier “healthy” comment period: “Perhaps overlooked due to the concerns about saturated fat, science is now finding that the chemistry of cheese, or the cheese matrix, is a unique type of food product and an excellent vessel for important nutrients.”

The science regarding sodium is also evolving, and isn’t quite as straightforward as once thought. The current Dietary Guidelines recommendation for sodium intake is 2,300 milligrams per day, while average intake is 3,393 milligrams per day, according to the most recent Dietary Guidelines.

But recent research indicates that average consumption is well within the range of what would be deemed “healthy.” Again, just to cite one example, a study published in the journal Nutrients last year concluded that current evidence indicates that most people around the world consume a moderate range of dietary sodium (three to five grams per day), that this level of intake is associated with the lowest risk of cardiovascular disease and mortality, and that the risk of adverse health outcomes increases when sodium intake exceeds five grams per day or is below three grams per day.

FDA believes the sodium level of 10 percent DV for a “healthy” claim is appropriate, but it seems like a lot of cheese products would be disallowed under this proposal.

Finally, when it released its proposed rule, FDA also noted that the agency is researching a symbol that manufacturers could use on the front of a package to show that their product meets the definition of the “healthy” claim.

Indeed, back in May, FDA issued a procedural notice on the preliminary consumer research it plans to conduct on symbols that could be used in the future to convey the nutrient content claim “healthy.” The symbol would be a “stylized representation” of the “healthy” nutrient content claim, FDA explained.

So imagine a typical supermarket dairy case a few years from now. Lowfat and fat-free dairy products, such as 1 percent and skim milk and fat-free yogurt, would include this new “healthy” symbol on their principal display panel, while other dairy products, such as the vast majority of cheeses, full-fat yogurts and whole milk, wouldn’t be able to use the symbol.

This would be a bummer for the dairy industry, and a bigger bummer for consumers
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An Impressive Leap In Per Capita Cheese Consumption

Increases in per capita cheese consumption, as the cheese industry has learned in recent years, are not guaranteed. Decreases are rare — they’ve happened just twice this century, most recently in 2020 — but they do occur from time to time.

While it’s kind of easy to take per capita cheese consumption increases for granted, it’s also worth noting that there are consumption increases and then there are consumption increases. The increase in per capita cheese consumption that occurred in 2021 most certainly falls into that latter category.

As reported on our front page this week, per capita cheese consumption in the US last year reached a record high of 39.40 pounds, up more than a pound from 2020 and up 0.81 pound from the previous record high, set in 2019.

There are at least three impressive aspects to these latest per capita consumption statistics. First, the US is inching ever-closer to 40 pounds, which will be an amazing achievement when it occurs (possibly as early as this year). It will mean that per capita cheese consumption has increased by 10 pounds since 2001, when it was 30.05 pounds, and has more than doubled since 1982, when it was 19.90 pounds.

Per capita cheese consumption first reached 10 pounds in 1967, first topped 20 pounds in 1983, and first topped 30 pounds in 2001. Just from this information, we can conclude that per capita cheese consumption is due to top 40 pounds in the next year or two.

These are impressive gains, considering when per capita cheese consumption first reached 10 pounds. According to statistics dating back to 1909, per capita consumption back then was just 3.8 pounds.
Obviously, the consumption milestones are more frequent these days than they were a century ago.

Second, the per capita increase in 2021 was a mighty impressive increase, at almost 1.2 pounds over 2020. To put that in some recent historic perspective, there has been exactly one other year this century in which per capita cheese consumption increased by more than one pound; that was in 2016, when per capita consumption of 36.70 pounds was up 1.31 pounds from 2015.

There is some context to keep in mind with these figures. Among other things, last year’s big jump in per capita cheese consumption followed a rare decline in 2020; thus, while the jump from 2020 was mighty impressive indeed, the increase from 2019 was not quite as impressive, at 0.81 pound.

Also, that big jump in 2016 followed seven consecutive increases in per capita cheese consumption. That was the largest per capita increase in that string of seven straight increases, which makes it all the more impressive.

Third, while there are generally at least a few negatives when the increases in per capita cheese consumption are relatively small, last year’s increases were pretty much across the board. There are a lot of positives here, and we’re hard-pressed to find many negatives.

For example, per capita American-type cheese consumption reached a record 16.06 pounds last year, with both Cheddar and other American-type cheeses setting new record highs.

Per capita Italian-type cheese wasn’t quite as impressive, because, although per capita consumption of the category as a whole and both Mozzarella and other Italian cheeses increased, both Italian-type cheese as a whole and Mozzarella fell short of their record highs, which were set back in 2019.

Despite this relative “flatness,” it’s worth noting that per capita Mozzarella consumption last year was up one pound from 2015, while per capita consumption of Italian cheeses other than Mozzarella has increased by more than one pound since 2002.

Among some other cheese categories, per capita Swiss cheese consumption in 2021 was unchanged from 2020 but down from many previous years, including a 21st century high of 1.24 pounds in 2005; per capita consumption of Hispanic cheese, Muenster and Brick increased just 0.01 pound from 2020, although both Hispanic cheese and Muenster set new records; Cream and Neufchatel consumption reached a new record high of 2.86 pounds; and consumption of other cheeses typically made from cow’s milk reached 1.54 pounds, up 0.20 pound from 2020 and the highest level since 2016’s 1.57 pounds.

Oh, and imported cheese not from cow’s milk reached 0.29 pound, up from 0.25 pound in 2020.

Among “processed” products, total per capita processed cheese consumption was 8.24 pounds last year, up from 6.70 pounds in 2020 and the highest level since 2003’s 8.27 pounds; with per capita process cheese consumption reaching 5.82 pounds, up almost a full pound from 2020; and per capita consumption of cold pack, cheese foods, and other foods and spreads reaching 2.42 pounds, the highest level since 2015’s 2.84 pounds.

All in all, 2021 was a mighty impressive year when it comes to per capita cheese consumption, one of the more impressive years in recent memory.
It’s worth keeping in mind that this new per capita cheese consumption record is occurring at the same time US cheese exports are setting new records.

Meanwhile, there are countless cheese plant expansions and new cheese plants being built around the US these days, with this additional capacity coming online in the next several years. With rising per capita consumption, coupled with growing export sales, it looks like all of this additional cheese will find a market, be it in the US or in foreign markets
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