Growing Demands or Smoke and Mirrors

“I would like to write something about the demand for NY dairy generated by greek yogurt. I want to talk about where the money is going, whether farmers are enjoying a premium for the milk that the make or merely getting the spot price to fill a bigger demand. I assume Fage, Chobani et al getting market price,” says Jason Foscolo a Food Law Attorney from Remsenburg, NY. 

That seems to be a big question lately. After connecting with a representative from Chobani based out of Norwich, NY, I asked how the purchased their milk and if direct marketing was a possibility.

The response was that all of their milk was purchased through Dairy Marketing Services. This milk marketing organization was established in 1999, through an agreement between Dairy Farmers of America, Inc. and Dairylea Cooperative Inc., to ensure that Northeast dairy producers have a superior market and return for their milk. Since its inception, DMS has taken on milk marketing for nearly 2,100 independent producers and 20 regional/local cooperatives from across the Northeast. (Information pulled directly from the DMS website)

DMS is a huge organization, as you can see. They work under the Federal Milk Order for the following maps area that are highlighted in Blue.

According to the Federal Milk Order Boston, Massachusetts is the main hub of activity. Anything outlying beyond Boston, Mass is hit with a price differential. Here in our region, our milk would be pooled into the Binghamton, NY location. According to the differential map, the price difference would be -.55 per hundred weight of milk. A friend located just the other side of Syracuse, NY would see a -.75 differential. To view the PDF file on differentials, please click this link.

The big question is, why the differentials? The differentials are there to ensure that the milk pooler, groups like DMS, still make a profit as milk is shipped off to the highest use or center hub location.

Now, the next questions that arise in this area: With new yogurt manufacturers coming into operation or expanding operations, will milk producers see an increase in payments or premiums?

Back in August, DMS filed for an investigation to have changes made to the Federal Shipping Orders. It was “requested by cooperative handlers who collectively pool more than 50 percent of the milk on the Northeast Order to increase the shipping percentage, under Section 1001.7 (c) (2) of the Order, to “at least 30 percent for the months of September, October, and November of 2011.” Section 1001.7(g) of the Order allows the Market Administrator to adjust the shipping percentages if following an assessment of market conditions, it is determined that such adjustment is necessary to encourage needed shipments or to prevent uneconomic shipments.”*1

Amazingly, the responses shock many milk producers. When we keep reading in the news how the demand for milk due to these yogurt manufacturer’s is increase and their is a shortage of milk to supply to these same plants. The comments and responses are below. Make sure to follow the links for the full investigation documents.

On August 15, 2011, [Erik Rasmussen Market Administrator, for the FEDERAL MILK ORDER No. 1 in the Northeast Marketing Area located in Boston, Massachusetts] received a request from Dairy Marketing Services (DMS), a cooperative handler who pools more than 50 percent of the milk on the Northeast Order, to increase the shipping percentage, under Section 1001.7 (c) (2) of the Order, to “at least 30 percent for the months of September, October, and November of 2011.” 

The petitioners cited seasonally lower milk production, year-over-year declining farm production in the Northeast, manufacturing handlers keeping their milk for their own plants, and growing dairy production demand as factors contributing to the tightness in the milk supply. Section 1001.7(g) of the Order allows the Market Administrator to adjust the shipping percentages if, following an assessment of market conditions, it is determined that such adjustment is necessary to encourage needed shipments or to prevent uneconomic shipments. On August 16, 2011, a notification of the request was sent to pool handlers by the Market Administrator while also inviting comments, input, and data regarding the proposed increase.

Handler Comments
Pool handler HP Hood, LLC. (Hood) was supportive of the request noting that due to drought conditions the Southwestern U.S., a region that traditionally serves as source of additional milk supplies to markets in the Southeastern U.S., will not have extra milk available this fall. As a result, milk marketers in the Southeastern, U.S. will look to milk suppliers in the Northeast as a replacement region for needed milk. In addition, Hood noted slowing milk growth in the Northeast, while at the same time, demand for milk from new or expanded dairy operations within the region has grown dramatically. Hood expressed their concern that fluid plants in the region would be forced to pay “give up” premiums, in additional to the Class I differential and current voluntary premiums, in order to be able to obtain milk volumes necessary to meet school start-up and holiday demand.

Pool handler Byrne Dairy Inc. (Byrne) responded to the request for comments expressing their support for an increase in the required shipping percentages beginning in September. Byrne noted significant uncertainty with respect to both the supply and price of supplemental milk that the firm needs to fully supply their fluid milk customers. Byrne also noted a lack of transparency with respect to the current reporting associations that milk suppliers use to comply with the shipping requirements, questioning if an increase to 30 percent would in fact make more milk available to Class I handlers.

Pool handler Queensboro Farms Products, Inc. (Queensboro) submitted comments in opposition to any increase in the shipping percentages for the months of September, October, and November, 2011. Queensboro noted that in years past when milk supplies were tight, Queensboro would receive calls from Class I plants in August asking for
shipments in September to cover their needs. Queensboro stated they have not received any such calls nor were aware of anyone else receiving requests for Class I milk. Queensboro also was concerned with the extremely short notice of the request, noting that any changes in the Class I percentage would require significant work in sales,
transportation, and logistics.

Cooperative handler Agri-Mark, Inc. (Agri-Mark) responded to the request for comments by stating that they opposed any increase in the minimum shipping percentage for the months of September, October, and November of 2011 at this time. AgriMark stated that the request to increase the shipping percentages was a surprise because the current and anticipated demand for Class I milk in the Northeast does not indicate the need for such action. AgriMark noted that the cooperative’s milk sales to Class I customers were lower in total and individually to most regular customers in July 2011, compared to July 2010. AgriMark noted that the cooperative has not received any requests for spot milk at this time while stating that under a typical year (when no increases in shipping requirement occurred) some requests usually develop by now. It is their conclusion that if anything, demand appears to be less than in the past and not more, noting that they have not heard of any unusual or significant increase in milk needs expected during the September through November period from their customers. 

Cooperative handler Maryland and Virginia Milk Producers Cooperative Association, Inc. (Maryland and Virginia) submitted remarks opposing any increase in the minimum shipping percentages for the months of September, October, and November 2011, at this time. Maryland and Virginia cited Northeast Order statistics that indicate the volume of Class I sales dropped by 8.3 percent while the total milk pooled on the order declined by less than 5 percent. The cooperative also reported that based on their data and through discussions with other milk suppliers, Maryland and Virginia believes that needed shipments are available already, are being provided, and will continue to be provided this autumn without the need to increase the minimum shipping percentage. 

Cooperative handler Upstate Niagara Milk Cooperative, Inc. (Upstate Niagara) submitted remarks opposing the proposed increase in the shipping requirements for the September–November 2011 period, at this time.Upstate Niagara stated that they did not have any indication that a request was going to be submitted and has serious questions as to the possible negative impact from either uneconomic movements of milk or forced depooling if the increase was approved. The cooperative also noted that they have not had any request for additional spot milk from 

Class I handlers recently that would indicate an impending shortage, while also citing order statistics that report recent declines in Class I utilization on the Northeast Order. Upstate Niagara stated the need for more time by handlers in the market to fully consider whether increased shipping requirements are truly needed. 

Non-pool plant Lactalis American Group (Lactalis) submitted comments opposing the proposed increase in the shipping requirements. While noting that Lactalis is a non-pool plant, the volume of milk going to the plant is pooled on the Order by their suppliers. Lactalis noted that any potential interruption in their ability to supply the firm’s plant is a serious concern. Lactalis also noted Order statistics indicating declining Class I sales and was concerned about the suddenness of the potential change. Such short notice could make it very difficult to readjust milk supplies if the change were to be announced one day before the start of a new month. *2

*1 Letter from Marketing Manager to Pool Handles Under the Northeast Division of the Federal Order

*2 Results and Comments of the Investigation

If after reading the direct comments of the milk poolers and handlers, you still think that we will see higher payments for milk due to yogurt manufacturing within the State of NY, I think you are sadly mistaken. If the demand has not increased, no higher payments or premiums will be established for the producer.

“As noted in the comments provided by AgriMark and others, if the shipping percentage were increased without appropriate market demand to utilize added milk supplies that administratively were required to be delivered to Class I handlers, uneconomic movements of milk could occur rather than such movements being prevented.

As it stands, the September 15th release has determined that no adjustments to the Federal Order are needed. That means everything will stay exactly as it has been for milk producers, poolers and consumers alike.

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