Dick Groves
Editor, Cheese Reporter

 

 

 

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Per Capita Cheese Consumption Still Growing, But...

In the highly unpredictable dairy industry, there are a couple of things that have been more or less predictable in recent decades: cheese production will increase every year, and per capita cheese consumption will also increase every year.

True to form, per capita cheese consumption did indeed set yet another new record last year. As reported on our front page last week, per capita cheese consumption in 2019 reached a record high of 38.59 pounds, up 0.34 pound from 2018’s record.

Per capita cheese consumption has now reached a new record high for nine straight years, starting back in 2011, when it reached 33.25 pounds. That alone tells a pretty impressive story: per capita cheese consumption grew by more than five pounds from 2011 to 2019.

To put that in a little recent historical perspective, per capita cheese consumption first topped 30 pounds in 2001, at 30.05 pounds. Thus, it increased by 3.2 pounds from 2001 to 2011, or almost two pounds less than the increase from 2011 to 2019.

Looking at the statistics from USDA’s Economic Research Service, as well as other factors, there are reasons to be both pessimistic and optimistic about per capita cheese consumption growth in the years ahead.

On the pessimistic side, as we noted in our story last week, 2019’s increase in per capita cheese consumption was the smallest rise since 2013. In fact, it was the only increase since 2013 that was under half a pound.

It could be argued that per capita cheese consumption was due for a slowdown; after all, it had increased by just under a pound in 2018, 1.32 pounds in 2016 and almost a pound in 2015, in addition to more than half a pound in 2017. So maybe per capita cheese consumption growth was simply “catching its breath” in 2019.

Or maybe it’s due for a multi-year slowdown. The most recent slowdown in per capita cheese consumption occurred between 2007 and 2010, when per capita consumption reached a record 32.94 pounds and then dropped by more than half a pound in 2008. It wasn’t until 2011 that 2007’s record was broken.

Interestingly, that period included the economic turmoil known as the Great Recession. Here in 2020, the cheese industry is dealing with the coronavirus pandemic and its severe economic fallout, including dramatic drops in food service sales, a key component of overall cheese sales.

Notably, over the April-July period (arguably the worst four months of the pandemic’s economic impact), domestic commercial disappearance of cheese was down more than 40 million pounds from the same period in 2019, indicating a small decline in per capita consumption (since population was higher than in 2019). The last time domestic disappearance of American-type cheese fell was in 2011, while the last time domestic disappearance of other-than-American cheese declined was in 2008.

One other point worth noting: Mozzarella production dropped 4.4 percent in August and was down 0.7 percent in the first eight months of 2020, compared to the same period in 2019. Mozzarella was responsible for over half of last year’s increase in per capita cheese consumption, so if Mozz consumption drops in 2020, it might be difficult for other categories to make up the difference.

At this point it’s probably safe to conclude that an increase in per capita cheese consumption is at least somewhat in doubt for 2020.

On the optimistic side, for starters, it’s just kind of hard to argue with history. Per capita cheese consumption doesn’t increase every year, but it increases almost every year, meaning the odds favor an increase this year.
After all, per capita consumption has only declined once since 1995.

It’s also not all that difficult to look at some specific cheese categories and see opportunities for consumption growth. For example, per capita Cheddar consumption last year, at 10.09 pounds, was down a full pound from just two years earlier.

Frankly, per capita Cheddar consumption hasn’t really grown all that much this century, rising only from 9.87 pounds in 2000 to 10.09 pounds in 2019. Given all the types and styles of Cheddar available these days — from mild to a decade old, in forms ranging from blocks to shreds to sticks — it’s kind of astonishing that Cheddar consumption has been relatively flat for so long. It’s due for a turnaround.

Similarly, while Mozzarella consumption has risen impressively over the last couple of years, consumption of Italian cheeses other than Mozz has declined for two straight years. It seems like an increase in per capita consumption of popular cheeses such as Parmesan, Provolone, Asiago and Ricotta is overdue.

One cheese category that’s almost guaranteed to see a per capita consumption increase this year is Hispanic cheese. Since ERS started tracking per capita Hispanic cheese consumption in 1996 (the same year the National Ag Statistics Service started tracking production), per capita consumption has never declined. It was unchanged twice, but otherwise has risen from 0.25 pound in 1996 and 1997 to 0.93 pound last year. An even one pound seems plausible in 2020.

Add all of this up and the uncertainty due to the pandemic seems to point to a possible decline in per capita cheese consumption this year. But we expect consumption to come roaring back in 2021, possibly even approaching an impressive 40 pounds.

 

Pondering A Possible Dairy Pricing And Policy Commission

Last month, US Reps. Ron Kind (D-WI) and Mike Gallagher (R-WI) introduced legislation to establish a Dairy Pricing and Policy Commission to evaluate the difficulties facing dairy farmers and recommend solutions. While some good ideas could come from this, we’re not convinced that such a Commission is really necessary.

As we reported in our Sept. 18th issue, the proposed Dairy Pricing and Policy Commission would consist of dairy farmers, dairy processors and other industry experts who would provide recommendations on some of the biggest challenges facing the dairy industry today.

Specific areas of focus would include federal milk marketing order reforms; evaluating and identifying challenges and opportunities for new markets for dairy exports; and how to respond to periods of heightened dairy production during low prices by considering better supply chain coordination.

It’s worth noting that this is bipartisan legislation, with one Democrat and one Republican sponsoring the bill. That alone makes this an intriguing piece of legislation, in these hyper-partisan times.

It’s also worth noting that this bipartisan legislation would appear to have absolutely no chance of ever being enacted, for the simple reason that Congress isn’t going to be in session all that much between now and the end of the current congressional session, and it’s hard to imagine that a dairy pricing and policy commission would be a high priority, or even a low priority.

Those points aside, we’re left to ponder the possibility of this proposed new commission, and our thoughts keep returning to the Dairy Industry Advisory Committee established by the US Department of Agriculture back in August 2009 to review the issues of farm milk price volatility and dairy farmer profitability. That Committee finished its work in March 2011.

The Dairy Industry Advisory Committee’s final report included a total of 23 recommendations, and it’s interesting to look back at some of those ideas and see how much has been accomplished in some areas, and how little has been accomplished in other areas.

For example, the DIAC recommended that the elimination of the Dairy Product Price Support Program and the Dairy Export Incentive Program be explored, with the budget savings used to enhance the safety net for dairy producers. The DIAC also recommended that risk management products for dairy farmers be simplified and improved.

That all happened, although it took a little time. The 2014 farm bill terminated both the Dairy Product Price Support Program and the DEIP.

That farm bill also created the Margin Protection Program for Dairy, which provided payments to dairy producers when the difference between the price of milk and the cost of feed (the margin) fell below a certain level. MPP-Dairy proved to be a flawed and unpopular program, and was replaced in the 2018 farm bill by the Dairy Margin Coverage Program.

Meanwhile, USDA’s Risk Management Agency launched a new Dairy Revenue Protection (Dairy-RP) plan that’s intended to provide protection against an unexpected decline in the quarterly revenue from milk sales relative to a guaranteed coverage level.

It’s safe to say that risk management products for dairy farmers have been dramatically improved, if not necessarily simplified, since the DIAC released its final report.

There are several other interesting recommendations in that DIAC report. For example, it was recommended that the secretary of agriculture support programs that enhance value-added market development for dairy farms and dairy products. The 2018 farm bill authorized USDA to establish at least three regional dairy product and business innovation initiatives, and the agency recently awarded $18 million to three such initiatives.

Also, the DIAC recommended that USDA support restriction of dairy descriptors for use on products made from milk. The US Food and Drug Administration did request input on the use of dairy terms on plant-based alternatives, but nothing concrete has happened since the comment period ended.

One DIAC recommendation that hasn’t been dealt with yet called for the secretary of agriculture to review implications of federal milk marketing orders, including, but not limited to, end-product pricing’s impact on milk price volatility and the impact of classified pricing and pooling on processing investment, competition and dairy product innovation. A separate but related recommendation was to explore alternative measures to the current end product pricing system.

Almost a decade after the DIAC finalized its report, the federal order system remains, well, it remains a system desperately in need of a major overhaul. And the push for reforms seems to be intensifying as, among other things, fluid milk sales continue to decline (notably, fluid milk sales last increased in 2009, when the DIAC was established), and massive volumes of milk are being depooled every month due to Class III prices being higher than statistical uniform prices.

The bottom line is that a Dairy Pricing and Policy Commission would probably come up with some good ideas, including the need to reform federal orders. But since pretty much everybody already agrees that federal orders need reforming, perhaps a better idea would be to actually start that reform process, rather than just repeating an unfulfilled recommendation from a decade ago.

 

A Tale Of Two Cheese Companies

Last week’s announcement that France’s Lactalis Group plans to acquire the natural cheese division of Kraft Heinz has prompted some thoughts on the past, present and future of two of the world’s largest and best-known cheese companies.

Just the name of one company, Kraft Heinz, says a little bit about where things stand today. Kraft Heinz was formed back in 2015 when two longstanding food companies, Kraft Foods Group and the H.J. Heinz Company, merged.

While Kraft has been a well-known, and arguably the best-known, brand in the cheese business for over a century — folks over a certain age will remember the company’s old slogan, “America spells cheese K-R-A-F-T — it’s now paired with a company that’s probably most closely associated with ketchup.

In fact, Kraft has been changing and evolving for many decades now, and it’s safe to say the company has generally evolved into a company that’s less dependent on cheese. Yes, it’s made some strategic cheese-related acquisitions over the years; back in 1986, for example, Kraft acquired New York-based Pollio Dairy, and the Polly-O brand is now being acquired by Lactalis.

But Kraft has also been diversifying both its name and its business for many years. Also back in the 1980s, for example, tobacco giant Philip Morris Companies acquired both Kraft and General Foods and combined them into a new entity called Kraft General Foods. General Foods at the time owned a number of well-known food brands, ranging from Oscar Mayer to Cool Whip.

And now Lactalis is planning to acquire several of what it calls “iconic” cheese brands from Kraft, and all the history that goes along with those brands.

But Kraft is hardly going to disappear from the cheese business when this deal is finalized. Indeed, looking back at the initial announcement of the Kraft-Heinz merger, it was noted that the two companies had eight $1-billion-plus brands, including Philadelphia and Velveeta, both of which will continue to be owned by Kraft Heinz.

And these aren’t just the traditional blocks of Philadelpia Cream Cheese and Velveeta. The Kraft Heinz website lists 59 products bearing the Philadelphia brand, ranging from Philadelphia Pumpkin Spice Cream Cheese Spread to Philadelphia Pretzels & Jalapeno Cream Cheese Dip, and 71 products bearing the Velveeta brand, ranging from Velveeta Queso Blanco Cheese Slices to Velveeta Classic American Skillets Nacho Supreme Dinner Kit.

Suffice it to say that Kraft Heinz will continue to buy and sell a whole lot of milk solids in the future, just not necessarily in the same forms as it has in the past.

For its part, Lactalis also has a lengthy history, but not as long as Kraft and also much longer outside the US than in the US.
Lactalis was founded in 1933 in Laval, France, by Andre Besnier (and was known as the Besnier Company until changing its name to Lactalis in 1999). The company didn’t start operations in the US until 1981, when it acquired a cheese plant in Belmont, WI. In 1982, the company (then known as Besnier USA in the US) went national with its Tradition de Belmont brand of Brie and Camembert.

And the rest, as they say, is history. Today, Lactalis owns a portfolio of brands that includes President, Galbani, Parmalat, Stonyfield Organic, siggi’s, Karoun, rondele and Black Diamond. The company operates eight plants in the US, including in Belmont, WI, where it built a new plant in the 1990s to replace its original factory there.

Similar to Kraft, Lactalis has grown over the years both organically and via acquisitions. Pretty much every brand mentioned by Lactalis, with the exception of the President brand, has been acquired by Lactalis over the years. Just to cite a couple of examples: Lactalis acquired the Italian cheese brand Galbani in 2006, and just a couple of years ago acquired the Stonyfield brand.

Lactalis noted that, in the US, the company purchases nearly 3.2 billion pounds of milk annually from US dairy farmers. Following its acquisition of the natural cheese business of Kraft Heinz, it’s safe to say Lactalis will be buying and selling even more US-produced milk solids than is currently the case.

Another way to look at this transaction is by examining how it will impact Rabobank’s annual listing of the Global Dairy Top 20 companies by turnover. In the most recent listing, released just last month, Lactalis ranked second, trailing only Nestle in 2020 dairy turnover.

Considering that the cheese businesses being sold by Kraft Heinz contributed approximately $1.8 billion to the company’s net sales for the 12 months ended June 27, 2020, it’s probably a good bet that Lactalis will replace long-time leader Nestle atop Rabobank’s listing in 2021.

Kraft Heinz, meanwhile, ranked 18th in the latest Rabobank report, down from 14th in 2019. Less than a decade ago, Kraft was in the top 10, but by 2021 the company will likely no longer be in the top 20.

Finally, this transaction marks yet another move by a major foreign company to increase its presence in the US cheese business. From Lactalis and Arla Foods to Saputo and Agropur, foreign companies with relatively short histories in the US are increasing their presence in the US market both by growing organically and by acquiring assets, brands and more.
In other words, there seems to be a lot of international optimism about the future of the US cheese industry.

CA Dairy Producers Appear Better Off With New Federal Order

USDA’s Agricultural Marketing Service recently released its annual “Mailbox Milk Price Report” for December 2019, and that report also included average mailbox prices for all of 2019. From that information, it would appear that California dairy producers are better off under the California federal milk marketing order, at least as far as mailbox prices are concerned, then they were under the old California State Order.

That’s because, under the old California State Order, mailbox milk prices were consistently lower than the average mailbox milk price for all federal order areas.

Indeed, from 2010 through 2017 (the last full year of the California State Order; the California federal order became effective on Nov. 1, 2018), California’s mailbox price was at least $1.00 lower than the average federal order mailbox price. In three of those years (2011, 2012 and 2014), California’s mailbox milk price was more than $2.00 lower than the average federal order mailbox price.

But in 2019, the first full year of the California federal order, California’s mailbox milk price, $17.92 per hundredweight, actually averaged two cents higher than the average for all federal orders, which was $17.90 per hundred.

And so it would appear that California dairy producers are better off now, with a federal order, than they were previously, under the old California State Order. That is, after all, why three dairy cooperatives — California Dairies, Inc., Dairy Farmers of America and Land O’Lakes — petitioned USDA back on February of 2015 to begin the process of establishing a new California federal order.

In their petition, the co-ops noted that the “primary cause of disorderly marketing conditions” in California lies in the state’s Class 4b pricing formula, which “uses a very different approach” to valuing whey as part of the price than the federal order Class III pricing formula. The resulting difference between the two prices “ranges from significant to extraordinary.”

And that difference explained, in large part, why California mailbox milk prices were always lower than federal order mailbox milk prices. Keep in mind that Class III/4b utilization was pretty similar in federal orders and California; in 2017, for example, federal order Class III utilization was about 41.3 percent, while California’s Class 4b utilization was 46.2 percent.

Thus, with almost half of all California milk being used to make cheese, and whey products, any difference between the Class 4b price and the Class III price was going to have a major impact on average mailbox milk prices.

As the co-ops noted in their petition, a dairy farm operator with two facilities, one in California and one in a federal order area, “would have experienced two vastly different regulatory minimum prices for milk used to produce similar cheese and whey products.” On average, this difference would be $1.84 per hundred lower for milk from the California dairy than milk from the dairy operating in a federal order for the period August 2012 through December 2014.

In the two full years covered by that period (2013 and 2014), the federal order mailbox milk price averaged $1.80 and $2.21 per hundredweight higher, respectively, than the California mailbox milk price.

And now that California is part of the federal order system, that difference has been wiped out. California’s mailbox milk prices are roughly equal to federal order mailbox milk prices, after years of being considerably below those prices.

There is one caveat to keep in mind here: mailbox milk prices reported by USDA are only for milk that’s actually pooled on a federal order.
And in 2019, as noted in this space a couple of weeks ago, some 16.7 billion pounds of milk was depooled from the California federal order.

Given that the volume of milk pooled in Class III on the California federal order exceeded 1.2 billion pounds in four of the first six months of 2019 but was under 350 pounds in each of the last six months of the year, and under 100 million pounds in each of the last three months, it’s safe to conclude that the majority of the milk depooled in California last year was Class III milk.

The flip side of that is that the volume of milk pooled in Class IV on the California order last year was above 1.0 billion pounds eight out of 12 months and under 500 million pounds in the other four months (those four months were the same as the four months in which more than 1.2 billion pounds of California milk was pooled in Class III).

California cheese makers weren’t the only ones depooling milk in 2019. Nationally, the volume of milk pooled in Class III last year ranged from a high of 7.7 billion pounds in March to a low of 2.4 billion pounds in November.

The Class III price last year was $15.04 per hundred in March and $20.45 per hundred in November, meaning that considerably larger volumes of milk were depooled when the Class III price was at its highest level of the year than when it was below what turned out to be the average for the year.

Depending on what cheese makers were paying for that milk, it’s at least possible that prices for depooled milk were lower than prices for pooled milk. And that in turn would have lowered the average mailbox milk price for all federal orders.

Under the California federal order, mailbox milk prices in the state are roughly the same as average mailbox prices for all federal orders. But massive depooling of Class III milk makes comparisons complicated.

 

Consumers Are Certainly Enjoying Milkfat These Days

USDA’s Economic Research Service last Friday released its annual statistics on the supply and utilization of all dairy products on a milkfat, milk-equivalent basis, and from these figures we can conclude, among other things, that consumers are increasingly enjoying their milkfat these days.

Specifically, per capita consumption of all dairy products on a milkfat, milk-equivalent basis reached 653 pounds last year, up seven pounds from 2018 and up 48 pounds from 2010.

These per capita consumption statistics tell a mighty interesting story of how consumers have been turning, or more accurately turning back, to milkfat in recent years. Historically speaking, per capita consumption on a milkfat basis was under 600 pounds for a number of years, specifically from 1967 through the first several years of the 21st century.

Looking back at that period, per capita consumption on a milkfat basis reached a low of 539 pounds in 1975, and was more than 100 pounds below 2019’s level every year between 1974 (535 pounds) and 1981 (541 pounds).

It hasn’t been that low since then, but the climb out of that “basement” has taken quite some time. In 1999, per capita dairy consumption on a milkfat basis stood at 584 pounds, up just 20 pounds from 1970.

There were some notable increases in per capita consumption on a milkfat during several years in the 1980s, including a peak of 601 pounds in 1987, when the federal government gave away over 400 million pounds of cheese and 67 million pounds of butter from its inventory of surplus dairy products.

The anomaly of that year can be illustrated by the fact that, after 1987, per capita consumption on a milkfat basis didn’t reach 600 pounds again until 2005. Indeed, in the 1990s, it dipped as low as it was in 1970 once (in 1991), and below its 1970 level twice (562 pounds in 1992 and 563 pounds in 1996).

Once per capita consumption on a milkfat basis reached 604 pounds in 2005, it hasn’t fallen back below 600 pounds. However, consumption didn’t actually grow all that much for almost a decade: after climbing to 613 pounds in both 2006 and 2007, it fell back to 604 pounds by 2011, and was still 608 pounds in 2013.

But consumption took off after that, reaching 646 pounds in 2016, holding steady for a couple of years after that, and then rising to 653 pounds last year.

So what’s behind this increase in per capita consumption of dairy products on a milkfat, milk-equivalent basis? At least three product categories come to mind, and these three categories happen to be the three largest users of milkfat, according to ERS statistics.

First of all, there’s cheese, per capita consumption of which reached a record 38.3 pounds last year. Over 40 percent of the US milkfat supply (which ERS defines as the milkfat of domestic milk production plus the milkfat of imported dairy products assumed to be used as ingredients in domestically produced dairy products) goes into cheese products, so the steady rise in per capita cheese consumption has undoubtedly helped boost overall per capita consumption on a milkfat basis.

The other two key products in this milkfat consumption increase are butter and fluid milk, although it’s worth noting that more of the milkfat supply is used in cheese than in fluid milk and butter combined.
Interestingly, the importance of butter and fluid milk in overall per capita milkfat consumption has changed since the turn of the century.

Specifically, back in 2000, slightly more of the US milkfat supply was used in fluid milk products (about 1.1 billion pounds) than was used in butter (1.0 billion pounds). That was still the case as recently as 2006 (1.069 billion pounds of milkfat was used in fluid milk products, while 1.066 billion pounds was used in butter).

But since then, butter has used more milkfat than has fluid milk. That gap in milkfat use grew from 182 million pounds in 2007 to 538 million pounds in 2018. And the gap grew in large part because per capita butter consumption increased from 4.7 pounds in 2008 to 6.2 pounds last year.

Meanwhile, fluid milk has been floundering for many, many years, and so fluid milk’s use of milkfat isn’t as significant as it used to be. Specifically, less than 1 billion pounds of milkfat has been used in fluid milk products every year since 2011.

However, there has been a slight rebound in milkfat use in fluid milk products in recent years, thanks to the recent rise in whole milk sales. The volume of milkfat used in fluid milk products bottomed out in 2014 at 956 million pounds, but rebounded to more than 980 pounds each year from 2016 to 2018 (2019 figures aren’t available yet).

As positive as these recent increases in milkfat consumption are, the dairy industry still has a ways to go to get per capita dairy consumption on a milkfat basis back to where it was up until about the mid-1950s. ERS figures show that per capita consumption first topped 800 pounds in 1925, was last above 800 pounds in 1944, and was above 700 pounds as recently as 1956.

Cheese wasn’t the key contributor to those lofty consumption heights, with per capita consumption reaching a record eight pounds in 1956. Instead, it was butter, per capita consumption of which was 9.0 pounds in 1956, and fluid milk, per capita consumption of which was 322 pounds that year (92 percent of which was whole milk).

Consumers love milkfat, but not as much as they used to.

 

Fluid Milk’s Decline Should Prompt Federal Order Reforms

As if record negative producer price differentials and massive depooling aren’t enough, some recently released figures regarding fluid milk should certainly help push the dairy industry to pursue major reforms of the federal milk marketing order system.

First, as reported on our front page last week, while the volume of milk pooled on federal orders reached a record high of 156.5 billion pounds in 2019, the percentage of that milk used as Class I reached a record low of 28.0 percent. This information was reported in the annual USDA-AMS report, Measures of Growth in Federal Orders.

That report provides data dating back to 1947, so it helps put into perspective just how much the federal order program has changed over the years, as far as Class I utilization is concerned. There are a couple of ways to look at this.

One of those ways is with Class I utilization which, as noted above, reached a new low of 28.0 last year. Historically, Class I utilization was above 50 percent every year from 1947 through 1979, and was still above 40 percent through 1999, when it was 43.3 percent.

That’s important to keep in mind, because the last time the federal order program was significantly reformed was in the late 1990s. That reform was mandated by the 1996 farm bill, and included a proposed rule released in early 1998 (Class I utilization was 45.3 percent in 1998) and a final rule released in the spring of 1999.

Since then, with a couple of exceptions in 2003 and 2004 due to large volumes of milk being depooled (as well as the old Western order being terminated in 2004), Class I utilization has declined steadily. In 2013, for the first time ever, less than one-third of all milk pooled under federal orders was used in Class I. And in both 2018 and 2019, Class I utilization fell below 30 percent.

And 2019’s Class I utilization percentage would have been considerably lower had it not been for large volumes of milk being depooled.

For starters, California’s 2019 milk production totaled 40.5 billion pounds, of which 23.8 billion pounds was marketed under federal orders. Thus, 16.7 billion pounds of California milk was depooled last year, none of which was Class I. If just that volume of milk is added to the total federal order receipts of producer milk, Class I use drops to just over 25 percent.

But California was far from the only state that depooled large volumes of milk last year. According to the Measures of Growth report, excluding Idaho, milk production in the remaining top 10 milk-producing states in 2019 totaled 145.7 billion pounds, while the volume of milk pooled under federal orders by these nine states totaled 97.4 billion pounds.

So if that difference of 48.3 billion pounds is added to the 2019 federal order producer milk receipts of 156.5 billion pounds, total milk receipts reach almost 205 billion pounds, and Class I utilization drops to 21.4 percent. That’s less than half the Class I utilization percentages in 1998 and 1999, when federal order reforms were being finalized.

Second, as reported on our front page this week, fluid (beverage) milk sales last year totaled 46.4 billion pounds, their lowest level since 1958, when Class I utilization was 64.1 percent.

Last year was the continuation of a pattern that started back in 2010, when fluid milk sales of 54.9 billion pounds were down 566 million pounds from 2009’s record high of 55.44 billion pounds.

That started a fluid milk sales decline that hasn’t stopped, and in fact has accelerated in some years. Specifically, in 2013, 2014, 2017 and 2018, fluid milk sales declined by more than 1 billion pounds.

The point of these fluid milk sales figures is to illustrate that it’s difficult if not impossible to see how the volume of milk in Class I will increase in the near, or not-so-near, future (although the Class I utilization percentage probably will, thanks to massive volumes of milk being depooled).

Of course, the coronavirus pandemic is upending pretty much everything here in 2020, so maybe we’ll see an uptick in fluid milk sales this year.

We’ll also likely see an increase in the Class I utilization percentage here in 2020, due to all the milk being depooled. Class I utilization was 36 percent in June and 35 percent in July, and averaged 30 percent for the first seven months of 2020.

Still, long-term trends definitely point to smaller volumes and percentages of milk being used in Class I, and larger volumes and percentages being used in other classes.

One other way to look at this: US milk production last year totaled 218.4 billion pounds, meaning that, for the entire US, fluid milk utilization was around 21.2 percent. Meanwhile, the US Dairy Export Council in 2017 announced the “Next 5%” plan to increase the volume of US dairy exports from the equivalent of 15 percent of US milk solids to 20 percent.

In other words, given current trends and future prospects, it seems like the export market will become more important than the fluid milk market, from a commercial use perspective if not a financial perspective, in the near future.

Unfortunately, under the current federal order system, fluid milk continues to be treated as, well, as a first-class product, while products such as cheese, which are posting regular gains in both domestic and global markets, are treated as lower-class products.

Time marches on, but the federal order system remains mired in a past in which fluid milk reigned supreme. Those days are over, and that demands federal order reforms.

 

More Observations On Some Of Dairy’s Competitors

One of the many noteworthy things about all of the companies trying to grab a piece of the dairy market with their non-dairy alternatives is that they generate plenty to think about (and write about). Such is the case with a couple of recent introductions in the non-dairy “dairy” space.

First, a new company called The Urgent Company has introduced Brave Robot, a frozen dessert made using animal-free whey protein from Perfect Day. When you visit Brave Robot’s website, you’re welcomed with a friendly greeting: “We’re an animal-free, vegan, lactose-free, made with plants, dairy ice cream.”

Except that, well, they’re not. Interestingly, while Brave Robot’s website refers to “ice cream” right away, the company’s packages don’t actually include the words “ice cream,” at least not on the principal display panel.

That’s probably a good thing for The Urgent Company, since a quick reading of the ingredient statement of the Vanilla flavor indicates that the leading ingredients are water, sugar, coconut oil, sunflower oil and non-animal whey protein.

By comparison, under its federal standard of identity, ice cream is defined as a food produced by freezing, while stirring, a pasteurized mix consisting of one or more “optional dairy ingredients,” which include cream and a lot of other “dairy” ingredients, ranging from butter and butteroil to skim milk in concentrated or dried form.

Also, ice cream is supposed to contain not less than 10 percent milkfat. As noted above, the fat in Brave Robot’s Vanilla product comes from coconut oil and sunflower oil.

But while The Urgent Company doesn’t call its Brave Robot products “ice cream” on the principal display panel, it certainly refers to the products as “ice cream” throughout its website. For example, here’s what the company has to say about its Vanilla product: “For this delicious flavor we wanted to try something totally different. Something no one has ever tasted before. Just kidding, it’s vanilla ice cream that tastes like (you guessed it) yummy vanilla ice cream! Because when you’re an animal-free, vegan, lactose-free, better for the planet type of dairy vanilla ice cream you’re already deliciously different enough.”

Here’s another quote from Brave Robot’s website: “Our deliciously smart dairy makes our ice cream deliciously smarter...Brave Robot is made with one-of-a-kind, animal-free whey protein, which means our ice cream isn’t just animal-free, it’s animal-free delicious.”

The positioning of Brave Robot as an ice cream stands in contrast to Dairy Queen, which has been in business since 1940 and, well, has the word “Dairy” right there in its name. Here’s a blurb from Dairy Queen’s website, about its signature product: “Technically, our soft serve does not qualify to be called ice cream. To be categorized as ice cream, the minimum butterfat content must be ten percent, and our soft serve has only five percent butterfat content.”

One other point about The Urgent Company: it describes itself as “a new type of CPG company with a singular focus on the next generation of natural foods...” (emphasis added).

We could fill up an entire column debating what exactly a “natural” food is, and indeed FDA has yet to officially define the term when it’s used on food labels (The Urgent Company doesn’t appear to be using the term on Brave Robot’s labels, only in describing itself in a news release).

But we’re not sure consumers would consider Brave Robot to be a “natural” food, given that it contains whey protein that doesn’t come from an animal. We shall see how consumers react to this and other “natural” products from The Urgent Company.

Meanwhile, British Columbia-based Daiya, which describes itself as a “pioneer of delicious plant-based foods,” earlier this month announced that more of its foods are now available to new audiences in the US.

Among these products: Cutting Board Cheeze Shreds, which Daiya said is now made with chickpea protein and “features the melt and stretch of dairy cheese.” These shreds are available in four varieties, including Cheddar Style, Mozzarella Style, Pepperjack Style and a new Cheddar & Mozzarella Style Blend.

Daiya also offers Daiya Veggie Crust Pizzas, which are topped with “new-to-the-category ingredients, including feta-style and parmesan-style cheezes and the new Cutting Board Cheeze Shreds,” the company noted.
And the company offers a variety of frozen dessert products, including Non-Dairy Frozen Dessert Bars and products that are simply referred to as “Pints” on its website.

And so the competition to grab market share from the dairy industry continues. On the one hand, the dairy industry should be flattered that its non-dairy competitors think so highly of it. They tout the fact that their cheeses feature “the melt and stretch of dairy cheese,” or that their “vanilla ice cream” tastes like “yummy vanilla ice cream.”

On the other hand, the labeling and marketing of these products is kind of the “wild, wild West” in the food marketing arena. That’s due in part to the fact that the labeling of these products is technically regulated by FDA, but not really enforced by FDA. It’s also due in part to how these products are presented on company websites and elsewhere, such as in news releases.

A “level playing field” in this battle between dairy products and non-dairy alternatives should include enforcement of current standards of identity, and closer scrutiny of marketing claims.

 

US, EU Differ Greatly On Genericness Of Cheese Names

The US Patent and Trademark Office recently rejected an effort by French and Swiss Gruyere associations to trademark the term “gruyere” in the US. In so doing, the USPTO reminded us that, when it comes to the genericness of cheese names, the US and the European Union are far, far apart.

As reported on our front page two weeks ago, the USPTO’s Trademark Trial and Appeal Board concluded that purchasers and consumers of cheese understand the term “gruyere” as a designation that primarily refers to a category within the genus of cheese “that can come from anywhere,” and sustained the opposition to the registration of the gruyere trademark “on the ground of genericness.”

This decision differs considerably from decisions handed down by EU entities when it comes to determining the genericness of a cheese name.
For example, the TTAB noted that there is a US Food and Drug Administration standard of identity for “gruyere cheese” which identifies the ingredients and the production standards for any cheese labeled as a “gruyere cheese” but does not limit the cheese to a particular geographic source.

By contrast, the European Commission last October granted Denmark protected geographical indication (GI) status for Havarti, despite the fact that there is a Codex Alimentarius standard for Havarti that dates back to 1966. And that Codex doesn’t specify that Havarti has to be produced in Denmark; it only states that the “country of origin (which means the country of manufacture, not the country in which the name originated) shall be declared.”

But the European Commission concluded that having a specific Codex standard, as well as an inclusion of Havarti in Annex B to the Stresa Convention “does not imply that the said name has become generic.”

In approving Denmark’s GI for Havarti, the European Commission also concluded that data submitted concerning the production and marketing of “Havarti” outside the EU aren’t relevant. But it was considered relevant in the TTAB’s ruling.

The record in the gruyere case demonstrates that cheese identified as “gruyere” is made in many locations in addition to Switzerland and France, including Germany, Austria and the US, the TTAB noted. It further pointed out that those knowledgeable of the World Championship Cheese Contest “will know that non-Swiss and non-French producers of cheese (along with Swiss or French producers) are listed as winners in ‘gruyere’ categories for each year for which there is evidence.”

In the US, Emmi Roth (and its predecessor company Roth Kase) has been the largest producer of cheese labeled as “gruyere” for many years, the TTAB stated. Emmi Roth in 2012 ceased labeling its US-produced cheese with the term “gruyere,” but didn’t cease the production and sale of the cheese itself. Emmi Roth indicated in this TTAB case that it continues to produce millions of pounds per year of “Domestic Private-Label branded Gruyere.”

In addition to Emmi Roth and other producers of cheese labeled as
“gruyere” in the US, there are non-Swiss and non-French foreign producers of cheese labeled as “gruyere” that’s sourced in Austria and Germany and sold in the US, the TTAB continued.

And while the Swiss and French Gruyere associations “may have had some success” in getting certain retailers to stop using the term “gruyere” in connection with labels for cheese not sourced in Switzerland or France, “there is ample evidence that many others exist and continue to sell non-Swiss and non-French cheese labeled as ‘gruyere’ in the United States,” the TTAB stated. “The fact that some have changed the names of their products or removed the term ‘gruyere’ from marketing materials or a webpage fails to persuade us that the public in the United States would not primarily understand ‘gruyere’ to refer to a type of cheese regardless of its country of origin or any particular certification standards.”

Certainly the same could be said for Havarti, production of which totaled 43.2 million pounds last year in Wisconsin alone.

And the same could also be said for Parmesan cheese. The European Commission contends that “Parmesan” is a translation borrowed from the French for “Parmigiano Reggiano.” According to the Commission,
“Parmesan” and “Parmigiano Reggiano” are synonymous, and so the use of the designation “Parmesan” is reserved exclusively to producers in the specific Italian region who produce cheese according to a mandatory specification.

Given that US production of Parmesan totaled over 400 million pounds last year, it’s probably safe to conclude that US consumers understand that “Parmesan” refers to a type of cheese regardless of its country of origin or any particular certification standards. It’s also worth remembering that Parmesan, like Gruyere, has an FDA standard of identity.

But Parmesan doesn’t have a Codex standard. Such a standard was debated in the early years of the 21st century and, at its sixth session held in 2004, the majority of the Codex Committee on Milk and Milk Products was of the opinion that the name “Parmesan” is and has been generic for quite some time. But reference to EU legislation prevented a decision on the establishment of a global standard for Parmesan cheese by the CCMMP.

What this boils down to is that the US and the EU have different ways to determine the genericness of cheese names. And both ways are driven by economic
.

 

Cheese Exports, Imports Trending In Opposite Directions, But...

Every so often, certain statistics can sort of jump off a page, or a computer screen, and prompt a bit of surprise, and a fair amount of contemplation. Such was the case with US cheese trade data for June.

As reported on our front page last week, cheese exports during June totaled 84.5 million pounds, up an impressive 29 percent from June 2019 and, even more impressive, the most cheese ever exported by the US in a single month.

In fact, cheese exports during the months of May (78.3 million pounds) and June rank third and first all-time for monthly cheese exports; ranking second is March of 2014, at 79.6 million pounds. In between March of 2014 and June of 2020, cheese exports reached a low of 46.5 million pounds in April of 2016.

And, to put this in a 21st century context, back in the year 2000, it took the US a total of 10 months to export as much cheese (or a little more, actually, at 85.6 million pounds) as it did just in June of 2020 (cheese exports for all of 2000 totaled 105.1 million pounds).

US cheese imports are trending in the opposite direction. During June, cheese imports totaled 23.9 million pounds, down 18 percent from June 2019 and the lowest monthly volume for US cheese imports since February of 2014, when imports totaled 21.2 million pounds. After that low, monthly cheese imports reached a high of 46.3 million pounds in December 2016.

Again putting this in a 21st century context, monthly cheese imports peaked in November 2001, at 52.1 million pounds, and fell below 20 million pounds only three times (January, February and April of 2010).
Annual cheese imports peaked at 474.6 million pounds, in 2002. Cheese imports this year are on pace to be under 400 million pounds for the third consecutive year.

These statistics for the month of June lead to a question of how long these trends can be expected to last. The answers would appear to vary for exports and imports.

On the export side, it’s unlikely that the US will continue to export around 80 million pounds of cheese every month, for the simple reason that US cheese hasn’t been competitively priced for the past couple of months.

Keep in mind that the cheese exported from the US in June wasn’t produced that month, when the CME cash market price for 40-pound Cheddar blocks averaged about $2.56 per pound. Rather, as the US Dairy Export Council noted, much of the cheese exported in June represents deals booked in April and May when US cheese prices were at historic lows.

That helps explain why, while cheese export volume was up 29 percent in June, compared to June 2019, the value of those exports was up just 16 percent, and amounted to about $1.77 per pound.

So how will US cheese exports fare for the remainder of 2020? Perhaps the best way to predict the future is to look at the past. While cheese exports surged in May and June, aided by low prices, cheese exports during the first half of 2020 were up only 0.6 percent from the first half of 2019.

It would seem logical to expect cheese exports to take a dip in July, and probably a bigger dip in August and September, due to the record-high US cheese prices in June and July.

But here in the first half of August, cheese prices are dropping precipitously, meaning overseas buyers might find US cheese to be a better bargain than it has been for the past couple of months.

Cheese imports are perhaps a bit more complicated to predict, because of the ongoing trade wars, coupled with an upcoming presidential election, among many other factors, including the value of the dollar.

Last October, the US started applying 25 percent tariffs on cheese and other dairy imports from the European Union, as part of the longstanding (and seemingly never-ending) dispute over Airbus subsidies. Those tariffs, which went into effect on Oct. 18, 2019, have had two different impacts on US cheese imports, thus far.

First, US imports of cheese from the EU surged for a couple of months before the tariffs were actually imposed (they were initially proposed in April 2019, with the process playing out over the next six months).

Specifically, US cheese imports from the EU in August, September and October 2019 were the highest on record for those months (according to USDA figures dating back to 1989).

Second, US imports of cheese from the EU have dropped since last October. November imports were the lowest for that month since 2009, and December imports were the lowest for that month since 1990.

That pattern has continued into 2020. During the first half of this year, US cheese imports from the EU were at their lowest level since 2014 (USDA’s statistics for the EU include the United Kingdom, which left the EU earlier this year, as well as the 27 countries that remain members of the EU).

Notably, US cheese imports from the EU in February set a new record high for that month. Since then, March, April and May cheese imports from the EU were at their lowest levels since 2012, and June imports were at their lowest level since 1997.

In the months ahead, those 25 percent tariffs could remain in place, be increased up to 100 percent, or be terminated. And that makes predicting future cheese import levels more difficult.

US cheese exports and imports are trending in different directions today, but that could change, or not change, in the very near future.

This Internet Sales Platform Seems To Have Some Potential

An item in the “From Our Archives” column in last week’s issue prompted some thoughts about how internet cheese sales have grown from basically nothing 25 years ago to at least half a billion dollars this year, and growing like crazy.

In preparing that story 25 years ago, we were able to find a grand total of three cheese companies with “home pages” that were selling cheese online. There are at least a couple of things to remember about what things were like online way back then.

For one thing, you couldn’t just go online and Google “cheese companies” or something like that. That’s because Google wasn’t founded until 1998. Yahoo was around by then, having been founded in 1994, but frankly we hadn’t heard of it at the time that 1995 story was written.

As we recall, the search engine we used to track down cheese companies on the internet 25 years ago was something called WebCrawler. Today, WebCrawler is described by Wikipedia as the oldest surviving search engine on the web, as well as the first web search engine to provide full text search. Webcrawler was launched in April of 1994.

Another thing to remember about the internet of 25 years ago is that there was no such thing back then as “high-speed” internet (or if there was, we didn’t know about it, and/or it wasn’t yet available in our area). Our internet access (or “web portal”) came via America Online, and it was dial-up service (via a phone line); that is, it was very, very slow. Painstakingly slow.

Speaking of America Online, about four months before that 1995 internet cheese sales story ran, we announced that readers could now contact us via the “Information Superhighway,” at our new email address: CheesReprt@aol.com. We informed readers that anyone with access to the internet, “whether through America Online, Prodigy, CompuServe or any other service” could reach us via our new email address (which, of course, has long since been “retired”).

As a sign of how much things have changed over the past 25 years, both America Online (which has been known simply as AOL for years) and Yahoo are now owned by Verizon Communications, which itself is only 20 years old, having been formed in 2000 by Bell Atlantic Corp. and GTE Corp., in one of the largest mergers in US business history (at least up until then).

While much has changed over the past quarter-century, at least one thing hasn’t. We’re happy to report that all three cheese companies featured in that 1995 story — Kutter’s Cheese in Corfu, NY; Williams Cheese in Linwood, MI; and Sugarbush Farm in Woodstock, VT — are still in business, and still selling cheese online.

Other than that, well, the business of selling cheese online has definitely changed, and grown considerably, over the past 25 years. Last November, Dairy Farmers of Wisconsin noted that online cheese sales are “experiencing major growth,” and that, by the end of 2019, IRI data shows that e-commerce sales would “surge past $440 million.” The headline on DFW’s press release projected that online cheese sales were set to surpass half a billion dollars in 2020.

That, of course, was before the coronavirus pandemic upended the cheese industry (and pretty much every other industry, for that matter). And the pandemic appears to be taking internet cheese sales to a whole new level.

There are at least a couple of reasons why this is happening. First, and most obviously, consumers are changing their eating and, more importantly, their “out-of-home” habits. That is, not only are they not eating in or ordering from restaurants as frequently as they did six months ago, they aren’t leaving home as much as they did six months ago, either.

But they can still find almost all of their favorite cheeses for sale online.
Second, there are more ways to buy cheese online than ever before. The “original way,” with cheese companies having their own websites and selling their products through their websites, remains intact and widely popular.

But there are also numerous additional ways, and websites, to buy cheese online these days, including at least one, Victory Cheese, that was created specifically to help cheese makers survive during the pandemic.

Despite the tremendous growth and potential of online cheese sales, there remain a few obstacles holding back even greater and faster growth.

For one thing, while many of us — including those of us who suffered with dial-up internet for at least a few years — take high-speed internet access for granted, millions of consumers still lack access to high-speed internet.

Second, packaging remains a huge problem with cheese purchased online. If a consumer goes into a store and buys five packages of cheese, the packaging usually consists only of the packaging for those products.

But if a consumer buys five packages of cheese online, the packaging not only consists of the packaging for those five products, but also some sort of special container and ice packs to keep the cheese cold, plus a cardboard box.

Not exactly the best way to sell cheese when sustainability is a growing consumer concern.

Finally, online security is a growing and never-ending concern. It was mentioned as an obstacle to online cheese sales 25 years ago, and remains a concern today.

This internet thing has become a significant source of cheese sales over the past 25 years. Imagine what it will look like in 2045
.

 

Non-Dairy Alternatives On A Roll, But It’s Not All Rosy

You know your industry is on a roll when it starts to attract interest, and more importantly money, from celebrities. Such is the case with dairy alternative company Oatly, which offers a range of oat-based products, such as Oatmilk, Oatly frozen dessert, and Oatgurt.

Earlier this month, the Swedish company announced that it has further bolstered its plant-based movement through an agreement to invest $200 million in equity led by Blackstone Growth. Additional investors in the funding round include Oprah Winfrey, Natalie Portman, and Howard Schultz, the former chairman and CEO of Starbucks.

The injection of capital will fund the company’s overall growth plans, which include expansion in current markets and new production plants in the US, Europe and Asia. Oatly states that its patented original oatmilk created the fast-growing oatmilk category and that the company is a leader in the plant-based food space, with its products available in more than 50,000 locations in 20 countries.

Oatly’s press release announcing the $200 million investment noted that, as part of the company’s mission to reduce the “CO2e” footprint of the food industry by shifting consumers’ consumption choices, the company last year added a carbon footprint label to its products in Europe, so now consumers can consider the carbon footprint of their food choices, just as they do with nutritional content.

Ah, yes, the nutritional content. Every time we read or hear about some new dairy alternative, we have to check the nutritional content, to see how it compares with its real dairy counterpart.

To keep this brief, we’ll just note that Oatly’s Low-Fat Oatmilk contains three grams of protein per one-cup (eight-ounce) serving. Meanwhile, regular lowfat milk contains eight grams of protein per serving, and a product like fairlife’s lowfat milk contains 13 grams of protein per serving.

Notably, the first ingredient in Oatly’s product is “Oatmilk (water, oats),” which doesn’t tell you how much water and oats are used to produce “Oatmilk.” With just three grams of protein per eight-ounce serving, it seems like “Oatmilk” is quite a bit of water and maybe not all that many oats.

Then there’s the cost of Oatly’s products. You can order a six-pack of 32-ounce cartons of the company’s Low-Fat Oatmilk for $32.00, which includes shipping. That will get you 24 servings of a product that contains three grams of protein per serving.

Or, you could buy a gallon of milk, for an average of around $3.25 these days, and get 16 servings of a product that contains eight grams of protein per serving.

Elsewhere on the plant-based food front, we note with interest that the Food Safety Authority of Ireland recently published a report outlining food-based dietary guideline recommendations for children aged one to five. Water and milk are the only drinks recommended for this age group.

Parents and guardians are warned in the FSAI’s guidance against using some beverages, such as almond “milk,” coconut “milk” and rice “milk” as milk substitutes as these are nutritionally inadequate.

Speaking of coconut milk, there was an interesting perspective published in JAMA (the Journal of the American Medical Association) earlier this year that started off as follows: “Clinical trials don’t support the public’s positive perception of coconut oil, a recent systematic review and meta-analysis suggests.”

The study referenced in the JAMA perspective, published in Circulation (an American Heart Association journal), found that, compared with other vegetable oils, coconut oil increases LDL (bad) cholesterol, while offering no improvements to weight, blood glucose, or inflammation markers.

And, as that JAMA perspective added, here’s what the authors of the study published in Circulation stated: “Despite the rising popularity of coconut oil because of its purported health benefits, our results raise concerns about high coconut oil consumption. Coconut oil should not be viewed as healthy oil for cardiovascular disease risk reduction and limiting coconut oil consumption because of its high saturated fat content is warranted.”

Why should the dairy industry care about this? Because there are several companies producing plant-based alternatives that use coconut oil or other derivatives in their products. Among these are Follow Your Heart’s vegan “cheese” products, Good Karma Foods’ sour “cream”, Kite Hill’s Blissful Coconut Milk Yogurts, Kube Ice Cream, Coconut Bliss frozen dessert, and Nutpods creamers.

One other interesting note about coconut oil (or water, or cream, or milk; it’s listed on ingredient statements under several different terms): PETA (People for the Ethical Treatment of Animals) recently announced that Cost Plus World Market has banned Chaokoh coconut milk after the brand’s supplier was implicated in PETA Asia’s first-ever undercover investigation into the use of monkeys in Thailand’s coconut industry. In a press release, PETA said its investigation “reveals that monkeys are chained, confined to cramped cages, and forced to climb trees and pick coconuts in Thailand to be used in products like coconut milk.” Interesting.

The dairy industry continues to face competition from plant-based alternatives, and it’s hard to argue that these products are enjoying a “moment” right now. But as they continue to grow in popularity, they will also undergo more scrutiny, and it’s safe to say that the results of that additional scrutiny won’t be all positive.

Saturated Fat Continues To Be Demonized

The federal government last week posted the 2020 Dietary Guidelines Advisory Committee’s final scientific report and, as reported in a front-page story in last week’s issue, the report doesn’t have much if anything positive to say about saturated fats. This isn’t surprising but, here in 2020, it’s still pretty disappointing, and frustrating.

Indeed, the federal government has spent the last 40-plus years bashing saturated fats. If you go back to the very first edition of the federal government’s Dietary Guidelines for Americans, released in 1980, you’ll find that the third (of seven) recommendations is as follows: avoid too much fat, saturated fat, and cholesterol.

Keeping in mind that the DGAC’s report isn’t actually the newest edition of the Dietary Guidelines for Americans (the US Departments of Agriculture and Health and Human Services will use the scientific advice in the DGAC’s report, along with comments from the public and other federal agencies, to develop the new edition of the DGA), it’s pretty frustrating to see that, when it comes to saturated fat, the government’s perspective doesn’t appear to have changed much if at all over the past four decades.

The DGAC’s report actually has an entire chapter devoted to dietary fats and seafood (kind of a strange pairing). And right away, in the very first sentence of that chapter, it notes that, since its inception in 1980, the Dietary Guidelines “has offered evidence-based recommendations on dietary fats due to their well-documented influence on cardiometabolic disease risk, including weight regulation.”

Somewhat predictably, the DGAC report’s chapter on dietary fats concluded that, based on the “totality” of the scientific evidence, “it remains evident that reducing saturated fat intake and replacing it with unsaturated fats, specifically polyunsaturated fat, reduces the incidence” of cardiovascular disease.

The DGAC’s conclusions about saturated fat came under criticism from both the International Dairy Foods Association and the National Milk Producers Federation.

IDFA said it was “disappointed” that the DGAC’s report didn’t include relevant information on scientific studies which show the benefits of dairy at each fat level, and noted that there is “robust evidence” to support the inclusion of dairy foods at all fat levels in recommended food patterns.

And Jim Mulhern, NMPF’s president and CEO, also said it was disappointing that the DGAC largely reflected long-held assumptions on saturated fat, despite numerous studies that have called traditional anti-fat guidance into question.

Also criticizing the DGAC’s conclusions regarding saturated fat was the Nutrition Coalition, a non-profit group that aims to bring rigorous science to nutrition policy. The Nutrition Coalition said it is concerned about “numerous issues” in the current Dietary Guidelines process, including the exclusion of the last decade of science on saturated fats.

The Nutrition Coalition’s executive director is Nina Teicholz, a science journalist and author of the 2014 book, The Big Fat Surprise, which upends the conventional wisdom about all dietary fats with the claim that more, not less, dietary fat — including saturated fat — is what leads to better health, wellness, and fitness.

Apparently few if any members of the Dietary Guidelines Advisory Committee took the time to read that book.

Meanwhile, the DGAC’s report also discusses dietary cholesterol, which has also become a pretty controversial topic in recent years. The DGAC found “insufficient evidence published since 2010 to determine an independent relationship between dietary cholesterol and blood lipids given the co-occurrence of cholesterol and saturated fat in foods.”
Likewise, “insufficient evidence published since 2010 was available to determine an independent relationship between dietary cholesterol intake” and overall risk of cardiovascular disease.

Despite the lack of evidence, the DGAC concluded that, “because dietary patterns associated with reduced risk of CVD are characterized by lower levels of both saturated fat and dietary cholesterol, it seems prudent to recommend lower intake of foods high in dietary cholesterol as well.”

There are several problems with this conclusion, but we’ll just mention a couple of them here. First, we find it hard to believe that a “scientific report” such as the one prepared by the DGAC would find “insufficient evidence” about dietary cholesterol and CVD but still state that it “seems prudent” to reduce intake of foods that are high in dietary cholesterol.

Second, this conclusion directly contradicts the findings of the 2015 DGAC, which noted that, previously, the Dietary Guidelines for Americans had recommended that cholesterol intake be limited to no more than 300 milligrams per day.

But the 2015 DGAC stated that it “will not bring forward this recommendation because available evidence shows no appreciable relationship between consumption of dietary and serum cholesterol...” Cholesterol is “not a nutrient of concern for overconsumption.”

So “available evidence” in 2015 has been followed by “insufficient” evidence in 2020? Hmmmm...

The dairy industry can only hope that USDA and HHS get it right on saturated fat and cholesterol when the new edition of the Dietary Guidelines for Americans is released.

But, based on 40 years of experience, we’re not optimistic about that actually happening.

 

Cow-Free ‘Dairy’ Attracting Plenty Of Money

Companies that are seeking to replace traditional dairy products with animal-free products have, at this point, not yet proven themselves in the marketplace, but they appear to have proven themselves in another arena: raising lots and lots of money. Whether this assures their success in the future remains to be seen.

As we reported last week, Perfect Day, which utilizes fermentation in microflora to create proprietary “flora-made” dairy protein, has expanded its Series C funding to $300 million. That includes $50 million from the Canada Pension Plan Investment Board, a professional investment management organization that invests around the world in the best interests of the more than 20 million contributors and beneficiaries of the Canada Pension Plan.

Last month (as we reported in our June 26th issue), Singapore-based biotech company TurtleTree Labs announced that it has raised $3.2 million from global investors in its latest funding round. TurtleTree Labs describes itself as the world’s first cell-based biotechnology company creating real milk from mammalian cells.

So, what conclusions can be drawn from all of this money flowing to companies that are out to replace the dairy industry, or at least reduce the industry’s role in the food business?

For one thing, interest in creating dairy products and dairy ingredients in the lab is international in scope. That’s obvious, given that TurtleTree Labs is based in Singapore, not to mention that the company has, according to the press release announcing that it has raised $3.2 million, the full support of the Singaporean government.

Other global investors participating in TurtleTree’s most recent funding round included Artesian, a full-stack venture capital firm with a portfolio that comprises over 400 investments across Australia, China, South East Asia, South Asia and the Americas; Green Monday Ventures, which is based in Hong Kong; CPT Capital, which is based on London; and KBW Ventures, which was founded by Prince Khaled bin Alwaleed bin Talal Al Saud.

Also, as noted earlier, Perfect Day’s enlarged Series C funding round was led by $50 million from the Canada Pension Plan Investment Board, which invests around the world. And at least one of the companies taking part in the TurtleTree seed round, CPT Capital, has also invested in Perfect Day.

For another thing, these companies and their investors are, well, they’re not exactly fans of animal agriculture, to put it mildly. This can be illustrated in a couple of ways.

Perfect Day, for example, said its “ingenious animal-free protein” can be used across a range of dairy products “to deliver the same taste and texture of dairy with none of the environmental, animal welfare or food safety concerns.” And TurtleTree Labs says its “proprietary cell-based processes of creating clean milk completely bypass the environmental degradation and animal welfare issues of industrial dairy, nourishing individuals and societies and reducing environmental, social, and economic stressors.”

Further, some (most?) of the companies investing in Perfect Day and/or TurtleTree Labs are also investing in companies involved in the dairy and meat alternative businesses. For example, plant-based “milk” brand Califia Farms recently announced that it has completed a $225 million financing in its latest Series D funding round; the investment was led by the Qatar Investment Authority alongside others including Hong Kong-based Green Monday Ventures.

Meanwhile, CPT Capital’s investments include not only Perfect Day and TurtleTree Labs, but also companies such as Kite Hill, whose products include plant-based alternatives to milk, cheese, yogurt and sour cream; and Yofix probiotics, which makes “clean label plant-based dairy alternatives.”

With all of this money and momentum behind them, what’s the future for these companies and their products? That’s impossible to say, but it’s interesting to look at how the companies themselves are viewing their future.

Perfect Day notes that its protein can be used across a range of products, from ice cream and milk to cheese and butter. The company recently teamed up with Bay Area favorite Smitten Ice Cream to create something called Smitten N’Ice Cream, which Perfect Day describes as the “first regionally available, high-quality, fresh-churned ice cream” made in partnership with Perfect Day. It also refers to Smitten as a “vegan and plant-based ice cream.”

Smitten N’Ice Cream’s first five ingredients are water, sugar, coconut oil, sunflower oil and “non-animal whey protein isolate,” so whether or not consumers flock to such a product remains to be seen.

TurtleTree Labs appears to be taking a somewhat different approach. Singapore is a food-deficit country, so TurtleTree Labs’ goal of creating milk from animal cells would “help to strengthen Singapore’s long-term food diversification efforts,” according to Bernice Tay, director, Food Manufacturing Division, Enterprise Singapore.

So while Perfect Day attempts to make inroads in a market that has an abundance (and often an over-abundance) of dairy products as well as most other foods, TurtleTree is based in a country that imports the vast majority of its food products.

Perfect Day, TurtleTree Labs and others will face obstacles ranging from government approvals to consumer acceptance, but the way things look now, they won’t face problems due to a lack of money.

A Wild Ride For The Class III Price

Speaking (as we were just last week in this space) of new dairy industry price records being set during this pandemic-impacted year, the federal order Class III price has also accomplished at least one historic milestone that is worth noting. This is, as with the cash Cheddar block market, something the dairy industry has never seen before and may never see again.

First, some context is needed for putting the Class III price gyrations into historical perspective (thanks to the Upper Midwest market administrator’s office for posting tables listing the history of the Class III price back to 1961). The federal order Class III price has a pretty short history, dating only back to 2000, when federal order reforms went into effect.

Prior to that, federal orders had a Basic Formula Price, and prior to the BFP, which came into effect in 1995, there was the Minnesota-Wisconsin, or M-W, price.

Each of these prices was calculated in a different way, so they aren’t necessarily directly comparable to today’s Class III price and its wild gyrations. But it’s still interesting to look at the history of the M-W and BFP prices in light of what’s happened with the Class III price in recent months.

And there are a couple of noteworthy things that have happened with the Class III price in recent months: a very rare, but not unprecedented, decline over a period of several months, and an unprecedented jump in a single month.

Last November, the Class III price reached $20.45 per hundredweight, the first time it had been above $20.00 per hundred since November 2014. The Class III price then fell to $12.14 per hundred in May, a drop of $8.31 over a six-month period.

Then last week, USDA announced that the Class III price for the month of June was $21.04 per hundred, up an eye-opening $8.90 from May.
Looking back at the almost-60-year history of the Class III price and its predecessors, it’s worth noting that movements of $8.00 or more would have been impossible prior to 1974, for the simple reason that, prior to January of that year, the M-W price had never been above $8.00 per hundred (it reached $8.10 that month).

It is also worth remembering that there was a dairy price support program in operation until 2014. What that program was actually supposed to support was the manufacturing milk price. USDA would support that price by purchasing surplus cheese, butter and nonfat dry milk at specific prices.

So, for example, back in June of 1989, USDA announced that the support price for manufacturing grade milk was going to be reduced from $11.10 to $10.60 per hundredweight, effective July 1, 1989. That was for milk with the US national average milkfat content of 3.67 percent (last year, the US national average milkfat content was 3.92 percent). CCC purchase prices were reduced to $1.1550 per pound for Cheddar blocks, $1.1150 for barrels, $1.2050 per pound for butter and 79.0 cents per pound for nonfat dry milk.

We mention the price support program because that program was intended to provide a floor under milk prices. And so, with a floor price of $10.60 per hundred, as noted above, price movements such as the dairy industry has recently experienced would only have been possible if the M-W was over $18.60 per hundred. And since the support price was never below $9.90 per hundred, the Class III price would have had to rise to almost $18.00 per hundred to experience the type of volatility we’ve seen in recent months.

In fact, the Class III price did finally top $18.00, in April 2004, when it soared to $19.66. That was, at the time, an unprecedented jump of $5.17 from the March 2004 Class III price. And that was also the biggest one-month jump in the Class III price until last month’s increase of $8.90.

The year 2004 also saw one of the largest declines in the Class III price over a short period of time. Specifically, after reaching $19.66 per hundred in April, the Class III price increased in June to $20.58 per hundred (that was the first time ever that the Class III price topped $20.00 per hundred).

Then the price tumbled, to $14.04 per hundred in August of 2004, or $6.54, in a period of just three months.

That drop was nothing compared to what happened from the middle of 2008 until early 2009, when the Class III price plunged from $20.25 per hundred in June 2009 to $9.31 per hundred in February 2009, a drop of $10.94.

The magnitude of that drop is mighty rare in the dairy industry, for a couple of reasons. First, the Class III price doesn’t go above $20.00 per hundredweight all that often; in fact, it has topped that mark in 2004, 2007, 2009, 2011, 2012, 2013, 2014, 2019 and 2020.

And second, the Class III price hasn’t dropped below $10.00 per hundred, or even $12.00 per hundred, very often. Indeed, as dismal as milk prices have been in recent years, May’s Class III price of $12.14 per hundred was the lowest Class III price since September 2009, when it was $12.11.

Interestingly, the Class III price fell under $10.00 per hundred in five different years (2000, 2001, 2002, 2003 and 2009) in the first decade of this century, but hasn’t been under $12.00 per hundred since 2009. It also wasn’t under $10.00 per hundred in the 1990s until the final two months of 1999. And it wasn’t under $10.00 per hundred at all in the 1980s, thanks to the price support program.

The last eight months have seen record and near-record fluctuations in the Class III price, making us wonder what sort of milk price volatility lies ahead.

 

A Remarkable Month For The Block Market

The month of June has come to an end, but it’s safe to say the month will live on for a long, long time in the minds of those who follow the CME cash market price of 40-pound Cheddar blocks. Simply put, there’s never been a month like June for the block market.

There are several ways to put June’s block market activity in perspective. One is the number of new records the block price set, another is the range between old and new records, and yet another is the difference between the new block price record and the old block price record.

The context for all of these is that the block price set a total of seven new records in the month of June, four of those new records broke the previous record by more than five cents, and the new block price record is $2.8100 per pound.

All of these can be put in perspective by looking at new block price records over the past three decades. As the 1990s got underway, the block price record was $1.5450 per pound, which was set in late 1989 (that was still the block price until Jan. 5, 1990).

That block price record actually stood until 1996, when it reached $1.6950 per pound, or 15 cents higher than the previous record. The run-up to $1.6950 included six new record highs: $1.5600, $1.6000, $1.6200, $1.6700, $1.6900 and finally $1.6950 per pound.

Those price records were set over the course of two months ($1.5600 was reached on July 12, and $1.6950 was reached on Sept. 13). It may be recalled that those records were established at the old National Cheese Exchange, where trading took place just once a week.

The industry’s cash cheese market moved to the CME in May 1997, and trading continued to be weekly until September of 1998. When trading switched from weekly to daily, the block price was $1.6575 per pound.

By December of 1998, the block price had reached a new record high of $1.9000 per pound, breaking the previous (1996) record by 20.5 cents.
Along the way, the block price started breaking records on Sept. 11, 1998 (reaching $1.7050 a pound) and set a total of 36 new records during a roughly three-month stretch. Almost half (17) of those new records broke the previous record by just one-quarter of a cent.

That late 1998-early 1999 block price record of $1.9000 per pound lasted less than a year; a new price record of $1.9725 per pound set in August of 1999. The run-up to that price included five new record prices.

In March of 2004, the block price topped $2.00 a pound for the first time, hitting $2.0050 on Mar. 19 and then reaching $2.2000 per pound on Apr. 14, 2004. A new block price record was set 10 times over the course of about five weeks during that period. That included two jumps of 5.0 cents, including the increase to $2.2000 per pound.

Roughly three and a half years later, the block price reached a new record high: $2.2025 per pound. Obviously, that particular “run-up” included just one new record high for the block price.

Less than a year later, in May of 2008, the block price reached a new record high of $2.2850 per pound. The block price actually set four new records that month, and the initial new record of $2.2500 per pound occurred on May 21, when the block price jumped 12.0 cents.

Although the block price moved above the $2.00 mark in 2011, 2012 and 2013, that 2008 record wasn’t broken until 2014. That year, the block market actually had two run-ups to new price records.

The first of those run-ups started in early March, when the block price reached a record high of $2.2925 on Mar. 7, then continued to increase until peaking at $2.4225 on Apr. 3. A total of 14 new block price records were set during that period, with the largest increase being 3.75 cents, both when the price reached $2.4000 and then when the price reached $2.4225 (after falling to $2.3850).

The second run-up of 2014 was more modest. The block price reached a record $2.4500 on Sept. 19, after reaching $2.4100 a couple of days earlier.

And that was it for block price records, until June 2020, when seven new records were set.

Notably, the new price record of $2.8100 per pound is 36 cents above the 2014 record. That marks the first time that the new block price record is more than 30 cents above the previous block price record. There were a couple of instances in which a new block price record was more than 20 cents above the previous record (in 1998 and again in 2004), but the new record has never even been more than 25 cents higher than the previous record, let alone 36 cents.

There have also been instances in which more new block price records were set than was the case in June, but again, the amount by which the new price records were set is unparalleled.

One final note about the new block price records: Since September of 2014, the price record for 500-pound barrels ($2.4900 per pound) was actually higher than the price record for blocks. That’s noteworthy because block prices are historically higher than barrel prices, and in fact between 2014 and 2019 the spread between the annual block and barrel price averages was always more than two cents and reached as high as 12.62 cents (in 2018).

That 2014 barrel price record still stands, so the block-barrel price records are now more correctly aligned.

All in all, the month of June 2020 has left its mark on the block price record book.

Federal Orders Becoming Less Relevant For Cheese Makers

While there are very few predictions that are safe to make in today’s highly unpredictable dairy industry, one that seemed like a pretty sure bet a couple of years ago was that Class III would account for both a growing volume and a growing percentage of milk in the federal milk marketing order system in the future.

But recent trends indicate that both Class III volumes and percentages may never reach their peak of a couple of years ago, or reach the peak that was expected a couple of years ago.

Reaching this conclusion is complicated somewhat by the fact that the California federal order has only been in effect for about a year and a half, but the California order actually helps illustrate why federal orders are becoming less relevant for cheese makers.

As we reported in a front-page story last week, California’s Class III utilization percentage in May was just 2.8 percent, and the volume of milk pooled in Class III on the order totaled just 53.4 million pounds. That was the fourth straight month in which less than 60 million pounds of milk was pooled in Class III on the California order.

To put that in perspective, there are a few statistics to keep in mind. First, Class III volume on the California order reached a record high of 1.42 billion pounds in March 2019, or about 1.36 billion pounds more than in May 2020. Second, back in 2017, the last full year of the California state milk order, the state’s Class 4b (equivalent to the federal order Class III) utilization percentage was 46.2 percent.

And third, California last year produced over 2.5 billion pounds of cheese, or 19.3 percent of the nation’s total cheese output.

If current trends (specifically, the trends over the last four months) continue, less than 1 billion pounds of California milk will be pooled in Class III this year. That’s a pretty significant change just from 2019, the first full year that the California federal order was in effect; that year, about 7.7 billion pounds of California milk was pooled in Class III.

But the California order isn’t the only order that’s seen a large drop in the volume of milk pooled in Class III in recent months. On the Southwest order, during each of the first three months of 2019, over 700 million pounds of milk was pooled in Class III.

In three of the last four months (February, March and May), less than 60 million pounds of milk has been pooled in Class III on the Southwest federal order. Keep in mind that the Southwest order includes both Texas, where milk production has been growing rapidly in recent years, and New Mexico, which produced 956.5 million pounds of cheese last year.

Some other federal orders are also seeing less milk pooled in Class III, albeit to a lesser extent than on the California and Southwest orders. On the Upper Midwest order during the first five months of 2020, a total of 10.06 billion pounds of milk was pooled in Class III. That’s down about 3.5 billion pounds from the first five months of 2019.

Also during the first five months of 2020, compared to the first five months of 2019, the volume of milk pooled in Class III on the Central order was down 886 million pounds, the volume of milk pooled in Class III on the Mideast order was down 145 million pounds and the volume of milk pooled in Class III on the Pacific Northwest order was down 478 million pounds.

So how will this affect federal order utilization percentages as a whole? Back in 2017, the last full year in which there was no California federal order, Class III utilization was 41 percent. As noted earlier, California’s Class 4b utilization that year was 46.2 percent, so had the California federal order been in effect that year and all of California’s Class 4b milk pooled in Class III, Class III utilization would have been about 42 percent.
In 2018, when the California federal order was in effect for the final two months of the year (and an average of almost 1.4 billion pounds of milk was pooled monthly in Class III), Class III utilization was 43.5 percent.

In 2019, when the California federal order was in effect for the entire year, Class III utilization fell to 41 percent. But that was due primarily to very large volumes being depooled during the final four months of the year, when Class III utilization was under 30 percent each month (it had been above 50 percent in four of the first six months of the year; in each of those four months, more than 1.2 billion pounds of milk was pooled in Class III on the California order).

That brings us to 2020, which, at least during the first four months, is seeing higher Class III volumes and utilization percentages than at the end of 2019 but lower Class III volumes and utilization percentages than during the first four months of 2019. Simply using Class III volume during the first four months of 2020 to estimate total Class III volume for the entire year indicates that about 51 billion pounds of milk will be pooled in Class III this year.

That in turn means that maybe 5.1 billion pounds of cheese will be made with milk pooled in Class III. With cheese production likely to reach about 13.2 billion pounds this year, less than 40 percent of US cheese will be made with Class III milk.

Looked at another way, the states of California, Idaho and New Mexico rank second, third and fourth in US cheese production, and pool very little, none, and very little milk in Class III, respectively.

Add in the Class III milk that’s being depooled in other orders, and it becomes clear that federal orders are becoming less relevant for cheese makers.

Auditors, Investigators Likely To Be Busy For Foreseeable Future

While the ongoing coronavirus pandemic continues to reshape pretty much every industry on the planet (and generally not for the better), there’s at least one industry that appears to have a very bright future, at least for the next year or two: the auditing and investigating industry.

This isn’t really an “industry” as such, but those involved in auditing government spending and investigating industry behavior during the pandemic will be mighty busy trying to figure out if everything has been operating as it is supposed to operate.

For starters, there’s USDA’s new, and controversial, Farmers to Families Food Box Program. This program has a pretty short history, having just been announced by US Secretary of Agriculture Sonny Perdue back on Apr. 17 as part of the Coronavirus Food Assistance Program. Under the food box program, USDA is partnering with regional and local distributors to purchase and distribute up to $3 billion in dairy and other products.

The controversy over this program started after USDA, on May 8, approved $1.2 billion in contracts under the Farmers to Families Food Box Program. Contracts were awarded to somewhere around 200 companies located around the US.

Two weeks after USDA announced approved suppliers for the program, three chairs of House Ag Committee subcommittees formally requested information from Perdue on the Food Box Program. In their letter (as reported on the front page of our May 29th issue), the chairs expressed concerns that “contracts were awarded to entities with little to no experience in agriculture or food distribution and with little capacity to meet the obligations of their award.”

Their letter to Perdue requested “thorough responses” to several questions regarding the Food Box Program, including how USDA will ensure awardees are fulfilling the obligations of their contracts.

This promises to be a program with ample opportunities for government oversight, since just the awarding of initial contracts generated some questions. The initial contract period runs through the end of this month, and USDA has elected to extend the period of some contracts, depending on program success and available remaining funds, up to $3 billion.

Less than two weeks after announcing contracts under the Food Box Program, USDA announced details of the Coronavirus Food Assistance Program, which is providing up to $16 billion in direct payments to dairy and other farmers.

Three weeks after that announcement, the chairman of the House Ag Committee, along with three subcommittee chairs, wrote to Perdue expressing concerns over the implementation of the CFAP.

Needless to say, these new USDA programs are raising some interesting questions and concerns. Related to that point, USDA’s Office of Inspector General (OIG) noted back in April that, as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the OIG received $750,000 to provide oversight of USDA funding received in the CARES Act.

That funding will be used to provide oversight of the more than $35.8 billion provided to USDA for relief efforts through the CARES Act as well as the Families First Coronavirus Response Act. As noted above, the OIG outlined its plans back in April, before USDA awarded contracts under the Food Box Program and before the agency announced details of producer payments under CFAP.

Meanwhile, at an open meeting of the Commodity Futures Trading Commission late last month, Heath P. Tarbert, CFTC chairman, noted that, regarding the CFTC’s further response to the coronavirus pandemic, “the agency has continued to monitor closely and prioritize agricultural and energy markets, which have witnessed significant volatility in the wake of the coronavirus pandemic.”

That’s certainly not news to the dairy industry which, as noted in this space just last week, has experienced unprecedented cheese price volatility over the past three months, with the CME cash market price for 40-pound Cheddar blocks varying from a low of $1.00 per pound back in mid-April to a record high of $2.5850 per pound last week.

That CFTC meeting was held on May 28th, the day after the block market first topped $2.00 a pound.

Given this cheese price volatility, is a CFTC investigation warranted?
Maybe, or maybe not. But some historical perspective might be helpful.
Back in early 1992, the University of Wisconsin-Madison and the Wisconsin Department of Agriculture, Trade and Consumer Protection agreed to collaborate on an analysis of cheese pricing and the National Cheese Exchange. That study, which was released in March of 1996, examined the overall trading activity on the NCE from 1974 to 1993 and also included a detailed analysis of the trading of leading sellers and leading buyers during 1988-1993.

During that 1988-93 period, the NCE block price ranged from a low of $1.0850 per pound in October of 1991 to a high of $1.5450 a pound in late 1989. Seems like pretty minor volatility these days.

The coronavirus pandemic has brought about tremendous upheaval, and along with that upheaval has come new legislation, new programs, trillions of dollars of new government spending, unprecedented price volatility and much more. It will, or at least should, also bring about unprecedented oversight of how that money is spent, and how markets have reacted to the pandemic.

Block Price: Record High, Record Volatility, And Some History

The year isn’t even half over yet, but there’s at least one conclusion about 2020 that’s safe to reach: this year will be one for the record books. And that’s just talking about the CME cash market for 40-pound Cheddar blocks.

As reported on our front page last week, the block price set three new record highs last week, including a closing price of $2.5525 per pound last Friday. The previous record high for blocks, $2.4500 per pound, was set back in September of 2014.

It’s also obvious that cheese price volatility is going to shatter some records this year. We mentioned one of those records in this space back in our May 22nd issue: the CME average block price for April, at just over $1.10 per pound, was down more than 65 cents from March’s average price. There’s never before been such a huge drop in the CME average block price from one month to the next.

Also on the price volatility front, the cheese industry has never experienced this type of block market volatility before in a single year, let alone in less than two months. And that price volatility is pretty easy to calculate, given that the block price dropped to an even $1.00 per pound back on April 15th and then reached a record $2.5850 per pound on Monday. That’s a range of $1.5850 per pound in less than two months.

That price range volatility leads us to delve into the history of block prices and block price volatility, because when it comes to the highest price or the greatest volatility in history, it’s worth knowing a bit more about that history.

As it turns out, the “block price” has a history dating back roughly 66 years. That’s the earliest reference that we could find to 40-pound Cheddar blocks at the Wisconsin Cheese Exchange (predecessor to the National Cheese Exchange, which was predecessor to the CME). Those weren’t today’s Cheddar blocks; they were listed (in this newspaper) as “State Brand 40-pound Blocks.”

As we reported in a front-page story on Jan. 7, 1955, sales of cheese on the Wisconsin Cheese Exchange in 1954 totaled 9,333,575 pounds, including sales of Wisconsin grades of Cheddar cheese totaling 8,926,600 pounds; and sales of US grades totaling 406,975 pounds. In 1954, sales included 8,066,500 pounds of Wisconsin grade cheddars, 374,000 pounds of single daisies; 464,100 pounds of longhorns; “and one sale of 40-pound blocks, 550 boxes, 22,000 pounds.”

For what it’s worth, back on July 30, 1954, one car of State Brand 40-pound blocks was sold at 32 cents per pound.

Price volatility wasn’t exactly common back in that era. After “settling” at 32 cents a pound back in mid-1954, the block price didn’t reach 50 cents per pound for another 15 years (when trading still took place at the Wisconsin Cheese Exchange), and then didn’t reach $1.00 per pound until December of 1975 (roughly six months after the Wisconsin Cheese Exchange changed its name to the National Cheese Exchange).

After that, it took almost 14 years for the block price to reach $1.50 per pound. That level was finally reached in September of 1989, and the block price continued to rise, reaching $1.5450 a pound in early November 1989 and remaining there until the first trading session of 1990 (kind of hard to imagine these days that the block price didn’t change for two straight months, but that’s what happened at the end of 1989).

So that’s a mighty interesting indication of how volatile cheese prices have been this year. Back in 1989, the block price reached a record high of $1.5450 a pound; this year, the block market low and high have varied by more than $1.58 per pound.

Then there’s the new record high block price, which continues to change and increase. This also merits a bit of history, albeit a more 21st-century history (mostly).

After reaching $1.5450 a pound in late 1989, block prices floundered below that level for several years before rising to a record $1.6950 a pound in September of 1996 (what is it about September and price records, anyway?). That turned out to be the highest block price ever reached at the National Cheese Exchange; the NCE closed its doors in April of 1997 (blocks settled at $1.1800 per pound in the NCE’s last trading session).

It didn’t take too long for the block price at the CME to break the NCE’s record; blocks actually reached $1.90 a pound in December of 1998 and then reached a 20th-century high of $1.9725 a pound in August of 1999.

The $2.00 mark was finally reached in March of 2004, and blocks eventually peaked the following month at $2.2000 per pound. Price volatility was also impressive that year, with the block price having dipped to $1.3000 per pound in January before climbing to $2.2000 a pound less than two months later.

After 2004, the block price rose above $2.00 a pound in seven different years before this year: 2007, 2008, 2011, 2012, 2013, 2014 and 2019. The range between the low and high block price exceeded $1.00 in only one of those years: in 2008, when the block price reached a then-record $2.2850 a pound in late May and bottomed out at $1.1325 a pound at the end of the year.

So, from this brief look at the history of block prices and price volatility, we can conclude that prices above $2.00 a pound were unheard of before this century, that prices above $2.50 were unheard of before this year, and that price ranges above $1.50 per pound were also unheard of before this year.

When all is said and done, 2020 will truly be a year for the record books.

Dairy Promotion Programs Could Use More Accountability

The US Department of Agriculture recently released its annual report to Congress on the dairy farmer and milk processor promotion programs and, as reported in a story in last week’s issue, there’s a fair amount of interesting information included in the 111-page report. Unfortunately, the report covers program activities for 2017. So if you’re interested in dairy promotion program activities for the most recently completed calendar year (2019), you’ll probably have to wait until 2022, at this rate.

As we’ve previously noted, and will probably point out again in the future, USDA is required by law to submit an annual report to the House and Senate Agriculture Committees on the Dairy Promotion and Research Program and the Fluid Milk Processor Promotion Program.

Indeed, under the Dairy Production Stabilization Act of 1983 (which created the dairy farmer-funded checkoff program), USDA is required, not later than July 1 of each year, to submit an annual report describing activities conducted under the dairy promotion and research order, and accounting for the receipt and disbursement of all funds received by the National Dairy Promotion and Research Board under such order, including an independent analysis of the effectiveness of the program.

To its credit, USDA did a mighty fine job of fulfilling this requirement in the early days of the National Dairy Promotion and Research Board. Just to cite one example: on July 16, 1986, Arthur D. Little, Inc., issued a press advisory on the annual report to Congress (Arthur D. Little, Inc., conducted the independent assessment of the dairy promotion program that’s included in that report), noting that its findings were reported to Congress “last week,” meaning the week of July 7-11, 1986.

So USDA’s report dated July 1, 1986, was released less than two weeks late. That report covers the National Dairy Board’s fiscal period beginning May 1, 1985, and ending April 30, 1986, or maybe 70 days before the report was released. And that report includes financial statements for the fiscal years ended April 30, 1986 and 1985.

In other words, that 1986 report to Congress included a lot of “fresh” information.

Meanwhile, to summarize the current situation, USDA has just recently released a report that describes activities conducted under the dairy promotion order for calendar year 2017; that report also includes an accounting of the receipt and disbursement of all funds received by the National Dairy Promotion and Research Board in 2017; and that report also includes an independent analysis of the effectiveness of the program up to and including 2017.

Dairy farmers, dairy importers and milk processors deserve better. They deserve more timely information about dairy promotion activities, more timely evaluation of the effectiveness of these activities, and more timely financial information about these programs.

And they deserve to know that the programs they are paying into are following the law, which requires USDA to submit these reports annually to the House and Senate Ag Committees. It is troubling that, as the pace of change grows ever faster, the pace of submitting reports to Congress on the dairy promotion programs grows ever slower. The most recent report covers the period before the ongoing trade wars erupted, to put this in a bit of recent historical perspective.

There’s another aspect of the dairy promotion programs that also raises some questions about accountability. That is, it seems like it’s been a mighty long time since either the farmer-funded checkoff program or the milk processor-funded checkoff program were subject to a referendum among the people paying into those programs.

A quick check revealed that a referendum on the National Dairy Board was held back in August of 1993. Needless to say, dairy producers approved continuation of the program.

Meanwhile, looking over the website of USDA’s Agricultural Marketing Service, which has oversight responsibilities for the dairy as well as other ag commodity checkoff programs, we see that referenda have been conducted over the past decade on several checkoff programs, including for highbush blueberries, sorghum, softwood lumber, and watermelon, to name a few.

A referendum on the future of either dairy checkoff program seems unlikely at this point, although in the case of the National Dairy Promotion and Research Program, it would be considerably easier to collect the necessary signatures than it was in 1992. Back then, USDA received petitions with over 16,000 signatures requesting a referendum on whether the checkoff program should be terminated.

The law provides that USDA must hold a referendum if requested by at least 10 percent of dairy farmers. Today, there are fewer than 35,000 licensed dairy herds in the US, meaning somewhere around 3,500 signatures would be needed to force a referendum. This is not to suggest that we favor terminating the dairy promotion programs. Rather, we simply support more accountability.

Some of that accountability could come about if Congress passes the bipartisan Opportunities for Fairness in Farming Act. This legislation would, among other things, require promotion boards to publish and make available for public inspection all budgets and disbursements of funds entrusted to them that are approved by USDA, immediately on approval by that agency. That alone would improve accountability, and timeliness
.

USDA’s Dairy Product Purchases Could Use More Variety

Over the past couple of years, and for several reasons, the US Department of Agriculture has become a really, really important buyer of dairy products. Given that this probably won’t change in the near future, perhaps it’s time for USDA to diversify its dairy product purchases a little bit more.

First, let’s clarify a couple of points about USDA dairy product purchases in recent years. During fiscal year 2019, which ended Sept. 30, 2019, USDA purchased 390.1 million pounds of dairy products for a total of $499.3 million. By comparison, USDA in fiscal 2018 purchased 326.6 million pounds of dairy products for a total of $382.4 million, and in fiscal 2017 the agency bought 265.8 million pounds of dairy products for a total of $378.1 million.

Fiscal 2020 doesn’t end for another four months, but our guess is that USDA’s dairy product purchases will greatly exceed 500 million pounds and $500 million. That’s due at least in part to the fact that USDA is purchasing dairy products under an expanding number of authorities, as well as more “traditional” purchases such as for the National School Lunch Program.

So, for example, back in 2016, USDA announced plans to purchase Cheddar cheese for surplus removal under Section 32 of the Agriculture Act of 1935. Today, USDA is still buying various dairy products under Section 32.

In 2018, USDA announced plans to purchase a variety of dairy products as part of its trade mitigation efforts. Those purchases also continue to this day.

And of course, here in 2020, USDA is purchasing dairy products as part of its coronavirus relief efforts. Those purchases are being made under at least two new authorities: the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act, better known as the CARES Act.

USDA is not only buying dairy products under a growing number of authorities, it is also buying a wider variety of dairy products than it was just a few years ago. Just to cite a couple of examples, USDA almost two years ago announced plans to start purchasing fluid milk products under Section 32; and USDA is also now purchasing Pepper Jack cheese.

But as USDA expands its dairy product purchases and the authorities under which it makes these purchases also expands, it seems like the agency should perhaps increase the variety of dairy products it is purchasing even more. If nothing else, this might expand the number of companies that can sell products to USDA.

The latest evidence of USDA’s somewhat narrow list of dairy product purchases came last Friday, when the agency announced plans to purchase several dairy products under Section 32. These products include Cheddar cheese in various forms, Mozzarella, process cheese, butter and instant nonfat dry milk.

As far as cheese purchases are concerned, USDA in recent months has purchased Cheddar cheese, process cheese, Mozzarella (including String), and Pepper Jack. In 2019, Cheddar, Mozzarella and Monterey Jack (which, along with Colby, make up the category of “other American-type cheese”) accounted for about 74 percent of US cheese production (for more details, please see the Dairy Production Extra supplement in our May 15th issue).

That means that USDA is not purchasing cheeses in such major categories as Cream and Neufchatel, Swiss cheese, Hispanic cheese, Muenster and Feta.

And those are just some of the categories tracked by USDA’s National Ag Statistics Service. The Wisconsin Field Office of NASS tracks the production of specialty cheese in the state and, as we reported in our May 1st issue, Wisconsin last year produced 818 million pounds of specialty cheese, including, among other things, 43.2 million pounds of Havarti, 33 million pounds of Asiago, and 101 million pounds of Feta. Havarti alone is produced by over 40 companies in a dozen states. But none of these companies will get a chance to sell Havarti, or any other specialty cheese for that matter, to USDA under current programs.

Why does USDA purchase just a limited number of cheeses? It appears, from a review of recent solicitations for products, that USDA only acquires products for which it has purchase specifications. In the cheese category, this includes natural American cheese (Cheddar), Mozzarella, Natural Pepper Jack cheese, and Pasteurized Process American Cheese.

One thing we’ve noticed since the coronavirus pandemic upended the food industry is that federal agencies are allowing a fair amount of flexibility when it comes to everything from food labeling to hours of service for truck drivers.

So why can’t USDA start buying dairy products that, while they might not have USDA purchase specifications, still have an FDA standard of identity, for example? This would include such aforementioned cheeses as Cream and Neufchatel, Swiss, Asiago and Muenster, as well as cheeses such as Gouda and Provolone.

And for at least some of the cheeses that lack a federal standard of identity, there are other standards or related references that could be used in USDA purchasing programs. These might include, for example, Codex standards, rules for various product judging competitions, or buyer specifications.

USDA is, and will remain, a major buyer of dairy products for distribution to consumers. Given the growing variety of products being produced and marketed to consumers these days, the agency should consider expanding the list of dairy products it buys, and companies it buys from.

Lower Retail Dairy Prices Would Be Helpful, And Appropriate

The month of April will long be remembered in the dairy industry for many coronavirus pandemic-related problems, including plunging commodity prices, nosediving food service sales, and the widespread dumping of milk.

Oh, and one more thing: higher retail dairy product prices. As reported on our front page last week, the Consumer Price Index for dairy and related products was 228.76 in April (1982-84=100), up 1.4 percent from March, 5.2 percent higher than in April 2019 and the highest level for the dairy CPI since December 2014, when it reached 229.87.

All of those numbers seem, well, they seem wildly inappropriate, frankly. And that’s simply because, in a month when prices at the farm and factory levels were going down, down and down, prices at the retail level were going up, up and up.

For example, in April, the average CME cash market price for 40-pound Cheddar blocks was just over $1.10 per pound. That was an astounding drop of 65.3 cents from March.

The last time the average CME block price dropped that much from one month to the next was...never. There has never before been such a huge drop in the average CME block price in just one month.

Meanwhile, the CPI for cheese and related products in April was 240.9, up 1.8 percent from March, up 7 percent from April 2019 and a new record high, breaking the previous record of 240.05, set back in November 2014.

Since that’s the second time we’ve mentioned 2014 here, it’s worth briefly revisiting cheese and dairy product prices from that record-shattering year. That was the only year in history that the CME block price averaged over $2.00 per pound for the entire year (it actually averaged just under $2.11 per pound that year), and the block price averaged above $2.00 in nine of the first 10 months that year (the exception was July, when the block price averaged $1.9870 a pound), including a record high average of $2.3554 per pound in March.

As an interesting side note, the average monthly Cheddar block price dropped from $2.1932 a pound in October 2014 to $1.5218 per pound in January 2015, or just over 67 cents in a three-month period, compared to the 65.3-cent drop that took place last month.

Also in April, the average retail Cheddar cheese price reached $5.45 a pound, up more than 12 cents from March, up more than 16 cents from April 2019 and the highest average retail Cheddar price since October 2015, when it was $5.48 a pound.

Retail fluid milk prices were also on the rise in April, even as the commodity prices that are used to calculate Class I milk prices were plummeting. April’s CPI for whole milk was 209.3, up 0.4 percent from March, up 4.9 percent from April 2019 and the highest whole milk CPI since December 2015, when it was 209.4.

The average retail whole milk price in April was $3.27 per gallon, up almost two cents from March, up almost 29 cents from April 2019 and the highest average retail whole milk price since March of 2017, when it was $3.32 a gallon.

As frustrating and counter-intuitive as these higher retail dairy prices might seem, they aren’t really all that out of line, logically speaking. The higher retail whole milk price in April might be the easiest to explain, given that the federal order Class I base price for the month was $16.64 per hundredweight.

That was down 82 cents from March but still 88 cents higher than in April 2019. It also followed a period in which the Class I base price was above $17.00 from June through October 2019, above $18.00 in November, and then above $19.00 in December and January, and still above $17.00 in February and March. In other words, if nothing else, retail whole milk prices were still relatively high in April because they had still had some “momentum”; they had, in fact, been above $3.00 per gallon every month since last June (which, as noted earlier, was the first month in which the Class I base price moved above $17.00 per hundred).

As far as high average retail Cheddar prices in April, it’s worth remembering that, while the Class III price in April, at $13.07 per hundredweight, was down more than $3.00 from March, much of the Cheddar being sold at retail in April had in fact been made from that more expensive March milk.

Throw in all the logistical problems the food supply chain was experiencing in April and it’s probably no wonder that retail dairy product prices increased. Indeed, the CPI for all six major grocery store food groups increased at least 1 percent in April, compared to March.

But April will go down as a unique month in dairy and food industry history, and it would seem that lower retail dairy product prices should be the rule, not the exception, in May.

As noted earlier, the CME block Cheddar price in April averaged just over $1.10 per pound, which was down from $1.7550 per pound in March. In fact, CME block prices averaged above $1.70 a pound for 10 straight months, but dramatically lower April prices should translate into at least somewhat lower retail prices in May.

For fluid milk, the Class I base price dropped from $16.64 per hundred in April to $12.95 per hundred in May which, again, should translate into at least somewhat lower retail prices in May.

If they do indeed materialize, lower retail dairy product prices will help both consumers and the dairy industry. That’s a win-win situation, albeit a bit delayed
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Dairy Recourse Loan Program An Idea Worth Exploring

Recourse loan programs for dairy processors are garnering a fair amount of attention these days, and these programs certainly seem worth exploring. This might also be a good time to take a brief look at the past, present and future of dairy recourse loan programs (not necessarily in that order).

As far as the present is concerned, recourse loan programs have been mentioned in stories in our newspaper at least three times in recent weeks (all since the coronavirus pandemic started to rear its ugly head).

The first mention was in a front-page story in our April 10th issue, and concerned a “Milk Crisis Plan” proposed by the International Dairy Foods Association and National Milk Producers Federation and submitted to USDA. That plan included, as one of its processor initiatives, a recourse loan program that would allow companies to carry heavier-than-normal inventories and reduce systemic financial/liquidity risk.

As outlined by IDFA and NMPF, the recourse loan program would cover as many products as possible, including basic commodities in addition to specialty cheeses, Class II products and more. Loans would cover federal order component ingredient costs (not packaging, plant margins, warehouse costs, etc.).

The second mention was in a story in last week’s issue (page 9), and concerned a request from IDFA, several other dairy organizations and a number of dairy companies for Congress to authorize a new dairy recourse loan program that will allow dairy processors to secure credit against their inventory.

And finally, in this week’s issue, we report on a dairy recourse loan program that’s included in the $3 trillion coronavirus relief package introduced Wednesday by House Democrats. Some $500 million would be made available to carry out this program, under which a recourse loan would be provided to qualified applicants up to the value of the eligible dairy product inventory of the applicant.

So that’s where a potential dairy processor recourse loan program stands, as of this week.

As far as the past is concerned, this isn’t the first time that a dairy recourse loan program has been proposed, and it won’t even be the first time Congress has approved such a program. The first time a recourse loan program was approved was back in the 1996 farm bill.

Under that program, USDA was to have been required to offer recourse loans for dairy products beginning on Jan. 1, 2000. The objective of that program was to assist dairy processors in managing their inventories of eligible dairy products and thereby increase price stability for the dairy industry. Eligible dairy products under that program were Cheddar cheese, butter, and nonfat dry milk.

It may be recalled that the recourse loan program established under the 1996 farm bill was supposed to replace the dairy price support program.
The loan rates as proposed under that program would have reflected a milk equivalency value of $9.90 per hundredweight of milk with an average milkfat content of 3.67 percent. That was the support price for milk at the end of 1999, which is when the support program was originally supposed to have been terminated under the 1996 farm bill.

Of course, the price support program didn’t end at the end of 1999. Congress mandated short-term extensions of the program until both the 2002 and the 2008 farm bills extended it for several years. It finally was terminated under the 2014 farm bill.

As far as the “Dairy Recourse Loan Program for Commercial Dairy Processors” is concerned, USDA published a final rule on that program in July of 1996, then published a proposed rule for the dairy recourse loan program with revisions to the original final rule in July of 1999.

In February 2000, after the price support program had been extended, USDA postponed the dairy recourse loan program. A little over a year later, in March 2001, USDA again postponed the dairy recourse loan program.

Finally (mercifully?), an appropriations bill passed by Congress in late 2001 repealed the section of the 1996 farm bill that authorized the dairy recourse loan program. And to make the program’s demise official, USDA’s Commodity Credit Corporation, in the Federal Register of Feb. 15, 2002, published a final rule that removed the regulations for the program from the Code of Federal Regulations “because the program’s authorizing legislation was repealed.”

So, keeping in mind that the old dairy recourse loan program had a relatively short life (1996-2002) without ever becoming effective, what are the prospects for the new dairy recourse loan program? Pretty good, it would seem.

The HEROES (Health and Economic Recovery Omnibus Emergency Solutions) Act is a pretty detailed bill, covering 1,815 pages total. The dairy title of the bill runs about 11 pages, and includes a dairy direct donation program, supplemental Dairy Margin Coverage payments, and Dairy Margin Coverage premium discount for three-year signup in addition to the dairy recourse loan program.

Given that previous coronavirus-related relief bills have sailed through Congress with relatively little debate on agriculture-related provisions, our guess is that this dairy recourse loan program will be in the final legislation that’s eventually signed into law by President Trump. And then the dairy industry will finally get to see how a recourse loan program for dairy processors actually works — and the program will be vastly superior to the 1996-2002 program.

EU’s GI Scheme Is More Entrenched, And Lucrative, Than Ever

Two separate reports released during the second half of April drew renewed attention to the European Union’s geographical indications for cheese and other food products. Based on these reports, we can’t help but conclude that the EU’s GI scheme is more entrenched, and lucrative, than ever, and that the EU will continue pushing its GI agenda as much as possible.

The first of these reports, covered in a front-page story in our Apr. 24th issue, noted that, in 2017, the total sales volume of EU cheeses with protected names reached 2.7 billion pounds, and the value of sales was US$9.8 billion, up 43 percent from 2010.

The second of these reports, covered in a front-page story (May 1) last week, focused on a new intellectual property rights report from the Office of the US Trade Representative that concluded, among other things, that the EU’s GI agenda remains “highly concerning,” because, among other things, it imposes barriers on market access for US-made goods that rely on the use of common names, such as Parmesan or Feta.

The timing of the release of these reports probably couldn’t have been much better, because the first report highlighted just how valuable GIs are to the European Union, and how much they’ve grown in recent years, while the second report highlighted how harmful these GIs can be to the US dairy industry, and dairy industries around the world.

The EU report leaves little doubt about how important GIs are. The total sales volume of agricultural products and foodstuffs covered by GIs and Traditional Specialities Guaranteed (TSG) schemes was 10.0 million tons and the total sales value was almost US$30 billion in 2017; excluding TSGs, the sales value of agri-food products under GIs reached US$27.1 billion.

Perhaps more important, the sales value of agricultural products and foods covered by GIs and TSGs increased by 39 percent from 2010 through 2017. PGI products are the most dynamic, and their sales grew by 60 percent during that period.

Cheeses represented more than a third of the total EU sales value for GIs for agri-food products. Cheese products increased 43 percent since 2010 and contributed the most to the growth of the agri-food sector with 32 percent, the EU report noted.

Maybe the bottom line here, from the perspective of the EU, can best be summed up by the headline on the European Commission’s news release announcing the release of the GI study: it refers to GIs as a “European treasure” worth 75 billion euros (US$81.6 billion).

There’s plenty of bad news for the US dairy industry in the USTR’s report, but we’ll focus on just a couple of points here. First, the report notes that the EU in recent years has granted GI protections to two cheeses, Danbo and Havarti, that are covered by international Codex standards, and are also produced by numerous countries outside the EU.

Disturbingly, the European Commission’s new report only covers the period up through 2017, which is when Danbo was granted a GI.
Havarti was granted a GI just last October, so it obviously isn’t covered by the EU’s report. But the next EU study of GIs will in all likelihood report another healthy sales increase for cheeses covered by GIs, in part because cheeses like Havarti are now covered by those GIs. Back in 2008, Denmark produced around 72 million pounds of Havarti, according to Denmark’s 2014 application for a GI for Havarti.

Notably, as we reported last week, Wisconsin last year produced 43.2 million pounds of Havarti, at least some of which was produced by Denmark’s own Arla Foods.

The second piece of bad news contained in the USTR’s report concerns the EU’s ongoing efforts to pursue its GI agenda in trade agreements with other countries. As part of its trade agreement negotiations, the EU “pressures trading partners to prevent all producers, other than in certain EU regions, from using certain product names, such as Fontina, Gorgonzola, Parmesan, Asiago, or Feta (coincidentally, all of those cheeses show up in Wisconsin’s annual specialty cheese production report).

In the EU and other markets that have adopted the EU GI system, US producers and traders either are effectively blocked from those markets or must adopt “burdensome workarounds,” the USTR’s report noted. They either cannot use the descriptors at all, or anything even evoking them, in the market or at best may sell their products only as “fontina-like,” or “asiago-style.”

The bottom line with these two new reports appears to be two-fold. First, the EU’s GI scheme is extremely important to the EU’s cheese industry today, and will continue growing in importance in the future.

And second, the EU will continue to push its GI scheme in markets around the world. Under one agreement already in place, the Canada-EU Comprehensive Economic and Trade Agreement, future Canadian users will be able to use the names Asiago, Feta, Fontina, Gorgonzola and Munster only when accompanied by expressions such as “kind,” “type,” “style,” “imitation” or the like.

Meanwhile, the EU continues to push its GI protections in trade agreements with countries ranging from Mexico and Australia to China and Japan.

All in all, the EU will continue to frustrate countries around the world (not to mention some of its own members) as it continues to pursue its increasingly important, and lucrative, GI agenda.

Could Dairy Prices Rebound Quickly And Substantially?

Monday’s 12-cent jump in the CME cash market price for 40-pound Cheddar blocks was certainly an eye-opener, in part due to the sheer size of the increase and also because it took the block price to its highest level since April 2, when it was $1.2700 a pound.

This big jump in the block price has us wondering if it’s possible that dairy prices will rebound more quickly and more substantially than is currently expected.

As a starting point, USDA’s forecast is for Cheddar cheese prices to average $1.3800 per pound in 2020. There are a couple of points to keep in mind here.

First, USDA’s dairy product price forecasts are simple averages of the monthly prices calculated by USDA’s Agricultural Marketing Service (see p. 14) for use in class price formulas, so they aren’t exactly the same as CME cash market prices. For example, the CME block price fell to $1.1500 per pound back on Apr. 3, but the AMS block Cheddar price for the week ending Apr. 18 was $1.3859 per pound.

Those AMS prices do follow the CME prices pretty closely, albeit with a time lag.

Second, USDA’s cheese price forecast for the year, $1.38 per pound, includes a price of $1.77 per pound during the first quarter. All three quarters after that are projected to be under $1.38, including an average of $1.20 a pound in the third quarter and $1.30 a pound in the fourth quarter.

So, with the CME block price approaching USDA’s projected third-quarter average on Monday, and rising above it on Thursday, what are the chances that we’ll see a significant and earlier-than-expected rebound in prices?

For a bit of historical perspective, we went back to 2009, when cheese and dairy product prices tanked during the Great Recession. That year, CME block prices bottomed out at $1.0400 per pound in January. And, for what it’s worth, the block price averaged just under $1.30 a pound for the entire year.

But block prices were pretty depressed through the first seven months of 2009, rising above $1.30 per pound just once (on Mar. 19), and averaging under $1.25 per pound during each of the first seven months of the year, including a low of $1.0833 per pound in January. Block prices did eventually recover, reaching $1.72 a pound in early December and averaging $1.65 a pound for that month, but 2009 ended up being the last year the block price averaged under $1.49 a pound.

Will 2020 play out like 2009, with cheese prices remaining low and relatively flat for half a year or more? And if not, why not?

Arguments for a quicker-than-expected recovery in prices could begin with the fact that, as far as we can recall, there was little or no milk dumped back in 2009. By contrast, milk dumping has been reported in almost half of all states thus far in 2020.

Granted, there apparently aren’t any solid numbers on just how much milk is being dumped, but even if just 1 percent of April’s milk production goes down the drain, it could have a significant impact later in the year.

Milk dumping isn’t the only thing likely to impact dairy product supplies later this year. Dairy farmers around the US are receiving strong signals, in the form of financial incentives among other things, to cut milk production. At least one organization, United Dairy Families of California, has sponsored a webinar on how producers can reduce milk production.

And then there’s the seasonality of milk production. We’re currently in the middle (roughly) of the spring flush, and it has yet to get hot and humid in much of the US. Who knows what impact the weather will have on milk production, and more importantly component production, as we head into the summer months?

On the demand side, we are in the very early stages of the economy starting to reopen, depending on location. This is occurring as the weather warms up in much of the country, folks are anxious to get back to a “normal” life, and restaurants that offer carryout and/or delivery appear to be experiencing an increase in demand.

So as more states slowly reopen their economies and more food service outlets start to reopen, even at greatly reduced capacities, food service dairy demand will start to tick back up. But before they reopen, they’ll likely have to restock, meaning at least some additional dairy demand even earlier.

And around mid-summer, schools will start to reopen, or at least school food service pipelines will start needing to be refilled. This will be taking place when milk production is declining seasonally.

Then there are the dairy product purchases being planned by USDA. The agency announced two weeks ago that it will spend up to $100 million per month in dairy products for food banks and other non-profits serving Americans in need. Initial solicitations are for these dairy products to be delivered starting June 1.

These purchases will be made when USDA can get a lot more “bang for its buck” than was the case six or even three months ago. For example, earlier this year, USDA purchased some process cheese loaves under the trade mitigation Food Purchase and Distribution Program at a price range of $2.3250 to $2.4250 per pound. This week, USDA announced the purchase of some process cheese slices under the Families First Coronavirus Response Act in a price range of $1.3356 to $1.4261 a pound.

A CME block Cheddar price approaching $2.00 per pound later this year is highly unlikely, but prices higher than currently expected could still happen.

The Dairy Price Support Program In The Era Of A Pandemic

The recent plunge in CME cash market prices for 40-pound Cheddar blocks and 500-pound barrels has prompted some questions as to when block prices last dropped to the $1.00-pound range. The block price hit $1.00 back on Apr. 15th and has been hovering just above that level ever since.

Initially, we thought the answer might be sometime in early 2009 (during the Great Recession), but blocks actually bottomed out at $1.0400 per pound in January of that year. As it turns out, the last time the block market was $1.00 per pound or lower was back on Feb. 28, 2003, when blocks fell to 99.25 cents per pound.

Prior to that, blocks dropped to $1.00 a pound on Nov. 2, 2000, then fell to 98.0 cents the following day (which was a Friday) and remained there until rising to $1.0400 on Nov. 9.

Interestingly, the weekly block price average was $1.0080 per pound for both the week ending Nov. 3, 2000 and the week ending Nov. 10, 2000. That was also the weekly block price average for the week ending Apr. 17, 2020.

What about prior to 2000? As it turns out, the block market didn’t fall as low as $1.00 per pound at any time during either the 1990s or the 1980s (it may be recalled that the cheese industry’s cash market until the spring of 1997 was the National Cheese Exchange in Green Bay, WI; and also that the CME’s cash cheese market trading took place only once a week, as was also the case at the NCE, until September 1998, when the cash, or spot, cheese market went to daily trading).

Indeed, the last time the block market fell to or below $1.00 per pound prior to 2000 was way back in 1978. And that was so long ago that blocks actually increased to $1.00 a pound on Mar. 31, 1978, and stayed at that price until late July before rising. And then they stayed above $1.00 per pound for more than two decades straight.

So how is that possible? It’s due primarily to the old dairy price support program (known near the end of its existence as the dairy product price support program), which was terminated back in 2014.

History confirms the price support program’s role in keeping the block market above $1.00 per pound during the 1980s and 1990s (in fact, it never dipped below $1.08 per pound during those two decades). USDA raised the CCC purchase price for blocks above $1.00 per pound starting in 1978, and by the time 1980 rolled around that CCC purchase price for blocks was above $1.20 per pound. It remained above $1.10 per pound until the support price ended in 2014 (the last time the CCC purchased any dairy products under the price support program was in 2009).

This price history got us wondering here in 2020, with the coronavirus pandemic wreaking havoc on the dairy industry, whether the dairy industry would have benefitted if the price support program was still operating.

Keep in mind that, at least in theory, the CCC under the price support program was sort of a “market of last resort”; that is, the CCC bought surplus cheese, butter and nonfat dry milk if commercial buyers couldn’t be found for those products. Over the last 30-plus years of its existence, the price support program ranged from a very significant buyer of surplus products to an afterthought.

So what would be happening today if the price support program was still around? It seems like a safe bet that the CCC would in fact be buying very large volumes of surplus dairy products, perhaps less so for cheese than for butter (which has seen sales plunge due largely to the closing of restaurants) and nonfat dry milk (which has likely seen exports decline, for various reasons including the pandemic).

Cheese might not be moving to the CCC in huge volumes because the CCC only purchased Cheddar, in 40-pound blocks and 500-pound barrels. Certainly those products are in surplus, as evidenced by their current very low cash market prices.

But the plunge in food service sales is likely affecting Mozzarella more than Cheddar, so unless or until cheese manufacturers could switch what they are producing, CCC purchases of surplus Cheddar might not be all that large. It’s also worth noting that Cheddar doesn’t account for nearly as large a percentage of total cheese production today (around 28 percent) as it did back in, say, 1983 (about 49 percent), when CCC cheese purchases reached a record 833 million pounds.

With the CCC acquiring large volumes of dairy products, what would happen next? Back in the 1980s, the federal government for a few years ran a “cheese giveaway” program, under which not only cheese but also butter and nonfat dry milk were distributed to eligible recipients (low-income consumers) under the Temporary Emergency Food Assistance Program (TEFAP, which is still around today, with the word “The” replacing “Temporary).

But this was an inefficient way to get surplus dairy products to the needy, in part because the CCC bought and stored bulk products that first had to be converted to consumer-sized products before being given to consumers. Today, USDA is buying consumer-ready products for immediate distribution to various nutrition programs.

It’s tempting to look back at the dairy price support program and think that that program would have been a good “fit” for the current pandemic crisis. But cheese prices still crashed to $1.00 a pound earlier this century when the price support program was still functioning. Things would undoubtedly have been different if that program was still around, but we still think the industry is better off without it.

 

USDA Seems To Be Of Limited Help During This Crisis

The US Department of Agriculture is certainly under a tremendous amount of pressure these days. In addition to its many “normal” functions, the agency is now being bombarded with requests from general farm groups, specific commodity organizations and politicians for help, in various forms, due to the significant and ongoing fallout due to the coronavirus pandemic.

Obviously, these are unprecedented times for everybody in agriculture, including at USDA. But unfortunately for the dairy industry, it appears, at least at this time, that USDA will be of limited help during this crisis.

We make this observation in reference to the numerous requests USDA has received in recent weeks to quickly purchase large volumes of dairy products. These requests were submitted to the agency starting late last month, but as of today, the agency doesn’t appear to have done much if anything in response to those requests.

The problem here doesn’t appear to be money. Indeed, the requests for USDA to buy dairy products for distribution to food banks date back to around the time Congress approved, and President Trump signed into law, the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, which includes billions of dollars to, among other things, purchase food products and distribute them to those in need.

USDA has, over the last couple of years, amassed a fair amount of experience in buying dairy and other food products for distribution to various nutrition programs. Under the agency’s ongoing trade mitigation efforts, cheese, fluid milk and other dairy products are being purchased under a Food Purchase and Distribution Program.

But the lack of any solicitations being released by USDA to buy dairy products at this point is disturbing, due at least in part to the timeline for these solicitations. For example, back on Jan. 30, 2020, USDA’s Agricultural Marketing Service released a trade mitigation solicitation seeking a total of 869,400 pounds of String cheese.

The agency accepted bids under that solicitation until Feb. 11, and then award notifications were released on Feb. 13, or two weeks after it issued the solicitation.

And, perhaps most notably, and disturbingly, the delivery period for that String cheese is April, May and June.

In other words, under this trade mitigation purchase, it took two months from the time the solicitation was issued to the time the first product was delivered, and five months from the time the solicitation was issued to the time the final product will be delivered.

Now imagine applying that timeline to dairy product purchases as part of coronavirus pandemic-related efforts. If USDA doesn’t issue solicitations until, say, Apr. 20, it likely won’t announce awards until early May, and possibly won’t begin delivering those dairy products to food-insecure Americans until early July.

There are at least a couple of problems with that timeline. From a dairy industry perspective, the time for USDA to be buying dairy products started at least three weeks ago. That’s roughly when dairy producers around the country started dumping milk. It also roughly corresponds to the beginning of the spring flush.

Under the timeline noted above, by the time USDA starts buying and delivering dairy products, the spring flush will have ended, restaurants in many states will hopefully be reopened, and markets will at least start to move toward some sort of normalcy (whatever that will look like).
From a consumer perspective, some 22 million Americans have filed for unemployment in the last four weeks, and there have been reports of hours-long waits for food at food banks around the US.

And there is, understandably, a heck of a lot of frustration as these reports correspond to reports of lots of milk being dumped around the US.

Perhaps we’re being naive here in suggesting that USDA should be moving more quickly in procuring dairy products. But the agency itself noted, in August of 2018, that, under the first Food Purchase and Distribution Program, it would purchase known commodities first; procurement of commodities that have been sourced in the past can be purchased more quickly and included in the first phase.

But this also helps explain why these purchases will likely not provide all that much short-term help for the dairy industry. Last July, in announcing details of its second trade aid package, USDA again stated that it will buy dairy and other products in four phases, starting with known commodities.

The first of those four phases was to begin after Oct. 1, 2019, with deliveries beginning in January 2020 — that is, deliveries were to begin roughly five months after US Secretary of Agriculture Sonny Perdue announced details of USDA’s trade aid package.

In USDA’s defense, the agency couldn’t begin to issue solicitations until after Oct. 1, 2019, because the agency was still making purchases under the first round of its trade aid package. Under that package, USDA in late August 2018 announced plans to administer a food purchase and distribution program to purchase up to $1.2 billion in commodities, including $84.9 million in dairy products. Solicitations started being issued in October 2018, but deliveries didn’t start until December.

The bottom line here appears to be that, while USDA might have the financial and other resources to buy the large volumes of dairy products the industry is requesting and consumers need, the agency is, for whatever reason or reasons, incapable of doing so with any sense of urgency
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Some Newly Released Numbers Reflect Bygone Era: Early 2020

Last Wednesday — amid reports of milk being dumped at the farm, commodity prices plunging and slow to non-existent foodservice sales, among many other coronavirus-related calamities — USDA reported that the federal order Class III price for the month of March 2020 was $16.25 per hundredweight.

This Class III price seemed, well, it seemed completely out of place with the current market realities. Those realities include, among other things, USDA’s latest forecast that the Class III price could average $12.75 per hundred in 2020, its lowest level since 2009.

But at $16.25 per hundred, March’s Class III price was actually the highest Class III price for the month since 2014, when it was a record high (for the month) of $23.33 per hundred. Indeed, over the 2010-2019 period, March’s Class III price was lower only than 2014’s $23.33 per hundred, 2013’s $16.93 per hundred and 2011’s $19.40 per hundred.

Going back to the beginning of 2020, the Class III price was $17.05 per hundred in January and then $17.00 per hundred in February. The last time the Class III price averaged above $16.00 per hundred in each of the first three months of the year was in 2014.

But as of Monday, the CME Class III futures don’t rise above $15.00 per hundred for the remainder of 2020, and the May Class III futures settled below $12.00 per hundred. Both of those points have one thing in common: 2009. That year, the Class III price never rose above $15.00 per hundred (it peaked at $14.98 in December), and the May Class III price was an abominably low $9.84 per hundred (the Class III price was actually below $12.00 per hundred during each of the first eight months of 2009).
USDA’s “Announcement of Class and Component Prices” had some other interesting numbers as well. For example, among the product price averages used in calculating the Class III price was 40-pound Cheddar blocks at $1.8133 per pound. By the end of last week, the CME cash market price for blocks had plunged to $1.1500 per pound for the first time since 2009.

And the March butter price average used in the March class price announcement was $1.7551 per pound. By the end of last week, the CME cash market price for butter had dropped below $1.3000 per pound for the first time since 2009.

What all of these numbers reflect is sort of a “bygone era” for the dairy industry, an era better known as the first two-plus months of this year. Right now, it hardly seems possible that such relatively strong dairy prices happened just last month.

But these dairy prices pale in comparison to at least one other set of numbers that were released last week: the National Restaurant Association’s Restaurant Performance Index for February.

The RPI is constructed so that the health of the restaurant industry is measured in relation to a neutral level of 100. In February, the RPI stood at 101.9, up 0.1 percent from January. In other words, this index that tracks the health of and outlook for the US restaurant industry was reflecting a fairly healthy industry, in February.

More specifically, the Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 103.0 in February, which was described by the restaurant association as the “second consecutive strong monthly gain.” A majority of restaurant operators reported higher same-store sales and customer traffic in both January and February, which propelled the Current Situation Index to its highest level in almost five years.

Given the widespread closings of restaurants in March, we won’t even hazard a guess as to how dramatically the Current Situation Index fell that month. About the only positive is that these restaurant closings largely took place after mid-month; the April Current Situation Index will be the first (and hopefully only) one that will reflect a full month of nationwide restaurant closings.

USDA last week also reported February US dairy trade data and, as reported on our front page last week, US dairy exports for the month were valued at $522.9 million, up 13 percent from February 2019. That marked the sixth straight month in which the value of US dairy exports topped $500 million in value.

The only other times that happened was in 2013 and 2014, which is also when dairy exports reached $6.7 billion and $7.1 billion in value, respectively, the latter of which is still a record.

But it’s hard to imagine that dairy exports will continue their impressive performance in the wake of the coronavirus pandemic. Just to cite one example, the Mexican Ministry of Health late last month announced it would cease administrative operations, effectively halting the export of dairy products across the border from Arizona to Mexico, according to Arizona Gov. Doug Ducey. Keith Murfield, CEO of United Dairymen of Arizona, said the inability to move dairy products across the border “is catastrophic for our farmers.”

Mexico, of course, is by far the leading export market for US dairy products and the leading export market for cheese, among other products. So our guess is that US dairy exports might still top $500 million in value in March, but might not reach that level again for quite a while (due to both a decline in exports and a decline in commodity values).

Numbers from early 2020 now seem like they’re from a sort of bygone era. Ah, the good old days.

 

USDA Should Buy Whole Milk, Other Full-Fat Dairy Products

The coronavirus relief bill that President Trump signed into law last Friday includes a mind-boggling amount of money for a mind-boggling number of federal agencies and others to help deal with the mind-boggling coronavirus crisis.

Among many other things, the bill increases borrowing authority for USDA’s Commodity Credit Corporation by $14 billion, and it also provides $450 million for The Emergency Food Assistance Program (TEFAP).

What this means is that the CCC will have quite a bit of money available to purchase dairy and other food products for distribution under various nutrition-related programs, including to food banks.

To put this type of funding into a bit of recent historical perspective, under USDA’s $16 billion trade mitigation package announced last year, CCC Charter Act authority was used to implement an up to $1.4 billion Food Purchase and Distribution Program to purchase surplus dairy and other commodities.

USDA’s Agricultural Marketing Service was planning to purchase an estimated $68 million in fluid milk, cheese, butter and other dairy products through this program, and those purchases are ongoing.

So, if USDA is purchasing $68 million worth of dairy products under its $1.4 billion Food Purchase and Distribution Program as part of its trade mitigation efforts, imagine how much it could potentially spend purchasing dairy products with its coronavirus relief budget.

These dairy product purchases will actually help the coronavirus relief effort in at least two ways. First, they will deliver dairy products to those in need.

And second, they will help farmers who are going to be seeing lower milk prices in the months ahead, as milk production outpaces dairy demand.

As it prepares to make large dairy product purchases in the coming months, we believe that what USDA should focus on is how to get the most “bang for its buck.” And we suggest the agency focus on buying full-fat dairy products to do that.

Buying full-fat dairy products will accomplish at least two important goals. First, it will provide consumers with a type of fat, namely milkfat, that has various health benefits, according to a fairly large and growing body of recent (and some old) research.

Fat is, after all, one of the three macronutrients (protein and carbohydrates are the other two), and it’s absolutely essential in the diet.
Indeed, it’s generally recommended that 20 to 35 percent of daily caloric intake should come from fats (and 10 percent or less from saturated fats).
Not only is some dietary fat essential in the diet, for a variety of reasons, but it also helps people feel fuller.

In short, consumers need fat, and they could do a lot worse than consuming more of that fat in the form of milkfat, from a wide variety of dairy products.

Second, buying full-fat dairy products will help dairy farmers by boosting milk prices. This might not be the primary purpose of the dairy and other food product purchases that the CCC will be making in the coming months, but it’s definitely one of the purposes; if there’s any doubt about that point, remember that, as noted earlier, food purchases are part of USDA’s trade mitigation efforts, which are specifically aimed at supporting US agricultural producers in addition to providing food for low-income individuals.

There are at least a couple of reasons why, from a dairy industry perspective, USDA should focus on buying full-fat dairy products instead of products with less fat or no fat. And yes, the agency does purchase those types of products; for example, the agency’s fluid milk purchases include 1 percent and 2 percent, while the high-protein yogurt it buys is fat-free.

Reason number one for buying full-fat dairy products is because, obviously, these products contain more milk solids, and the more milk solids that are removed from the commercial market, the more pressure there will be for milk prices to increase (at least in theory).

So, for example, since 2000, fluid milk products have accounted for a declining percentage of the total US supply of milkfat, falling from 18.1 percent in 2000 to 11.8 percent in 2017. However, the milkfat content of fluid milk has increased in recent years as whole milk sales have risen. USDA could help this trend by focusing its fluid milk purchases on just whole milk. And since all dairy farmers get paid in part on the value of milkfat, that in turn could help boost milk prices, at least a little bit.

The second reason USDA should focus on buying full-fat dairy products is because these products are getting, or are about to get, downright cheap.
This week, the CME cash market butter price fell below $1.40 per pound for the first time since August of 2013.

Butterfat prices and pricing factors are now under $2.00 per pound in federal order pricing formulas for the first time in several years, and it doesn’t look like that’s going to change anytime soon because, among other things, the spring flush is now underway in much of the US and the milkfat content of farm milk tends to be higher during the January-April period than during the May-September period.

USDA will spending a lot of money buying dairy products over the next several months. Focusing its purchases on full-fat dairy products will provide a more nutrient-dense product for consumers while at the same time at least potentially providing a boost to farm milk prices

Uruguay Round Seems Like Ancient History

Last week, USDA’s Foreign Ag Service published a notice listing the updated quantity-based trigger levels for cheese, dairy and other products which may be subject to additional import duties under the safeguard provisions of the WTO Agreement on Agriculture. The notice explained that Article 5 of the WTO Agreement on Agriculture provides that additional import duties may be imposed on imports of products subject to tariffication as a result of the Uruguay Round.

Hmmmmmmm. The Uruguay Round. That’s something you don’t hear about in the dairy industry these days. It almost seems like, here in 2020, the Uruguay Round is ancient history.

Well, it is and it isn’t. In fact, you have to be, well, not exactly a newcomer to the dairy industry (or any other industry, for that matter) to actually remember much about the Uruguay Round negotiations, approval and even implementation.

The Uruguay Round of global trade talks was launched in September 1986, in Punta del Este, Uruguay (hence the name). It took until December 1993 for every issue to be finally resolved and for negotiations on market access for goods and services to be concluded (although some final touches were completed in talks on market access a few weeks later), according to the WTO. In April 1994, the Uruguay Round deal was signed by ministers from most of the 123 participating governments.

Under the Uruguay Round agreement, the World Trade Organization, on Jan. 1, 1995, succeeded the old General Agreement on Tariffs and Trade (GATT), which had provided the rules for much of world trade from 1948 through 1994. And so this year the WTO is celebrating its 25th anniversary.

The Uruguay Round Agreement on Agriculture (now usually referred to as the WTO Agreement on Agriculture) established disciplines in the areas of market access, export subsidies, internal support, and sanitary and phytosanitary measures, according to USDA’s FAS. It listed some highlights for the US dairy industry, “whose 1992 exports totaled $762 million” (that alone provides a nice indicator of how long ago this agreement was reached).

Among the key developments for US dairy exports under the Uruguay Round agreement: the European Union was to reduce the quantity and budgetary outlay for export subsidies. By the year 2000, the maximum allowable quantity of subsidized cheese was 305,000 tons (about 673 million pounds).

More recently, those export subsidy limits became irrelevant, because the EU ended its dairy export refunds (subsidies) entirely in 2007, reactivated them in 2009 but hasn’t subsidized its dairy exports for several years now.

On the import side, under the Uruguay Round agreement, the US replaced Section 22 import quotas for dairy products with tariff equivalents. The import quota for cheese of 110,999 tons (244.8 million pounds) was converted to a tariff-rate quota and increased by 30,992 tons to 313.1 million pounds by the year 2000. The US also established TRQs for other dairy products, including butter, butteroil, and dried whole milk.

As it turned out, the TRQ for cheese did increase under the Uruguay Round agreement, to 298.3 million pounds of cheese starting in 2000. And that TRQ remains in place here in 2020.

That’s because, when it comes to global trade agreements, the Uruguay Round agreement is still the law of the land(s). At the Fourth Ministerial Conference in Doha, Qatar, in November 2001, WTO member governments agreed to launch new negotiations. They also agreed to work on other issues, in particular the implementation of the present agreements. The entire package is called the Doha Development Agenda (DDA). But those negotiations have not yet concluded, so the Uruguay Round’s provisions on such things as TRQs remain in effect.
What has happened since the Doha Round was launched, and dragged on and on with no conclusion in sight, is that countries have opted to negotiate and implement bilateral and multilateral trade agreements instead of a global agreement.

This was certainly not unheard-of in the latter years of the 20th century; after all, the North American Free Trade Agreement, which includes the US, Mexico and Canada, entered into force on Jan. 1, 1994, a year before the Uruguay Round agreement went into effect.

But these “smaller” agreements have really proliferated since implementation of the Uruguay Round agreement finished 20 years ago.

For example, the website of the Office of the US Trade Representative lists a number of free trade agreements that the US has entered into, including deals with Australia (which entered into force at the beginning of 2005), Chile (which entered into force at the beginning of 2004), South Korea (which entered into force eight years ago this month), and Morocco (which entered into force at the beginning of 2006).

Obviously, these smaller trade agreements are nothing to sneeze at, as illustrated by just a couple of key points. First, thanks to the 26-year-old NAFTA, US dairy exports to Mexico and Canada have topped $2 billion in value in each of the last two years. And second, and more broadly, thanks to all of these trade deals, US dairy exports have exceeded $5 billion in value in seven out of the last eight years.

The Uruguay Round agreement was certainly a major deal when it was reached more than 25 years ago, but it’s influence seems less significant today as new trade deals move to the forefront

 

Coronavirus: A Once-In-A-Century Dairy Issue

In the ongoing situation surrounding coronavirus, the most appropriate operative word might be “ongoing.” This isn’t a situation that changes weekly or daily, but rather hourly, if not more rapidly than that. And nobody seems to know when the crisis will end, or even begin to show signs of slowing down.

For an industry that’s grown accustomed to uncertainty, well, the coronavirus pandemic offers uncertainty unlike any other. One comparison we keep reading and hearing about is with the Spanish flu pandemic of 1918-19, which wreaked havoc around the world and killed between 20 to 40 million people or more (depending on the source of information).

That’s certainly an eye-opening and frightening comparison, but it isn’t necessarily something that can help the dairy industry deal with the coronavirus pandemic, for several reasons. Among others: US milk production back then was under 100 billion pounds, compared to 218 billion pounds last year; cheese output was under 500 million pounds, compared to 13.1 billion pounds last year; there were over 20 million milk cows back then compared to about 9.3 million today; and there were thousands of cheese plants back then, compared to around 550 today.

One thing that hasn’t really changed very much over the last century is the basic way in which the dairy industry functions. That is, it all begins on the farm (although there are a few companies working to make it all begin in the lab), with milk then moving to dairy plants and then through various channels to the end user.

And it appears that the first part of that sequence isn’t changing much during the current pandemic. Cows are still being milked every day, plants are turning out everything from cheese and butter to yogurt and fluid milk on a daily basis, and these products are then making their way to consumers. Business is continuing. It has to.

Indeed, both Michael Dykes, president and CEO of the International Dairy Foods Association, and Jim Mulhern, president and CEO of the National Milk Producers Federation, issued statements on Monday stating that the dairy supply chain isn’t experiencing any disruptions at this time.

Well, at least not until products reach the store level, where at least some consumers are exhibiting what might be considered irrational behavior when it comes to food shopping. It’s hard to believe that, after years of declining fluid milk sales, some retailers are being forced to limit milk sales to avoid shortages.

Indeed, it is after dairy products leave the plants, and before they reach consumers, that there appears to be the most dairy industry disruption, at least at this time. Back in the early decades of the 20th century, dining out wasn’t all that prevalent. One piece of evidence to illustrate this point: the National Restaurant Association was founded in 1919.

Today, food eaten away from home accounts for more than half of all food expenditures in the US, according to the US Department of Agriculture. For dairy products, the away-from-home market is especially important for cheese, and less important for fluid milk, to mention just two products.

So it’s significant that state and local governments are forcing restaurants and bars to close completely, or at least limit how many people can be served at any one time, or limit these places to carryout and delivery only.

This will obviously reduce the volume of cheese and other dairy products moving through foodservice channels, while increasing dairy product volumes moving through retail channels.

Whether these shifts mean overall dairy consumption declines or not remains to be seen. But, at least in Wisconsin, it will mean a lot fewer bar and restaurant patrons ordering deep-fried cheese curds.

The good news is, people still have to eat, and that means there’s a market of about 329 million people in the US. While the world has more or less been turned upside down for the time being, the dairy industry just needs to focus on what it has always done well: producing safe, nutritious and delicious dairy products.

Related to that point, Feeding America, the largest US hunger-relief organization, has established a COVID-19 Response Fund to help food banks across the country as they support communities impacted by the pandemic (which, it appears at this point, will eventually be all communities). The $2.65 million fund will enable food banks to secure the resources they need to serve the most vulnerable members of the community.

But it’s impossible for the Feeding America network to address this pandemic without public and government support, and so Feeding America is launching national food- and fund-raising efforts to support people facing hunger and the food banks who help them. More information is available at feedingamerica.org.

Another part of the fallout that’s having a far-reaching industry impact is the postponing, rescheduling or cancellation of various industry events.
And while there is a “tier” of near-term events that have already had to reschedule or cancel, such as the 2020 CheeseExpo and the joint ADPI/ABI annual conference scheduled for April, other events are taking a “wait and see” strategy to see how the pandemic unfolds in the coming weeks and months.

Undoubtedly, the coronavirus pandemic is proving to be a mighty interesting learning experience for the food industry in general and the dairy industry specifically. Let’s hope it’s another 100-plus years before these learnings have to be put into practice again.


Checking Out The Latest Non-Dairy Alternatives

Last week, while a record 3,667 real (animal-derived) dairy product entries from around the world were being evaluated at the 2020 World Championship Cheese Contest in Madison, WI, the Plant Based Foods Association and the Good Food Institute released new data showing that US retail sales of plant-based foods reached $5 billion last year.

More specifically as far as dairy products are concerned, sales of plant-based “milks” grew 5 percent to reach $2 billion in sales, while sales of plant-based “cheese” grew 18.3 percent to $189 million, sales of plant-based “ice cream” grew 5.7 percent to $336 million, and sales of various other plant-based “dairy” products also increased.

In fact, if you add up all the “dairy” categories broken out by PBFA and GFI, sales last year topped $3.2 billion. And while there are few if any guarantees in the food business, we can pretty much guarantee that sales of these products will keep growing.

One reason we’re confident in making that prediction is because of all the new products that companies operating in the plant-based food space have been introducing lately. These new products serve at least two purposes: they draw attention to the new products themselves and the plant-based foods category in general; and they at least potentially create opportunities for retailers to give these products more shelf space, at the expense of traditional dairy products.

So, as sales of these plant-based products continue to rise, and as these products proliferate and potentially eat up shelf space previously devoted to real dairy products, we thought it might be interesting to take a quick look at a few of the new alternative products being introduced by various companies.

Melt Organic is introducing two plant-based “cheese” spreads that are made from chickpeas (also known as garbanzo beans): Mozzarella Garlic Herb and Jalapeno Queso. Melt also said it will nearly triple the number of products sold, from three to eight, by summer 2020 and plans to launch Cheddar and Mozzarella hard “cheese” and spreads later this year. Also available from the company: various types of “butter” products made from an “Organic Oil Blend.”

Miyoko’s Creamery is introducing what it is calling “game-changing” new Cheddar and Pepper Jack “cheeses,” as well as a new spreadable “oat milk butter.” The Cheddar and Pepper Jack cheeses will be the first in a new line of everyday “cheeses” from Miyoko’s. Made using cultured legumes and oats, the new Cheddar and Pepper Jack cheeses will be the company’s first nut-free vegan “cheese” options.

Rucksack Foods doesn’t appear to have introduced any new products, but did recently announce that its plant-based “cheese,” OATzarella, has become third-party certified as gluten free. OATzarella is an organic plant-based “cheese” hand-crafted using domestic steel cut oats and extra virgin olive oil.

Kite Hill is launching a couple of new products: Kite Hill Blissful, which the company describes as a “thick, creamy and indulgent line of tasty coconut milk-based yogurts”; and Kite Hill Sour Cream Alternative, a plant-based “sour cream” made with a blend of creamy coconut and almond milk.

Laird Superfood, which makes assorted plant-based food products, has introduced its new family of plant-based liquid creamers for consumers who want to ditch dairy. Made from real, plant-based ingredients with no artificial flavors or colors, the new Superfood Liquid Creamer line also features three functional mushrooms: Lion’s Mane, Cordyceps and Chaga.

Finally, we have to mention a new line of “cheese” products being launched by Tofurky, which has been known since its founding in 1980 for plant-based meat-type products, such as roasts, burgers and sausages.

Now, the company is introducing Moocho dairy-free products, including Dairy-Free Cheddar Style Shreds, and Just Plain Yum spreads. The Cheddar Style Shreds are described as “Melty, Savory, Wisconsin-y,” and are made from water, expeller pressed coconut oil, faba bean protein, modified food starch, modified potato starch, tapioca flour and less than 2 percent of several other ingredients.

So what should the dairy industry make of all these new plant-based “dairy” products? Well, on the one hand, the traditional dairy industry should probably be flattered, as in “imitation is the sincerest form of flattery.”

Regardless of the nomenclature used on these products, they are clearly copying, or nearly copying, traditional dairy products. That’s why it can be somewhat difficult, in some supermarkets, to tell where the real dairy products end and the plant-based alternatives begin.

It’s amazing, and frustrating, to see some of the language used to promote these products, whether it’s Tofurky using the term “Wisconsin-y” or Miyoko’s stating that, with “a nod to the finest European cheeses, we’re applying modern innovation to elevate vegan cheese and butter to a whole new level.”

These product descriptions aside, we find it somewhat possible that, one of these days, the bubble is going to burst on at least some of these products. That’s because, beyond their vegan and/or dairy-free claims, they don’t appear to have all that much to offer.

Among other things, some of these products contain very little protein compared to real dairy products, have lengthy and unappetizing-sounding ingredient lists compared to real dairy products, and their flavors wouldn’t win any awards in the World Championship Cheese Contest.

But, at least in the short term, their sales will still keep rising.

Depooling Is Distorting Some Federal Order Statistics

USDA’s Ag Marketing Service has released its “Market Summary and Utilization 2019 Annual Report” for federal milk marketing orders and, as we reported last week, the volume of milk pooled on federal orders last year reached a record high of 156.5 billion pounds.

There were many other interesting numbers in this AMS report, including, among other things, that California’s federal order ranked third in terms of milk volume last year, and that the federal order Class III utilization percentage last year, 41 percent, was actually down from 43 percent back in 2000, the first year federal order reforms were in effect.

These two facts have at least one thing in common: they both occurred due at least in part to the depooling of milk.

Let’s start with the California federal order. That order became effective in late 2018, so 2019 was the first full year in which the California federal order was in effect.

And a mighty big federal order it is: last year, the volume of milk pooled on the California order totaled 24.27 billion pounds, meaning that the California federal order trailed only the Upper Midwest (32.3 billion pounds) and Northeast orders (26.8 billion pounds) in terms of producer milk receipts.

But the California order should really be the largest federal order in terms of producer receipts, and in fact the next-largest order shouldn’t even be close. That’s because California’s milk production last year totaled 40.6 billion pounds and the California federal order covers the entire state.

But, as we noted in our story last week, about 16.3 billion pounds of milk was depooled from the California federal order last year, which is why the California order trailed both the Upper Midwest and Northeast orders in terms of producer milk volumes. Some milk was depooled from those orders during certain months as well — for example, the volume of milk pooled on the Upper Midwest order last year ranged from a high of 3.25 billion pounds in June to a low of 1.6 billion pounds in November — but the fact that the volume of milk topped 3.2 billion pounds three times indicates that there were at least some months in which there was very little milk depooled.

That certainly wasn’t the case in California, where there was just one month last year in which less than 1 billion pounds of milk was depooled; that was in May, when the volume of milk pooled totaled 2.58 billion pounds and milk production totaled 3.56 billion pounds.

Then there’s Class III milk utilization for all federal orders, which, as noted earlier, was 41 percent last year, down from 43 percent in 2000 and also down from 43 percent as recently as 2018. That percentage would have been higher last year, and the Class I utilization percentage would have been lower, had it not been for a considerable volume of Class III milk being depooled.

There’s a pretty simple way to illustrate the volume of Class III milk that was depooled last year: look at the wide variation of milk pooled, or not pooled, in Class III on several federal orders.

California is the most obvious example here. In 2019, the volume of milk pooled in Class III on the California order ranged from a high of more than 1.4 billion pounds in March to a low of just 32 million pounds in November. More broadly on the California order, more than 1.2 billion pounds of milk was pooled in Class III in four months (January, February, March and June) and less than 100 million pounds of milk was pooled in three months (October, November and December).

Even conservatively estimating that Class III volumes should average 1.2 billion pounds a month brings total 2019 Class III volume on the California order to 14.4 billion pounds, or 6.7 billion pounds higher than was actually the case. And that would in turn raise federal order Class III utilization above 44 percent.

Then there’s the Upper Midwest order, which leads all other orders in Class III utilization by a wide margin, both in terms of utilization percentage and also total volume.

Last year, about 27.3 billion pounds of milk was pooled in Class III on the Upper Midwest order, and the monthly volume ranged from a high of 2.93 billion pounds in March to a low of 1.1 billion pounds in November.
Conservatively estimating that Class III volumes should average 2.6 billion pounds a month brings Class III volume up to 31.2 billion pounds, or almost 4 billion pounds more than was actually pooled last year.

Adding that 4 billion pounds to California’s extra 6.7 billion pounds delivers an extra 10.7 billion pounds to 2019’s Class III volume (and to total volumes pooled), and pushes the Class III utilization percentage close to 45 percent.

Four other federal orders had significant volumes of milk depooled from Class III late last year, including the Southwest, Central, Mideast and Pacific Northwest orders. A rough estimate is that, had there been little depooling of Class III milk in those four orders last year, another 7.5 billion pounds of milk would have been pooled in Class III, bumping the Class III utilization percentage above 47 percent.

Add all this depooled milk up, then add in Class IV utilization (also including several billion pounds of milk that was depooled from Class IV in California last year), add in Class II utilization and you would likely see the overall Class I utilization percentage drop below 25 percent.

That’s something to keep in mind as federal order reforms are debated. Back in the late 1990s, when federal order reforms were also being debated, Class I utilization was still above 42 percent.

Cheese Production Just Keeps Growing And Growing

The third decade of the 21st century is now underway, and there’s no reason to expect this new decade to bring any less uncertainty than the previous two decades did. The dairy industry will continue to experience more than its share of ups and downs.

Well, with one notable exception: US cheese production, which has risen every single year thus far in the 21st century (and will in all likelihood continue growing in the years ahead). And in fact cheese production increased almost every year in the final decade of the last century as well; the last time cheese production actually declined was in 1991.

So what has this 21st-century cheese production increase looked like? Back in 1999, US cheese production totaled 7.9 billion pounds, and last year it totaled 13.12 billion pounds; thus, cheese production has risen by about 5.2 billion pounds so far in the 21st century.

Some of those cheese production increases were pretty small; for example, 2001’s output of 8.261 billion pounds was up all of 3 million pounds from 2000, and 2003’s production of 8.56 billion pounds was up 10 million pounds from 2002.

By contrast, some of the other production increases were pretty large; for example, 2014’s output of 11.5 billion pounds was up 410 million pounds from 2013, and 2017’s production of 12.64 billion pounds was up 458 million pounds from 2016.

These 21st-century cheese production increases led us to wonder: What types of cheese production increases (or decreases) took place during two-decade periods in the 20th century? So we checked some statistics from USDA’s National Ag Statistics Service to find out.

NASS cheese production statistics unfortunately only report cheese production starting in 1919, so we can’t do a comparison of the first two decades of the 21st century with the first two decades of the 20th century.

We can, however, report that, according to NASS, US cheese production has increased from 479.4 million pounds back in 1919 to 13.12 billion pounds in 2019. Not bad for a century of progress: cheese production rose by 12.6 billion pounds from 1919 to 2019.

But while cheese production has experienced nothing but increases since 1991, it experienced quite a few declines in the years and decades before then.

Indeed, cheese production in 1920, at 417.9 million pounds, was down more than 61 million pounds from 1919, so the Roaring 20s didn’t exactly get off to a roaring start as far as cheese production was concerned.

Between 1920 and 1939, cheese production declined six times: in 1922, when output of 428.5 million pounds was down 1.7 million pounds from 1923; in both 1926 and 1927, after production had reached a record high of 501 million pounds in 1925; in both 1931 and 1932, after production had reached a record high of 509.6 million pounds in 1930; and in 1939, after output reached a record 726 million pounds in 1938.

Between 1940 and 1959, there were almost as many declines as increases in cheese production. Specifically, cheese production declined eight times during that period, including in both 1958 and in 1959. The peak year for cheese production during that period was in 1957, at 1.41 billion pounds.

Cheese production increases were much more frequent from 1960 through 1979. Indeed, there were only two declines during that period: in 1962, when output of 1.6 billion pounds was down 43 million pounds from 1961; and in 1975, when output of 2.81 billion pounds was down 126 million pounds from 1974.

As might be expected when there are just two production declines over a two-decade period, the 1960s and 1970s saw total cheese production increase impressively, from just under 1.5 billion pounds in 1960 to 3.7 billion pounds in 1979.

Finally, the last two decades of the 20th century also saw just two declines in cheese production. Those declines occurred in 1984, when output of 4.67 billion pounds was down 145 million pounds from 1983 (it may be recalled that the Milk Diversion Program, which aimed to prompt dairy farmers to reduce their milk production, was in operation in 1984 and early 1985); and in 1991, when output of 6.055 billion pounds was down 4 million pounds from 1990.

And that’s it, as far as cheese production declines are concerned. Cheese output hasn’t declined in almost three decades. That’s pretty impressive, no matter how you look at it.

Indeed, looking at cheese production going back a full century helps put into perspective just how impressive this cheese production growth has been since the beginning of the 21st century. Obviously, this century has been the first time ever that cheese production didn’t decline once over a 20-year period.

Also, as can be seen from what happened in the 20th century, the last two decades have been the only two decades in which there were zero declines in cheese production. Certainly, cheese production declines have been pretty rare since 1960; there was just one decline in each of the last four decades of the 20th century. But never before had there been a decade with nothing but cheese production increases, until both the first and second decades of the 21st century.

So, what does this tell us about cheese production in the future? Well, on the one hand, perhaps the US is overdue for a cheese production decline. On the other hand, another 80 years of production increases and we’ll have our first full century in which US cheese output never declined.

Toddler ‘Milks’ Appear To Be Hurting Sales Of Real Milk

Toddlers aren’t exactly a huge market for the dairy industry, probably due in part to the fact that there aren’t a lot of them. By one definition, toddlers are 12 to 36 months of age, and since just under 4 million babies are born in the US every year, that means that the toddler market consists of fewer than 8 million youngsters.

So at first blush, what’s happening at the “toddler level” when it comes to milk maybe doesn’t amount to all that big a deal. But there’s some new evidence that what’s happening with the toddler milk market should be concerning for the dairy industry.

As reported on our front page two weeks ago (to locate our February 7th issue), aggressive marketing of toddler milks has likely contributed to rapid sales increases of these products in the US, according to a paper published in Public Health Nutrition.

As the study explained, toddler milks are typically produced by formula manufacturers and are marketed for toddlers as the “next step” after infant formula. They consist primarily of powdered lowfat milk, corn syrup solids or other caloric sweeteners, and vegetable oil.

The next sentence in the study is the one that really caught our eye: “Compared with plain whole cow’s milk (which is recommended for young toddlers), they contain added sugar, more sodium and less protein.”

So, what’s the problem here? Well, for toddlers, the answer is, as noted in the study: plain whole cow’s milk is what’s recommended for young toddlers, not “toddler milks.”

But instead of real milk, toddlers are getting beverages that come up well short of milk’s advantages. That should be particularly concerning when it comes to protein content, as well as fat. In the case of several toddler milks we looked at, the number one ingredient was nonfat milk (which we assume is nonfat dry milk, since these toddler milk products are powders), followed by various forms of oil (for example, Go and Grow from Similac contains, in order, nonfat milk, lactose, high oleic safflower oil, soy oil, and coconut oil, among other ingredients).

These toddler milk products don’t exactly have short ingredient lists, either. That’s pretty obvious, given the above list, which includes sources of milk, sweetener (lactose) and fat (three different vegetable oils). These ingredients in whole milk are listed as follows: “milk.”

When it comes to “selling” nutrition, we have to give a little credit to the toddler milk companies: in addition to listing required micronutrients and macronutrients, at least some of them list such things as riboflavin, phosphorus and magnesium, which are also prevalent in milk but don’t seem to be voluntarily listed in many “Nutrition Facts” statements.

So the bottom line for toddlers is that toddler milks are a product that contains a long list of ingredients, a fair amount of nutrients (many of them added in the form of ingredients, rather than occurring “naturally”), and a sweeter taste than plain whole milk.

For the dairy industry, these toddler milks are potentially causing at least three problems. First, for that particular market (toddlers), toddler milk sales are “growing rapidly,” the study noted, as evidenced by a more than doubling of sales over the 10-year period examined (2006-15).

That’s an interesting observation, given that whole milk sales during that same period fell from 16.7 billion pounds in 2006 to 14.6 billion pounds in 2015, according to statistics from USDA.

That decline in whole milk sales can apparently be explained in part by the sharp rise in toddler milk sales.

A second problem these toddler milk sales appear to be causing for the dairy industry is that, according to the study, serving these toddler milks “may also contribute to conditioned preferences for sweet drinks over plain drinks, including plain milk, and less-sweet foods.”

In other words, toddlers served these beverages when they are one and two years old might never develop a taste for good old plain milk, meaning they will be non-consumers for the rest of their lives. And that’s certainly going to hurt milk sales in the long run.

Yet another dairy industry problem with these toddler milk products is in the area of money. Specifically, these toddler milks start with nonfat dry milk, a Class IV product, and are apparently hurting sales of whole milk, a Class I product. It’s not too difficult to see what this means for farm milk prices.

So what’s the solution here? The study says there are several opportunities to address the public health concerns raised by the “rapid increase” in toddler milk sales and associated marketing practices. For example, the study said countries need to incorporate marketing of toddler milks in regulations that prohibit direct-to-consumer breast-milk substitute marketing, including TV advertising and retail promotions. It also called on health-care and nutrition professional organizations to publish policy statements and provide clear guidance for parents about serving these products.

The study also said the US Food and Drug Administration should establish a statement of identity and other labeling requirements for toddler milks to address consumer confusion about these products. Yes, these products may need to be regulated more strictly, given that, among other things, they seem to be sold under different terms, such as “Dairy Toddler Formula” and “Toddler Nutritional Drink.”

Finally, maybe the dairy industry needs to step up the marketing of whole milk to parents of toddlers, including more direct comparisons of whole milk to toddler drinks.

Trade Wars Just Starting To Impact US Cheese, Butter Imports

While US dairy exports appear to have weathered the trade war storms en route to posting some nice statistics for 2019 (as noted in this space last week), the same can’t necessarily be said for US dairy imports. At least not at the end of 2019, and likely in 2020.

As we reported last week, US dairy imports actually reached a new record high last year, at $3.16 billion. Cheese imports, despite being some 79 million pounds below their record high of 474.6 million pounds set back in 2002, topped $1.3 billion in value for the first time last year (cheese imports in that record year of 2002 were valued at $788 million), while other dairy imports topped $1.8 billion for the first time ever.

But these figures don’t really reflect what was taking place over the final few months of 2019. In this case, the trade war that impacted US dairy imports involves a long-running US-European Union dispute over aircraft subsidies (Airbus).

As a result of that dispute, the US began imposing 25 percent tariffs on various imports from the EU, including numerous cheese and other dairy products, beginning on Oct. 18, 2019, and continuing today (and for the foreseeable future).

The US originally proposed some of those tariffs last April, held a hearing on them in May, proposed tariffs on more dairy products in July, then held a hearing on the additional proposed tariffs in August before finally pulling the trigger on the tariffs in October.

In other words, EU exporters and US importers had a fair amount of time to prepare for these tariffs. And from the limited statistics that are available at this time, it appears that these 25 percent tariffs had at least two impacts on US dairy imports from the EU during the final months of 2019.

First, they appear to have lead to a sharp increase in dairy product imports from the EU, mainly in September but also in August and a little bit in October as well. Specifically, US cheese imports from the EU in August totaled 28.9 million pounds, up more than 4 million pounds from August 2018 and the highest level of US cheese imports ever from the EU for the month of August.

Then in September, US cheese imports from the EU totaled 34.6 million pounds, up almost 11 million pounds from September 2018 and, again, the highest level of US cheese imports ever from the EU for the month of September.

Finally, in October (when the tariffs were implemented mid-month), US cheese imports from the EU totaled 32.6 million pounds, up about a million pounds from October 2018 and, once again, the highest level of US cheese imports ever from the EU for the month of October.
Also in August and September, US butter imports from the EU were up more than a million pounds each month from a year earlier, although October butter imports were down 1.3 million pounds from October 2018.

Second, the tariffs imposed by the US last October appear to have lead to a sharp drop in dairy imports from the EU in November and December. Specifically, US cheese imports from the EU in November totaled 22.9 million pounds, down more than 5 million pounds from November 2018 and the lowest level for US cheese imports from the EU for the month of November since 2009; and US cheese imports from the EU in December totaled 21 million pounds, down 7 million pounds from December 2018 and the lowest level of US cheese imports from the EU for the month of December since 1990.

Also, US butter imports from the EU in November totaled 3.4 million pounds, down about 3.5 million pounds from November 2018; and US butter imports from the EU in December totaled 2.1 million pounds, down about 3.4 million pounds from a year earlier.

So what does this mean for the future of US dairy imports in general and imports of dairy products from the EU specifically?

For one thing, barring a settlement of the Airbus dispute in the near future, it would appear that last year’s US dairy import record of $3.16 billion will stand for a little while.

The EU in 2019 accounted for almost 60 percent of total US dairy imports on a value basis.

Yes, US cheese imports did reach a record high in value last year, but that value was down 16 percent in December after falling 17 percent in November.

The value of cheese imports from the EU during those two months, $142 million, was down more than $42 million from a year earlier, an indication of what can probably be expected as 2020 progresses and US tariffs on cheese imports from the EU continue.

Also, it looks like US cheese imports will remain under 400 million pounds in 2020 and perhaps beyond. As noted earlier, US cheese imports reached a record high of 474.6 million pounds back in 2002, and were above 400 million pounds every year from 1999 through 2007 and again from 2015 through 2017.

Last year, United States cheese imports totaled 395.5 million pounds, up 2 percent from 2018, but were down 14 percent in December after falling 13 percent in November.

Continued monthly declines in US cheese imports are likely in 2020, making it doubtful that US cheese imports will top 400 million pounds this year.

Given the trade deals that the US has achieved recently, it appears that the impact of trade wars on dairy exports will slowly decline in the future. But the ongoing Airbus dispute pretty much ensures that the 25 percent tariffs being imposed on EU dairy exports to the US are just starting to impact US importers, distributors, retailers, consumers and others.

In Tough Times, US Dairy Exports Show Some Nice Resiliency

The phrases “trade wars” and “tariff wars” have been tossed around so frequently over the past couple of years that they’ve sort of become cliches. And they’ve brought with them a general feeling that the export business in general and the dairy export business in particular will have a pretty tough time as long as these wars continue.

But the final 2019 US dairy trade statistics, released Wednesday by USDA’s Foreign Ag Service and reported on our front page this week, indicate that US dairy exports have proven to be pretty resilient during the ongoing trade wars. Kind of makes us wonder what those export numbers would have looked like had these trade wars not broken out a couple of years ago.

In 2019, US dairy exports were valued at $5.9 billion, up 8 percent from 2018 and the highest level since 2014’s record $7.1 billion.
This level of dairy exports was accomplished despite a couple of huge obstacles. One was the aforementioned trade wars, which have included a number of countries but which are particularly noticeable in two areas.

First, Mexico had been applying retaliatory tariffs on US cheese exports from roughly the middle of 2018 up until about the middle of 2019. And so US cheese exports to Mexico last year were down 1 percent from 2018’s record.

And second, China has been applying retaliatory tariffs on US dairy exports since 2018. In 2019, US dairy exports to China were down 25 percent from 2018 and down 35 percent from 2017, the last full year before China began applying tariffs to US dairy products.

The second obstacle the US dairy exporters have been facing is the lack of any new market access. Yes, things have improved considerably on that front in recent months, but that bodes well only for the future; it didn’t help in 2019. Just to cite one example: The US could have gained some access to dairy markets in countries such as Japan, Malaysia, Singapore and even Canada under the Trans-Pacific Partnership agreement, and that access might have started increasing a couple of years ago. But President Trump withdrew the US from the TPP in early 2017.

Since then, the US has negotiated new dairy market access with Japan and Canada, but that access either hasn’t gone into effect yet or is just starting to go into effect. And countries that remained in and ratified the TPP’s successor, the Comprehensive and Progressive Trans Pacific Partnership, have been enjoying the benefits of that trade agreement since it became effective at the end of 2018.

Beyond the CPTPP, other US dairy trade competitors have also been negotiating and implementing new trade agreements in key export markets. Just to cite one example: Feb. 1, 2020, marked the first anniversary of the entry into force of the European Union-Japan Economic Partnership Agreement and EU dairy exports to Japan in the first 10 months following the implementation of that agreement were up by 10.4 percent from a year earlier (including a 47 percent increase in butter exports).

So how is it that the US can become embroiled in numerous trade wars over the last couple of years, and not benefit from any new trade agreements, and still increase its dairy exports? At least a couple of points come to mind.

First, it’s worth noting that the figures reported here are for dairy export values, which tended to be pretty high last year. To illustrate this point, the UN Food and Agriculture Organization’s Dairy Price Index averaged 198.7 points last year, up 3 percent from 2018, as skim milk powder, whole milk powder and cheese prices rose while butter prices fell.

To put this in some historical perspective, since 2012, the lowest annual average for the FAO Dairy Price Index was in 2016, when it averaged 153.8. That year was also the low point since 2012 for US dairy exports, when they were valued at $4.7 billion. So US dairy export values last year were boosted by strong global prices.

Second, it would appear that US dairy exports are showing strength during these turbulent times in part because the US dairy industry has done a great job in recent years of diversifying its portfolio of export markets.

To put this point in some historical perspective, we went back 25 years (from last year), to 1994. That year is significant because, among other things, it was the year before the US Dairy Export Council was established; and it was also right around the time both NAFTA and the Uruguay Round were beginning to be implemented.

Back in 1994, US dairy exports were valued at $762 million, or more than $5 billion less than in 2019. In 1994, US dairy exports topped $100 million in value to exactly one country: Mexico. In 2019, US dairy exports topped $100 million in value to 13 different countries.

Also in 1994, US dairy exports topped $10 million in value to a total of 15 countries. Last year, US dairy exports topped $10 million in value to 49 countries.

And finally, in 1994, the US was exporting dairy products to a total of 131 countries, ranging from Mexico to Samoa. Exports to over half of those countries were valued at under $1 million.

In 2019, the US exported dairy products to 147 countries, and exports to over half of those countries (77 to be exact) were valued at over $1 million.

US dairy exports posted some impressive numbers last year, in the face of some noteworthy obstacles. Imagine what will happen in 2020 and beyond as, among other things, new market access is implemented, and relations with trading partners improve.


Despite Problems, Dairy Industry Brimming With Optimism

Let’s face it, these have not exactly been the best of times for the US dairy industry. Among other things, within the last three months, two industry giants filed for bankruptcy, dairy farms arere going out of business at record or near-record rates, trade wars are posing major problems for expanding dairy exports, and plant-based dairy alternatives are garnering heaping amounts of praise, not to mention some nice increases in sales.

The Dean Foods Company and Borden Dairy Company bankruptcy filings were especially troublesome. For one thing, these weren’t just dairy companies, they were sort of iconic companies — Dean Foods was the largest fluid milk processor in the US and has a history dating back to 1925, while Borden’s roots date all the way back to the 1850s.

And the Dean Foods and Borden bankruptcy were tied, at least in some media stories, to the growth of plant-based dairy alternatives. Several months before Dean Foods filed for bankruptcy, the Plant Based Foods Association reported that sales of plant-based “milks” grew 6 percent for the 52-week period ending in April 2019, to $1.9 billion, and now make up 13 percent of the entire milk category.

And this point is inevitably tied in with the fact that fluid milk sales have been declining rapidly in recent years, and that per capita fluid milk consumption has been dropping for decades.

But despite these and numerous other problematic issues, the dairy industry actually appears to be brimming with optimism in many ways these days. That optimism became apparent during this week’s 2020 Dairy Forum in Scottsdale, AZ.

For example, the Dairy Forum itself attracted record attendance of over 1,100 people. Michael Dykes, president and CEO of Dairy Forum host International Dairy Foods Association, said he senses “a level of enthusiasm and energy” and an embrace of change that he doesn’t think he’s sensed at the Dairy Forum since joining IDFA four years ago.

During his Dairy Forum presentation Monday morning, Dykes made some great points about why things are looking positive for the dairy industry. For example, despite all the negative headlines about fluid milk sales, Dykes pointed out that the dairy business in the US at the consumer level has never been bigger, never been stronger, and it continues to grow. Indeed, since USDA began tracking per capita dairy consumption in the 1970s, the trend has continued upward for five straight decades, increasing 22 percent since 1975.

Yes, the commodity fluid milk business is in decline, but that’s not the case with the value-added milk beverage business. As noted in this space just a couple of weeks ago, it’s a promising sign for that business when the Coca-Cola Company buys the remaining shares of Fairlife, a brand that’s skyrocketed to $500 million in sales in just a few short years.

And in another sign of industry growth, as we reported just last week, US milk production hit a record 218.3 billion pounds in 2019. US milk production hasn’t declined since 2009, and in fact has grown by over 29 billion pounds since that last decline. That’s hardly an indication of an industry in decline.

Moreover, thanks to the efficiency of farmers and innovation throughout the supply chain, the US produces twice as much milk today as it did 50 years ago with half as many dairy cows on much less land, Dykes pointed out. Over the past 30 years alone, milk production has grown 51 percent while carbon dioxide output has declined 9 percent.

Trade is another area where there’s reason for optimism in the US dairy industry. The past three years haven’t exactly been positive on the trade policy front, starting with President Trump pulling the US out of the Trans-Pacific Partnership agreement during his first week in office. The US then stood by and watched the other TPP countries move ahead with the Comprehensive and Progressive Trans Pacific Partnership (CPTPP), an agreement that included some nice dairy access gains for US competitors such as New Zealand and Australia.

That was just the beginning of trade-related problems for the US dairy industry. Ongoing tariff wars with major US dairy export markets ranging from Mexico to China have seen at least short-term declines in cheese and other dairy exports to those countries, and it remains to be seen what the long-term implications of these tariff wars will be.

This is especially true with China, which has such enormous potential that there was an entire Dairy Forum session devoted to “The Power of China.”
But things are starting to look up on the trade front. For one thing, the US has approved the new US-Mexico-Canada Agreement, which will replace the old North American Free Trade Agreement when it is ratified by Canada.

Also, the US and China recently reached agreement on a Phase I deal that’s expected to provide some benefits to US dairy exporters. For example, under the agreement, China will recognize the US system of oversight for dairy products as providing the same level of protection as China’s, thereby eliminating the need for China-specific inspections of US dairy facilities. And the US and Japan have also reached a phase one trade deal with some dairy benefits.

Yes, the dairy industry has been through a particularly troubling period in recent years, but it somehow continued to grow during that period and, here at the beginning of the third decade of the 21st century, the dairy industry appears to be brimming with optimism about its future prospects.

Dairy Price Volatility Returns With A Vengeance

Just over two years ago in this space (Dec. 22, 2017, to be exact), we noted that there had been a “relative lack of price volatility” in 2017, with, among other things, a range of less than 50 cents from low to high for the Cheddar block price on the CME cash market. That year also saw a narrow range for the federal order Class III price, with a low of $15.22 per hundredweight and a high of $16.88 per hundred.

The following year also saw a relative lack of price volatility in the dairy markets. The CME Cheddar block price in 2018 ranged from a low of $1.33 per pound to a high of $1.7475 a pound, or a range of less than 42 cents from low to high. CME butter prices in 2018 fell into a fairly narrow, albeit relatively high, range of $2.0275 to $2.4500 per pound. And the Class III price ranged from a low of $13.40 per hundred to a high of $16.09 per hundred, a range of less than $3.00.

What about 2019? By pretty much any measure, dairy price volatility returned, with a vengeance.

Let’s start with the CME Cheddar block price. Last year, that price ranged from a low of $1.3750 to a high of $2.2375, a range of 86.75 cents. Notably, just from Aug. 1 to Sept. 16, the block price increased 41.75 cents, equal to the block price range for all of 2018.

But CME barrel cheese price volatility greatly exceeded block price volatility last year, with barrel prices ranging from a low of $1.16 per pound to a high of $2.39 per pound, a range of $1.23.

And the Class III price saw considerable volatility last year, ranging from a low of $13.89 per hundred in February to a high of $20.45 per hundred in November, a range of $6.56. The last time there was more volatility in the Class III price was in 2014, when it ranged from a low of $17.82 per hundred to a high of $24.60 per hundred (a record that still stands).

Another way to look at cheese price volatility in 2019 is to look at monthly averages. For blocks, the monthly average rose from a low of $1.4087 per pound in January to a high of $2.0703 a pound in October, a range of more than 66 cents a pound. By contrast, in 2018, the monthly average block price ranged from a low of $1.3764 per pound in December to a high of $1.6438 per pound in September, a range of less than 27 cents.

When it comes to monthly averages, it was the barrel price, again, that really exhibited volatility last year, ranging from a low of $1.2379 a pound in January to a high of $2.2554 a pound in November, a difference of over a dollar a pound ($1.0175, to be exact).

To put that in some historical perspective, the last time the monthly barrel price average varied by more than a dollar during a single year was...never. The average monthly barrel cheese price had never varied by more than a dollar a pound from low to high in a single year, until 2019.

There are a couple of additional points worth noting about 2019’s extreme dairy price volatility. First, while prices were indeed very volatile, they actually moved in a fairly “smooth” manner; that is, once they started going up, they kept going up for a number of months.

For example, the CME Cheddar block price averaged $1.4087 a pound in January, then increased for nine straight months, to $2.0703 a pound in October, before falling for two consecutive months to close out the year.

How does that compare with some previous years? In 2018, when the monthly block price average ranged from $1.3764 a pound to $1.6438 a pound, the block price average was above $1.60 a pound in both April and May and then again in August and September. In other words, the price reached two “peaks” that year.

The previous year saw two block price “troughs.” After averaging almost $1.69 a pound in January 2017, the block price average fell to $1.4342 a pound in March before rising (with a couple of dips along the way) to $1.7305 per pound in October, then falling again to $1.4900 a pound in December.

Another point to keep in mind when examining 2019 price volatility is that the dairy industry saw several “extremes” that hadn’t been reached in several years, which sort of guaranteed that volatility would be greater than it had been for a few years.

For example, both block and barrel cheese cash market prices at the CME topped $2.00 a pound last year, something that hadn’t been seen since 2014. Closely related to that point is that the federal order Class III price topped $20.00 per hundredweight last year, the first time that happened since 2014.

On the flip side of that, the CME butter price fell below $2.00 a pound last year for the first time since November of 2016. And the monthly average CME butter price in December 2019 was $1.9736 a pound, the first time the monthly butter average was under $2.00 a pound since November 2016. That’s a remarkable run of 36 straight months in which the CME butter price averaged above $2.00 a pound.

Finally, all this discussion about price volatility reminds us of some comments made by then-US Secretary of Agriculture Clayton Yeutter at the 1990 Dairy Forum. Dairy producers will generally realize higher overall prices in a volatile market, whereas with greater stability they’ll probably wind up with lower overall prices, he noted.

Recent history would appear to back up that observation. Just to cite one illustration of this: the Class III price in 2014 and in 2019 had far wider ranges than the years in between, and also averaged higher in those two years than the years in between.

Price volatility certainly has its downsides, but lower overall prices doesn’t appear to be one of them.

Coca-Cola’s Confidence In Dairy Is Encouraging

Things weren’t looking all that great seven months ago for Fairlife, the joint venture between Select Milk Producers cooperative and The Coca-Cola Company. An animal rights group released graphic video showing animal abuse at Fair Oaks Farms, which supplies milk to Fairlife. That prompted a police investigation and also reportedly prompted some retailers to pull Fairlife products from their shelves.

This wasn’t exactly familiar territory for Coca-Cola, which has been around since 1886 but has only been involved directly with milk (at least in the US) since 2012. In response to the Fairlife incident, The Coca-Cola Company announced several actions, including conducting its own independent investigations of all Fairlife’s dairy suppliers to ensure they uphold the highest standards of animal welfare.

At that time, it would have made sense to wonder if Coca-Cola was rethinking its involvement in the dairy business. But here at the beginning of 2020, as we reported last week, The Coca-Cola Company has actually shown its confidence in dairy by acquiring the remaining stake in Fairlife LLC from Select Milk Producers. Coca-Cola had previously owned a 42.5 percent minority stake in Fairlife.

In announcing the acquisition, Fairlife noted that Fairlife brand ultrafiltered milk debuted in 2014 and surpassed $500 million in retail sales last year. That’s pretty impressive, considering that beverage milk sales during that period fell from about 50.8 billion pounds in 2014 to 47.7 billion pounds in 2018 (and probably dropped some more in 2019).

And dollar sales of beverage milk likely dropped even more dramatically over that period, given that average retail whole milk prices in 2014 were more than 50 cents higher than in 2018, according to the US Bureau of Labor Statistics.

But of course Fairlife doesn’t really sell “milk,” if you define milk in the traditional sense of whole milk, 2 percent, 1 percent, skim, etc. It sells ultrafiltered milk, Core Power protein shakes and other value-added dairy beverages.

And its ultrafiltered milk is different from traditional milk in several important ways. For one thing, Fairlife’s milk package stands out in the dairy case because it’s colorful; for example, Fairlife whole milk comes in a bright red plastic container. It’s pretty hard to miss, even given its limited shelf space.

Further, Fairlife products contain more protein and less sugar than regular milk, and are lactose-free. The products also come in non-traditional sizes, such as 52-ounce bottles and 11.5-ounce bottles.
Fairlife products also have an impressive shelf life (at least until they’re opened), which means consumers can buy more than just what they expect to consume over the next couple of weeks.

While Fairlife’s sales growth and product attributes are pretty exciting in the context of a steadily declining overall beverage milk category, perhaps what’s most exciting is the confidence that The Coca-Cola Company has with the future of the Fairlife business. That confidence was demonstrated, of course, by Coca-Cola buying the remaining stake in Fairlife.

That confidence is also demonstrated by some of the things being said by both Tim Doelman, Fairlife’s CEO, and Jim Dinkins, president of Coca-Cola North America.

For example, Coca-Cola believes the acquisition of Fairlife “helps ensure that we continue to build on Fairlife’s success by combining its entrepreneurial spirit with the resources, reach and expertise of Coca-Cola,” Dinkins said.

Yes, Coca-Cola does have some pretty impressive resources, reach and expertise. As noted earlier, the company’s signature product dates back to 1886, so it has 134 years of expertise in the beverage business. Some 60 years ago, Coca-Cola acquired Minute Maid, extending its expertise beyond soft drinks in what the company describes as its first step toward becoming a total beverage company.

Today, Minute Maid has more than 100 different flavors and varieties from orange juice to apple juice, and lemonades to punches, so imagine what The Coca-Cola Company might be able do for milk, or at least value-added milk-based beverages.

As far as reach is concerned, Coca-Cola’s 500-plus brands are offered in more than 200 countries. Oh, and The Coca-Cola Company reported net operating revenues of almost $32 billion in 2018.

Fairlife “also plays an important part in our strategy to continue growing as a total beverage company as we innovate to bring people more new products that meet their changing lifestyles and needs,” Dinkins said.

The operative words there are “innovate” and “new products.” That’s the key to growing beverage milk sales in the future. As we’ve seen in the recent past, beverage milk sold in gallon plastic jugs isn’t exactly jumping off dairy case shelves, even at the very low retail prices of the last two years.

Finally, Doelman remarked that Fairlife sees “so much opportunity ahead,” and that “we’ve really just crossed the starting line.” Fairlife looked at the declining fluid milk category “as an opportunity to take a superfood like milk, innovate around it, and give people the kind of taste and nutrition they were looking for.”

The recent Chapter 11 bankruptcy filings by Dean Foods Company and Borden Dairy Company show that the commodity fluid milk business isn’t exactly profitable. The Coca-Cola Company’s acquisition of Fairlife shows that there are still niches, potentially very large niches, that can be successfully tapped in the value-added dairy beverage business.

20 Years Of Reformed Federal Orders: Time For Another Round

It’s kind of hard to believe, but the beginning of 2020 marked the 20th anniversary of the implementation of federal milk marketing order reforms. This anniversary serves as yet another reminder that another round of order reforms is long overdue.

By way of brief background, the last round of federal order reforms had its origins in the 1996 farm bill. That legislation called for both consolidation and reform of federal orders.

Regarding consolidation specifically, USDA was required to limit the number of federal orders to not less than 10 and not more than 14 orders (there were 31 federal orders in the late 1990s; federal order consolidation whittled that down to 11 federal orders starting on Jan. 1, 2000).

As far as other reforms were concerned, under the 1996 farm bill, among the issues USDA was authorized to implement as part of the consolidation of federal orders 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.

Under the 1996 farm bill, USDA was required to implement federal order reforms within three years; however, Congress later extended the deadline and the reforms were implemented on Jan. 1, 2000.

In addition to consolidating the orders, the order reform final rule set forth a replacement for the Class I price structure and replaced the basic formula price (the predecessor of the current Class III price) with a multiple component pricing system. The final rule also established a new Class IV which includes milk used to produce nonfat dry milk, butter, and other dry milk powders; reclassified eggnog; and addressed other minor changes.

Since order reforms were implemented, they’ve been “tweaked” several times, perhaps most notably in the area of make allowances, which were increased in 2008 as a result of a proceeding that actually was launched in 2005 and was finally, mercifully terminated in 2013.

On the consolidation front, as noted earlier, there were 11 federal orders when order reforms became effective 20 years ago. That number fell to 10 when the old Western order was terminated in 2004, but went back up to 11 when the California federal order became effective in late 2018.

While federal order regulations have changed somewhat over the years, it could be argued that the dairy industry has changed considerably more.
Among other things, Class I utilization was over 40 percent in 1999, the year the order reform final rule was approved, but was under 30 percent in 2018.

So that’s where we sit at the beginning of 2020, with a federal order system that last underwent significant reforms 20 years ago. And it seems like we’re long overdue for another round of reforms, for at least a couple of reasons.

First, the US dairy industry is considerably different now than in the late 1990s. Among other things, as mentioned earlier, Class I utilization continues to decline. The Class I utilization percentage isn’t always an accurate indicator of how low Class I use really is, due to depooling, but with California and its low Class I use (12.8 percent in 2017, the last full year the California State Order was in effect) joining the federal order system in late 2018, it’s safe to say Class I utilization in federal orders won’t be above 30 percent again anytime soon (barring large volumes of milk being depooled, which was the case late last year).

Second, the aforementioned make allowances haven’t been adjusted for more than a decade. The cheese make allowance, 20.03 cents per pound, is based on California manufacturing cost data from 2007. In 2016, the weighted average cost for making a pound of Cheddar cheese in California was 24.54 cents, or more than 4.5 cents higher than the current federal order make allowance for cheese.

So at a minimum, it would seem like now is as good a time as any to adjust make allowances for cheese, as well as for butter, dry whey and nonfat dry milk.

But it’s also a good time to reconsider the wisdom of using product pricing formulas at all in federal orders. After all, among the conclusions the dairy industry has probably reached over the past 20 years is that there is no completely fair and reasonable way to use product pricing formulas that will satisfy all industry participants.

There are numerous examples of the problems with product price formulas, but we’ll mention just two. In 1999, when order reforms were finalized, Cheddar cheese accounted for more than 35 percent of US cheese production. In 2018, Cheddar accounted for less than 30 percent of cheese output. But it’s the price of Cheddar that’s used in the Class III price formula.

Also in 1999, dry whey (human) production totaled just under 1.1 billion pounds, and dry whey was included in the Class III price formula. But in 2018, despite the fact that US cheese production has grown by more than 5 billion pounds since 1999, dry whey (human) output had actually declined to under 1 billion pounds.

With all of these problems with current federal order pricing regulations, is there any hope for significant reforms in the future? Yes, there is. The International Dairy Foods Association and American Farm Bureau Federation are conducting reviews of the federal order system and, last fall, AFBF released a federal order reform proposal (for details, please see the story in our Oct. 4th issue). That’s a start.

The next round of federal order reforms can’t come soon enough.

UF Milk Rulemaking Seems To Be Taking Forever

Last Friday, the US Food and Drug Administration announced that it is reopening the comment period on its proposed rule to allow fluid ultrafiltered milk in the manufacture of standardized cheeses and related cheese products. If nothing else, FDA’s announcement served as a reminder that this UF milk rulemaking has been going on seemingly forever, with no end in sight.

The “background” section of FDA’s announcement does provide some perspective on how far back this proceeding goes. It notes that, in the Federal Register of Oct. 19, 2005, FDA proposed to amend its regulations to provide for the use of fluid UF milk in the manufacture of standardized cheeses and related cheese products.

FDA then notes that its 2005 proposed rule was issued in response to citizen petitions from the American Dairy Products Institute and the National Cheese Institute, the Grocery Manufacturers of America, Inc., and the National Food Processors Association.

And therein lie at least a couple of additional indicators of how long the cheese industry has been awaiting a final rule in this proceeding.
First, ADPI’s original petition to FDA was submitted on Dec. 2, 1999. In other words, as we enter the third decade of the 21st century, we’re dealing with a regulatory matter that dates back to the last month of the last century.

Second, none of the associations that submitted the other petition even exist any more, at least not in their current form. At the time that petition was submitted (on Feb. 10, 2000), the National Cheese Institute was a constituent organization of the International Dairy Foods Association. But a year ago, IDFA consolidated the governance structure of its constituent organizations, including the Milk Industry Foundation and the International Ice Cream Association along with NCI, and as of Jan. 1, 2019, NCI ceased to exist.

Meanwhile, the National Food Processors Association changed its name to the Food Products Association in 2005, merged with GMA in 2007 and the new organization became the Grocery Manufacturers Association in 2008. But GMA is no longer; it became the Consumer Brands Association at the beginning of this year.

As can be ascertained by reviewing the background in FDA’s announcement, developments in this rulemaking have been few and far between, to put it mildly. FDA published a proposed rule in 2005, then reopened the comment period in late 2007 on two specific issues raised by comments concerning the proposed ingredient declaration.

Most recently, in August 2017, FDA issued guidance in which it notified manufacturers of its intent to exercise enforcement discretion regarding the use of fluid UF milk in the production of standardized cheeses and related cheese products, provided that the physical, chemical, and organoleptic properties of the cheese or cheese product are not affected.
And that’s it, for the first 20 years after ADPI submitted its petition.

Now, FDA is, through Mar. 30, 2020, seeking new information and public comment on current industry practices regarding the use of fluid UF milk in the manufacture of standardized cheeses, and the declaration of fluid UF milk in the labeling of these products when used as ingredients.

So at least FDA is seeking “new” information on these issues, rather than simply issuing a final rule (or, alternatively, deciding not to proceed with such a rulemaking) based on comments it received well over a decade ago.

But this reopened comment period certainly raises concerns over the future timetable of this proceeding. After all, it’s now been 14-plus years since the original proposed rule was released and, by the time this new comment period ends (assuming the comment period isn’t extended), it will have been almost 12 years since the previous reopened comment period ended (after it was extended).

At this rate, the dairy industry can expect a final rule on the use of fluid UF milk in standardized cheeses sometime around 2035.

As far as comments to FDA are concerned, there are at least a couple of newer issues that should be addressed. First, this entire proceeding has concerned fluid UF milk, but there is also increasing interest in using microfiltered milk to make cheese. If nothing else, maybe FDA should broaden its proposal to include the use of microfiltered milk (granted, this would extend the timeframe).

Second, FDA continues to be concerned about the labeling of standardized cheeses made from UF milk. Notably, when FDA in December 2007 reopened the comment period on its 2005 proposed rule, it sought further comment on two specific issues raised by the comments concerning the proposed ingredient declaration. FDA did so because it had received comments from industry opposing the proposed requirement to declare fluid UF milk as “ultrafiltered milk” in the ingredient statement of the finished cheese.

This issue came up again in 2017 when FDA decided to exercise enforcement discretion, not only on the use of UF milk, but also with respect to the labeling of products made with UF milk. FDA still prefers that industry identify the ingredient as “ultrafiltered milk” rather than just “milk.”

We can’t help but wonder how FDA can actually be concerned about including the word “ultrafiltered” with this ingredient while it continues to allow the use of “milk” and other dairy terms on plant-based foods.
Stay tuned for the third decade of this UF milk rulemaking.

2019 Editorials


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