The Milk
Check
TOM JURCBAK
County Agent
Opportunity and Need
For a lot of reasons the op
portunity and the need for over
order premiums to producers will
never be greater than it is now.
First of all, the opportunity.
Milk supplies, in the foreseeable
future, will not be as tight as they
are now in eastern and national
markets. And by “now” I mean
November and December, not next
year. Barring a widespread
disaster, there’s no reason to
believe that milk supplies won’t
start increasing and demand will
start declining after the first of the
new year. Seasonal increases in
milk production starting in
January and peaking in May have
been characteristic of the dairy
industry since the first cow was
unloaded at Jamestown.
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I realize that we still have part of
the second and all of the third
disposal period of the Dairy
Termination Program ahead of us
but milk production will go up this
winter just as surely as it always
has in the past. That doesn’t mean
the Dairy Termination Program
isn’t working only that it doesn’t
change seasonal production pat
terns.
The Minnesota-Wisconsin Price
Series increased another 14 cents
in October to $11.69 giving you a
total of 71 cents better than it was
last May. You may get another 10
cents in November but
traditionally that is the peak
month of the year. -
Since we know that the Class I
price is based on the M-W but set
two months ahead, the handlers
kssMus
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already know that the Class I price
for December in Order 2 will be
$14.24 a hundred. If the M-W goes
up another 10 cents in November
the Class I price will peak at $14.34
in January.
Because any over-order
premiums must be on the Class I
price to make them work, it would
seem that the opportunity to start
such premiums with handlers
would be at a time when supplies
are the shortest and prices are the
highest. Even if no premiums are
negotiated at this level at least the
opportunity- exists to add
premiums during the winter and
spring months to keep the farm
price from dropping as low as it
normally would..
In other words, wouldn’t it be
easier to keep the Class I price up
at its present level rather than let
it fall after January and then try to
bring it back up?
If this strategy is to work,
negotiations with handlers would
have to begin in December
because of the advance Class I
price they expect under Federal
Orders. Another reason for lower
prices after December is the'
decline in demand following the
Thanksgiving - and Christmas
holidays. Consumers put away a
lot of dairy products now and
wholesalers have been stocking up
for months in anticipation of these
sales. After December the op
portunity is gone for them.
Rt.B2
Unionville, PA 18375
<215)347-2377
Now for the Need
And that leads us into the need
for over order premiums in the
farm price. I realize nearly every
dairy farmer will agree that
there’s a need for higher farm milk
prices but I’m talking about the
need for over-order pricing as the
way to get them. Another reason
that wholesalers will cut back on
purchases in December is that
they know there will be a drop of 25
cents in the support price to $11.35
starting in January.
That means they will lose money
on everything they have on hand
when the price drops so they don’t
buy anymore than they need in
November and December. This
reduces the wholesale demand and
drops the M-W even further than it
would normally fall before the
spring flush.
That’s bad enough but your farm
price will also drop with the 25 cent
cut in the support price. For
tunately, it won’t be the full 25
cents because your 40 cent
assessment for the Dairy Ter
mination Program falls to 25 cents
in January so the difference to you
will be only 10 cents. I say “only”
10 cents but realizing that’s a 10
cent cut you don’t need but one that
can be replaced with over-order
premiums if you will join the
negotiating cooperative.
At this time even handlers may
be more agreeable to the need for
over-order premiums if they feel
that higher farm prices will
provide a more reliable milk
supply for them in the future.
They’ve had a taste in recent
months of what a tight supply
situation can do to their business.
Handlers make money by “han
dling” milk and when they don’t
have enough milk it cuts their
profits. In addition, some of them
have been paying over-order
prices already through “service”
charges but these “premiums”
don’t always get back to the
producer and they vary a great
deal between handlers.
If the handlers could be assured
of an adequate supply because
more producers stay in business at
higher prices the idea of over
order premiums might appeal to
them and all the handlers would be
paying the same premium rather
than chasing milk supplies at
whatever price they have to pay.
They could focus on being
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competitive in the wholesale and
retail markets rather than
scrambling for milk supplies.
The opportunity and need for
over-order pricing don’t always
come together at the same time
but if producers want to make the
most of the situation they’ll have to
sign up now.
Order 2 Prices Up
That jump of 27 cents in the M-W
back in August and the 14 cent
increase this month are showing
up now in your Class prices in
Order 2. In addition, a 14 million
pound drop in production and an 18
million pound increase in Class I
sales from September brought
your utilization to 46.3 percent, the
best since November 1980.
You also got a little more out of
your Louisville Plan making the
pack back for the month 46.7 cents.
All of this adds up to a blend price
of $13.05 for October to farmers
shipping to Order 2 handlers. This
will be 26 cents more than last
month and 65 cents better than last
October. This is the highest blend
price in Order 2 since the Diversion
Program of two years ago. You
will still have a 40 cent assessment
on this check for the Dairy Ter
mination Program but there will
be no 12 cent assessment for
Gramm-Rudman this month. This
should help to make the check look
even better.
Because the Gass I price is set
two months following the M-W
price you will still be reaping the
benefits of a 22 cent increase in the
M-W in September and another 14
cents in October plus an expected
increase of 10 cents in November.
This means that Gass price in
creases will continue into January
but after that the price trend will
be down for all the reasons I
mentioned earlier in this letter.
As of this writing the Market
Administrator in Order 2 had not
issued a “call order” for
November or December. It really
doesn’t make that much difference
in your milk check, depending of
course on how much milk is moved
to Gass I use, but just the idea that
he’s even considering such a move,
gives you some idea of the tight
supply situation in the New York
market. That’s not the case all
over the country so you do have
opportunities here that are not
available to producers in other
areas.
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